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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, 1995

Commission File #0-11321

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

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

NEW YORK 11-2580136
(State of Incorporation) (I.R.S. Employer I.D. Number)

Mt. Ebo Corporate Park, Brewster, NY 10509
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (914) 278-4094

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Class on which Registered
- - ----------------------------------------------- ---------------------
Common Stock, par value $.01 per share NASDAQ
Common Stock Warrants, expire December 31, 1999 NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 29, 1996 was approximately $11,450,496.

The number of shares outstanding of the Registrant's Common Stock and
Common Stock Warrants as of February 29, 1996 were 6,957,532 and 679,621,
respectively.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated:

(1) Proxy Statement for the 1996 Annual Meeting incorporated by reference
into Part III.

(2) Exhibits listed in Item 14(b), Part IV, incorporated by reference to
Form S-1 filed March 30, 1990, Forms 10-K for 1994, 1993, 1991, 1989
and 1988 and Forms 8-K for July 24, 1992, May 31, 1991 and December 9,
1987.

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PART I

ITEM 1--BUSINESS

GENERAL

The Company is an insurance holding company, the principal subsidiaries of
which are American Progressive Life and Health Insurance Company of New York
("American Progressive") and American Pioneer Life Insurance Company ("American
Pioneer"), each of which sells life insurance, accident & health insurance and
annuity products, and WorldNet Services Corp. ("WorldNet"), a service firm that
provides managed care, claims adjudication and communications services to
insurance companies and affinity groups.

The Company, a New York corporation, was formed in 1981 for the purpose of
owning and operating John Adams Life Insurance Company of New York ("John
Adams"). In July 1988, Barasch Associates Limited Partnership ("BALP") invested
$2,000,000 in the Company and acquired operating control, with certain
principals of BALP being elected to key executive positions in the Company and
John Adams. See "Management".

INSURANCE SUBSIDIARY ACQUISITIONS

In May 1991, the Company, through John Adams, acquired 100% of the
outstanding common stock of American Progressive, into which John Adams then
merged on June 27, 1991, with American Progressive as the surviving company.
American Progressive was acquired from Midland National Life Insurance Company
("Midland") for (a) a cash payment of $4,197,231, and (b) 510,000 shares ($10
par value) of the Company's Series A cumulative, redeemable, convertible
preferred stock ("Series A Preferred Stock"), for a total purchase price of
$9,297,231. American Progressive's statutory book value immediately prior to
acquisition was approximately $9,200,000, its adjusted statutory book value
(book value plus AVR) was approximately $9,290,000, and its GAAP stockholder's
equity was approximately $9,700,000. As of December 31, 1995, the adjusted
statutory book value was approximately $9,256,000 and the GAAP stockholder's
equity was approximately $26,442,058. American Progressive, domiciled in New
York and licensed in 32 other states, historically concentrated on the sale of
individual accident & health insurance products primarily in New York and the
northeastern United States.

In May 1993, American Progressive acquired 100% of the outstanding stock of
American Pioneer, based in Orlando, Florida, which sold life and accident &
health insurance in 32 states, primarily in the southeast. American Pioneer's
parent, American Pioneer Savings and Loan Association, had been under the
control of the Resolution Trust Company ("RTC") since May 1990. American Pioneer
had a statutory book value of approximately $7,325,000, an adjusted statutory
book value of approximately $7,472,000, and a GAAP stockholder's equity of
approximately $14,367,000 when it was purchased by American Progressive for
$6,827,000 in cash. By December 31, 1995, American Pioneer's adjusted statutory
book value had increased to approximately $13,815,000 and its GAAP stockholder's
equity was $16,092,649.

As of January 1, 1994, American Progressive acquired by means of
reinsurance a block of supplemental health insurance with annualized premiums of
approximately $1,200,000. In this transaction, American Progressive assumed all
liability under the reinsured policies incurred after January 1, 1994, in
exchange for its receipt from the ceding company of cash equal to the unearned
premium and active lives reserves on the reinsured business, net of a $60,000
ceding commission, and future premium payments from the insureds.

STRATEGIC FOCUS

The Company has implemented, and plans to continue to pursue, the following
strategies:

Internal Growth

The Company has focused its efforts to reach narrow segments of the
insurance market as defined by product or by geography. These include:

o Life and accident & health products designed for the senior market;

o Life insurance for middle-income earners;

2





o Specialty group accident and health products sold to employers,
including dental and short term disability;

o Annuities.

The Company seeks to distribute its products through independent marketing
organizations paid on a variable cost basis. The Company is able to attract
these organizations by providing a high level of service and accessibility of
management, and by providing specially designed products to enable them to
distinguish themselves in the marketplace.

External Growth

In the past four years, the Company has successfully acquired and
integrated two insurance companies and three blocks of business that will
increase the overall profitability of the Company and the Company continues to
seek out further acquisitions.

PRODUCTS

Life Insurance and Annuities

The Company, through its Insurance Subsidiaries, underwrites the following
life insurance, annuities and accident & health insurance products:

Life Insurance: The Company sells whole life, universal life, and term
life insurance. All policies are non-participating.

Annuities: The Company sells Single Premium Deferred Annuities and
Flexible Premium Deferred Annuities. All of the Company's annuity products
provide minimum interest rate guarantees. The minimum guaranteed rates on
the Company's annuity products currently range from 4.5% to 5.5% annually
and the contracts are designed to permit the Company to change the
crediting rates annually subject to the minimum guaranteed rate. The
Company takes into account the profitability of its annuity business and
its relative competitive position in determining the frequency and extent
of changes to the interest crediting rates.

Policyholders of annuity and life insurance products marketed and issued by
the Company enjoy certain income tax advantages as compared to holders of
certain other savings investments such as certificates of deposit and taxable
bonds.

One important tax advantage is that policyholders generally are not subject
to federal income tax on increases in the value of an annuity or life insurance
contract until some form of distribution is made from the contract, instead of
the current taxation of all accrued earnings that is imposed on many other
savings investments. Another important tax advantage is that life insurance
death benefits are generally exempt from federal income taxes and may be
structured so as to be free from federal estate taxes. A further federal tax
benefit is that when regular annuity payments are paid under an annuity
contract, a portion of each payment may be treated as a nontaxable return of the
investment in the contract.

The Company also sells certain annuities that offer the tax advantages
provided by Section 403(b) of the Internal Revenue Code of 1986, as amended (the
"Tax Code"), which are known as tax-sheltered Section 403(b) annuities. The
tax-sheltered Section 403(b) annuity offered by the Company is a retirement
savings plan vehicle through which educators and employees of certain
not-for-profit institutions are permitted under Section 403(b) of the Tax Code
to defer income through a salary reduction program. Purchasing a tax-sheltered
annuity under Section 403(b) is similar to contributing to a Section 401(k)
plan, but with different (and somewhat more favorable) rules on the maximum
amount of current income which may be contributed by the participant on a
pre-tax basis. Generally, a participant may elect to defer a percentage, limited
by statute, of included compensation, subject to a maximum of approximately
$9,500 per year, under a Section 403(b) plan. This limit can be higher under
certain circumstances.

The following table sets forth a summary of life premium revenues and
annuity considerations on first year and renewal basis for the last three years
ended December 31, 1995, as determined in accordance with statutory accounting
principles ("SAP"). These amounts differ from the premiums reported in the
accompanying consolidated statement of operations, since under GAAP, the annuity
and universal life insurance policies are reported under the

3






retrospective deposit method prescribed by Statement 97 "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for
Realized Gains and Losses from the Sales of Investments". (See Note 2e of Notes
to Consolidated Financial Statements for further information).





Year Ended December 31,
-------------------------------------------
1993(1) 1994 1995
----------- ---------- ----------
(Amounts in accordance with statutory accounting principles)

Life Insurance
Premium received,
policies written in current year ..... $ 817,392 $ 1,912,569 $ 6,141,040
Premium received,
policies written prior years .......... 5,662,282 9,385,947 9,668,592
---------- ----------- -----------
Total Life Premium..... ................. 6,479,674 11,298,516 15,809,632
----------- ----------- -----------
Annuities
Consideration received,
policies written in current year ..... 12,523,756 7,886,462 13,377,924
Consideration received,
policies written in prior years ...... 480,479 517,534 364,145
----------- ----------- -----------

Total Annuity Consideration ............. 13,004,235 8,403,996 13,742,069
----------- ---------- ----------

Total Consideration and Premium ......... $19,483,909 $19,702,512 $29,551,701
=========== =========== ===========

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


(1) The 1993 figures include the premium revenues of American Pioneer from
May 26, 1993, the date of its acquisition.

The following table presents information with respect to the Company's
policies in force and experience in terms of numbers of policies issued, and
reduced for surrenders, lapses or deaths for annuity and life insurance:




1993 1994 1995
------ ------ -----

Life Insurance Policies
In force, beginning of year ......... 3,448 22,191 24,820
Acquired with American Pioneer ...... 18,461 -- --
Issued during year .................. 617 5,175 4,934
Lapsed or surrendered during year ... (323) (2,353) (2,874)
Deaths during year .................. (12) (193) (238)
------ ------ ------

In force, end of year ............... 22,191 24,820 26,642
====== ====== ======

Annuity Policies
In force, beginning of year ......... 2,077 4,041 4,090
Acquired with American Pioneer ...... 1,616 -- --
Issued during year .................. 479 494 1,956
Surrendered during year ............. (123) (445) (609)
Deaths during year .................. (8) -- --
------ ------

In force, end of year ............... 4,041 4,090 5,437
====== ====== ======



4







Accident & Health Insurance

The Company's accident & health insurance products are sold on both
individual and group bases. The individual products currently marketed include
Medicare supplement, hospital indemnity, home health care, long term care and
major medical and hospital. The group products offered are dental insurance
issued by American Pioneer, and New York State Disability Insurance ("DBL") by
American Progressive. Much of the Company's accident & health insurance is
written as coverages which do not pay hospital or medical expenses, but rather
provide cash indemnity or income replacement. These coverages are referred to by
the Company as "supplemental" accident & health policies and are not to be
confused with Medicare supplement policies.

The Medicare supplement policies offered by both Insurance Subsidiaries are
on plans A, B, C and F and are underwritten on a simplified issue basis, except
that the policies sold in New York are on a guaranteed issue basis, subject to
the community rating laws of that state. See "Regulation--Health Care Reform".

Hospital indemnity policies are offered by American Progressive, on a
guaranteed issue basis for ages over 59, and pay benefits up to $150 per day for
hospitalization, with a maximum benefit period for any one cause of illness of
365 days.

Major medical and hospital policies are sold by American Pioneer under
intensive underwriting guidelines. These policies have deductibles on a per
confinement basis ranging from $300 to $5,000, as to major hospital, and $150 to
$10,000 as to major medical. Reinsurance is currently in place which limits the
Company's exposure on major medical and major hospital insurance to $15,000 on
each insured per year.

Group dental insurance is sold by American Pioneer under an indemnity plan,
which pays a stated percentage of the dentist's charges up to an annual maximum
of $2,000, and under a scheduled plan, which pays amounts specified in the
policy up to an annual maximum limit of $1,000. These products allow the insured
a free choice of dentists.

The disability insurance sold by the Company includes both the DBL sold by
American Progressive, pursuant to the New York Workers Compensation Law that
requires covered employers to provide employees with insurance to replace a
portion of income lost through non-work related disability for up to 26 weeks,
and individual long-term disability insurance sold by American Pioneer with
benefit provisions of up to five years. The rates charged for DBL coverage are
set by the Company, based on the size, composition and claims history of the
group. The individual policies are underwritten based on the medical history of
the applicant.

Effective January 1, 1994, American Progressive entered into a pooling
agreement through National Accident Insurance Underwriters ("NAIU"), an
unaffiliated agency, to underwrite travel accident insurance policies. See
"Reinsurance - Accident Insurance Pool" below.

5






In addition to the health products described above, the Insurance
Subsidiaries have various other accident & health ("A&H") coverages in force.
The following table shows the Company's accident & health insurance in force
premiums as of December 31, 1993 and 1994 and 1995:

As of December 31,
-----------------------------------------------
1993 1994 1995
--------- ----------- -----------
ccident & Health Business

Senior Market Accident &
Health

Medicare Supplement $ 647,369 $ 1,230,212 $ 2,739,649
Hospital Indemnity 878,011 1,985,974 2,587,584
----------- ----------- -----------

Total Senior Market A & H 1,525,380 3,216,186 5,327,233
----------- ----------- -----------

Specialty Group Accident &
Health

Dental 4,616,243 4,031,250 5,395,048
DBL 3,162,560 3,693,297 4,851,218
NAIU Accident Pool -- 9,000,000 8,250,000
----------- ----------- -----------
Total Specialty Group A&H 7,778,803 16,724,547 18,496,266
---------- ----------- ----------

Other Accident & Health

Major Medical 8,200,659 5,218,980 4,982,486
Major Hospital 3,637,775 3,512,074 3,255,012
Blanket Accident 1,754,332 3,028,001 2,337,376
Supplemental Medical 3,839,290 3,848,669 2,032,390
Other Supplemental 1,536,080 2,635,345 2,151,332
---------- ----------- -----------

Total Other A & H 18,968,136 18,243,069 14,758,596
---------- ----------- -----------

Grand Total $28,272,319 $38,183,802 $38,582,095
=========== =========== ===========


The following table sets forth a summary of accident & health premium
revenues for the last three years ended December 31, 1995:

Year Ended December 31,
-------------------------------------------
1993(1) 1994 1995
------------ ----------- -----------

Accident & Health Insurance
Premium received, policies
written in current year $ 3,264,587 $ 5,218,749 $ 5,982,178
Premium received, policies
written in prior year 10,206,261 22,016,287 22,313,927
------------ ----------- -----------

Total Accident & Health Premium $13,470,848 $27,235,036 $28,296,105
=========== =========== ===========
- - ----------------------

(1) The 1993 figures include the premium revenues of American Pioneer from May
26, 1993, the date of its acquisition.

6




MARKETING AND DISTRIBUTION

Historically, the Insurance Subsidiaries have sold their products through
traditional independent marketing organizations, general agents and producers.
The Company has adopted a strategy of seeking to structure arrangements with
marketing organizations, licensed as general agents, that sell particular
products and programs meeting particular market niches or needs. One such
arrangement, with an organization that focuses on individual sales of
deposit-term life insurance policies to moderate income buyers, produced 8.8% of
the Company's individual life insurance sales in 1995. Another such arrangement
with an organization that focuses on individual sales of interest sensitive
whole life insurance policies through single or multi-year premium payments to
middle age and senior age buyers produced 51.8% of the Company's individual life
insurance sales in 1995. An arrangement with a marketing organization in one
state, which primarily sells Blue Cross -- Blue Shield health insurance,
accounted for almost all of the Company's group life sales in the same period.
Other arrangements with several agencies in upstate New York which primarily
sell health insurance though independent agents, accounted for 86.9% of the
Company's sales of Medicare supplement and hospital indemnity coverage in the
same period. Additional arrangements for specialized products and markets are
being actively pursued, but no assurance can be given that any such products or
markets will be found, or that they can be profitably developed.

The Insurance subsidiaries have more than 1,200 general agents and more
than 2,600 producers under contract, most of whom also sell similar products for
other companies. In 1995, no general agent produced as much as 5% of the
Company's accident & health insurance premiums or life insurance premiums and
only one general agent produced more than 5% of the Company's annuity premiums
(33%). The agents, general agents and producers are paid purely on a commission
basis and are not Company employees. In this marketing area, the Company
believes that the Company offers competitive commission rates and seeks to
provide innovative products and quality service to its independent general
agents. In particular, the Company believes that it provides a higher level of
agent support and is more responsive to its agents in the field than many larger
organizations with which it competes. Compensation of the Company's agents on
certain products is regulated by the various state Departments of Insurance.

The Company, through the Insurance Subsidiaries, is licensed to market its
products in 45 states and in the District of Columbia. However, approximately
77% of its 1995 premium and annuity considerations came from the states of New
York, Florida, North Carolina, Alabama and Georgia.

COMPETITION

The Company competes with other insurance and financial services companies,
including large multi-line organizations, both in connection with the sale of
insurance and asset accumulation products and in acquiring blocks of business.
Many of these organizations have substantially greater capital and surplus,
larger and more diversified portfolios of life and health insurance policies,
larger agency sales operations and higher ratings. In addition, it has become
increasingly difficult for small companies to compete effectively with their
larger competitors for traditional life and annuity sales in part as a result of
heightened consumer and agent awareness of the financial size of companies.

The Company has met, and seeks to continue to meet, these competitive
pressures by offering a high level of service and accessibility to its field
force and by developing specialized products and marketing approaches which
enable it to sell products for which, or in markets in which, it faces less
competition.

RATINGS

American Pioneer and American Progressive have been designated "B+(Very
Good)" and "B(Adequate)" respectively, by A.M. Best. In evaluating a company's
financial and operating performance, A.M. Best reviews its profitability,
leverage and liquidity as well as its book of business, the adequacy and
soundness of its reinsurance, the quality and estimated market value of its
assets, the adequacy of its reserves and the experience and competence of its

7






management. A.M. Best's ratings are based upon factors relevant to
policyholders, agents, insurance brokers and intermediaries and are not directed
to the protection of investors. According to A.M. Best's published material, a
"B+" or "B" rating is assigned to companies which, in its opinion, have achieved
very good (B+) or adequate (B) overall performance when compared to the
standards it has established. Such companies have a good (B+) or adequate (B)
ability to meet their obligations to policyholders, but, as to "B", their
financial strength may be susceptible to unfavorable changes in underwriting or
economic conditions. American Pioneer and American Progressive are rated "BBBq"
and "Bq", respectively by Standard and Poors, which means that, based on their
publicly available information, they are currently able to meet policyholder
obligations, but, as to "Bq", such ability is especially vulnerable to adverse
economic and underwriting conditions. The Insurance Subsidiaries are not
currently rated by the Duff and Phelps or Moody's rating organizations. Although
a higher rating by A.M. Best or another insurance rating organization could have
a favorable effect on the Company's business, management believes that the
marketing strategy described above has enabled, and will continue to enable, the
Insurance Subsidiaries to compete effectively.

UNDERWRITING PROCEDURES

Premiums charged on insurance products are based, in part, on assumptions
about the expected mortality and morbidity experience. In that regard, the
Company has adopted and follows detailed uniform underwriting procedures
designed to assess and quantify certain insurance risks before issuing
individual life insurance and certain health insurance policies and certain
annuity policies to individuals. These procedures are generally based on
industry practices, reinsurer underwriting manuals and the Company's prior
underwriting experience. To implement the procedures, each Insurance Subsidiary
employs an experienced professional underwriting staff.

Applications for insurance to be underwritten are reviewed to determine if
any additional information is required to make an underwriting decision, which
depends on the amount of insurance applied for and the applicant's age and
medical history. Such additional information may include medical examinations,
statements from doctors who have treated the applicant in the past and, where
indicated, special medical tests. If deemed necessary, the Company uses
investigative services to supplement and substantiate information. For certain
coverages, the Company may verify information with the applicant by telephone.
After reviewing the information collected, the Company either issues the policy
as applied for, issues the policy with an extra premium charge due to
unfavorable factors, issues the policy excluding benefits for certain conditions
for a period of time or rejects the application. For certain of its coverages,
the Company has adopted simplified policy issue procedures in which the
applicant submits a single application for coverage typically containing only a
few health related questions instead of a complete medical history. In New York
and other states, certain of the Company's products, including Medicare
supplement, are subject to "Community Rating" laws which severely limit or
prevent underwriting of individual applications. See "Regulation--Health Care
Reform".

Acquired Immune Deficiency Syndrome ("AIDS"), which has received wide
publicity because of its serious public health implications, presents special
concerns to the life and health insurance industry. The Company considers AIDS
information in underwriting and pricing decisions in accordance with applicable
laws. Applicants for life insurance coverage equal to or exceeding $100,000, for
major medical and major medical coverages must submit to a blood or urine test,
which includes AIDS antibody screening. The Company's own mortality and
morbidity experience reflects no unduly adverse impact as a result of any
acceleration of AIDS-related life insurance claims. The Company is continuing to
monitor developments in this area but is necessarily unable to predict the
long-term impact of this problem on the life insurance industry, in general, or
on the Company, in particular.

INVESTMENTS

The Company's investment policy is to balance the portfolio between
long-term and short-term investments so as to continue to achieve investment
returns consistent with the preservation of capital and maintenance of liquidity
adequate to meet payment of policy benefits and claims. The Company invests in
assets permitted under the insurance laws of the various states in which it
operates, which laws prescribe the nature, quality of and limitations on various

8






types of investments which may be made. Current policy is to invest primarily in
fixed maturity securities of the U.S. Government and its agencies and in
corporate fixed maturity securities with investment grade ratings of "Baa3"
(Moody's) or "BBB-" (Standard & Poors) or better. However, the Company does own
some investments that are rated "BB" or not rated (4.4% of total fixed
maturities as of both December 31, 1994 and 1995, respectively). As of December
31, 1995, one of the Company's investments with a carrying value of $243,750 was
in default. In November, 1995, the Financial Accounting Standards Board ("FASB")
issued a Special Report titled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities", which report
allows enterprises to reassess the appropriateness of the classifications of all
securities held and account for any resulting reclassifications between the
investment accounts. This one-time reassessment had to be made prior to December
31, 1995 and be appropriately disclosed in the financial statements. In
December, 1995, the Company did reassess the appropriateness of the
classifications of its securities and reclassified all of the securities
contained in the held to maturity account to the available for sale account as
they may be considered for sale prior to maturity as part of the asset/liability
management strategy. The carrying value of the securities reclassed to available
for sale amounted to $35,942,303 and the fair value amounted to $36,098,026.
This transfer resulted in the Company increasing its unrealized gains by
$155,723. The Company currently engages the services of two unrelated investment
advisors, Conseco Capital Asset Management and Gibraltar Investment Management,
to manage the Company's fixed maturity portfolio, under the direction of the
management of the Insurance Subsidiaries and in accordance with guidelines
adopted by their Boards of Directors. The Company's policy is not to invest in
derivative programs or other hybrid securities, except for GNMA's, FNMA's and
investment grade corporate collateralized mortgage obligations.

The following table summarizes the Company's investment portfolio as of
December 31, 1994 and 1995:

INVESTMENT PORTFOLIO



December 31, 1994 December 31, 1995
-------------------------- --------------------------
Percent of Percent of
Total Total
Carrying Carrying Carrying Carrying
Value Value Value Value
---------- ---------- -------- -----------

Fixed Maturity Securities(1):
U.S. Government and
Government agencies.................. $ 19,033,096 15.17% 19,789,608 14.59%
Mortgage-backed...................... 26,319,165 20.97% 22,114,810 16.31%
Investment grade corporates.......... 52,401,285 41.76% 69,431,937 51.20%
Non-investment grade corporates...... 4,446,205 3.54% 5,092,566 3.76%
---------- ------ ----------- ------
Total fixed maturity securities...... 102,199,751 81.44% 116,428,921 85.86%
Cash and cash equivalents............ 16,420,763 13.09% 12,289,801 9.06%

Other Investments:
Real property tax liens.............. 175,675 0.14% 178,908 0.13%
Policy loans......................... 5,510,141 4.39% 5,622,136 4.15%
Mortgage loans....................... 1,147,409 0.91% 1,067,605 0.79%
Equity securities.................... 33,502 0.03% 15,297 0.01%
------------ ----- ------------- -------
Total invested assets.................. $125,487,241 100.00% $135,602,668 100.00%
============ ======= ============ =======
- - --------------------


9


(1) Fixed maturity securities held to maturity are generally stated at
amortized cost, adjusted for impairments in value, while those available
for sale are carried at fair value. As of December 31, 1995, all of the
fixed maturity securities were classified as available for sale. Total fair
values of fixed maturity securities as of December 31, 1994 and 1995 were
approximately $97,301,312 and $116,428,921, respectively.

The following table shows the distribution of the contractual maturities of
the Company's portfolio of fixed maturity securities by carrying value as of
December 31, 1995. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties:

CONTRACTUAL MATURITIES OF FIXED MATURITY SECURITIES

Percent of
Carrying Total Fixed
Available for Sale Value Maturities
- - ------------------ ----------- ----------
Due in 1 year or less......... $ 7,368,357 6.33%

Due after 1 year through 5
years....................... 22,635,059 19.44%

Due after 5 years through 10
years....................... 30,621,545 26.30%

Due after 10 years............ 25,857,334 22.21%

Mortgage-backed Securities.... 29,946,625 25.72%
------------ -------
$116,428,921 100.00%
============ =======

The following table shows the distribution by carrying value of the
Company's fixed maturity securities portfolio according to the ratings assigned
by Standard & Poor's Corporation, along with related estimated fair values, as
of December 31, 1994 and 1995:

DISTRIBUTION OF FIXED MATURITY SECURITIES BY RATING



December 31, 1994 December 31, 1995
--------------------------------------------- --------------------------------------------
% of % of
Total Total
Standard & Fixed Fixed
Poors' Carrying Invest- Estimated Carrying Invest- Estimated
Rating Value ments Fair Value Value ments Fair Value
- - ------ ------------ --------- ---------- ------------ ------ -----------

AAA $ 42,026,455 41.12% $39,942,359 $ 42,209,501 36.26% $ 42,209,501
AA 4,379,125 4.28% 4,092,235 10,606,356 9.11% 10,606,356
A 25,556,952 25.01% 24,438,544 21,904,044 18.81% 21,904,044
BBB 25,791,014 25.24% 24,413,197 36,616,454 31.45% 36,616,454
BB 3,933,850 3.85% 3,802,622 4,848,816 4.16% 4,848,816
D -- -- -- 243,750 0.21% 243,750

Not Rated 512,355 0.50% 512,355 -- -- --
------------ ------- ----------- ------------ ------- ------------
Total $102,199,751 100.00% $97,201,312 $116,428,921 100.00% $116,428,921
============ ======= =========== ============ ======= ============


10



At both December 31, 1994 and 1995, 95.6%, of the Company's investments
were investment grade corporate fixed maturity securities (i.e., those rated
"BBB-" or higher by Standard & Poor's Corporation or "Baa3" or higher by Moody's
Investors Service). At December 31, 1994 and 1995, these investment grade
securities included approximately $33,764,800 and $29,946,626, respectively, of
collateralized mortgage obligations secured by residential mortgages. These
amounts represented approximately 33% and 26% of the Company's fixed maturity
portfolio at December 31, 1994 and 1995, respectively. Certain classes of
mortgage-backed securities are subject to significant prepayment risk. This is
due to the fact that in periods of declining interest rates, mortgages may be
repaid more rapidly than scheduled, as individuals refinance higher rate
mortgages to take advantage of the lower rates then available. As a result,
holders of mortgage-backed securities may receive higher prepayments on their
investments which they may not be able to reinvest at an interest rate
comparable to the rate paid on such mortgage-backed securities. At December 31,
1994 and 1995, less than investment grade fixed maturity securities had
aggregate carrying values of $4,446,205 and $5,092,566 respectively, and
aggregate market values of $4,314,977 and $5,092,566 respectively, amounting to
3.5% and 3.8% respectively, of total investments and 2.7% and 2.8% respectively,
of total assets. The Company's holdings of less than investment grade corporate
fixed maturity securities are diversified and the investment in any one such
security at both December 31, 1994 and 1995 was less than $1,000,000, which was
approximately 0.6% of total assets. The Company wrote down the value of certain
securities by $200,000 in 1993 and $195,000 in 1995, which was included in
realized gains on investments in the consolidated statements of operations. The
Company did not write down the value of any securities during 1994.

Between 1992 and 1994, the Company acquired real property municipal tax
lien certificates for its own account and for resale through an origination
agreement with Salomon Brothers Realty Corp. Tax lien certificates represent
delinquent real property tax obligations to local governments and are senior in
priority to all mortgages and other encumbrances on real estate. The
certificates carry penalties and interest which must be paid to redeem the
certificate and to prevent foreclosure. On December 17, 1994, the Company sold
96% of its portfolio of real property municipal tax lien certificates to an
unrelated third party for a cash payment equal to their cost, plus accrued
interest and penalties, plus $140,000. The Company does not presently intend to
purchase additional tax certificates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".

INVESTMENT INCOME

Investment income is an important part of the Company's total revenues and
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Effects of Accounting Pronouncements" for comments on
the impact of changing interest rates. The following table shows the investment
results of the Company's total invested asset portfolio, for the last three
years ended December 31, 1995:

11







INVESTMENT RESULTS

Years ended December 31,
-----------------------------------------
1993 1994 1995
---- ---- ----
Total invested assets,
end of period.............. $123,038,000 $125,487,241 $135,602,668
Net investment income
before interest credited
to policyholders........... $ 7,974,936 $ 9,238,789 $ 8,945,280
Yield on average cash
and investments............ 7.83% 7.48% 6.97%
Net realized investment
gains ..................... $675,529 $41,568 $673,868

RESERVES

In accordance with applicable insurance regulations, the Company has
established, and carries as liabilities in its statutory financial statements,
actuarially determined reserves that are calculated to satisfy its policy and
contract obligations. Reserves, together with premiums to be received on
outstanding policies and contracts and interest thereon at certain assumed
rates, are calculated to be sufficient to satisfy policy and contract
obligations. The actuarial factors used in determining such reserves are based
on statutorily prescribed mortality tables and interest rates. Reserves
maintained also include unearned premiums, premium deposits, reserves for claims
that have been reported but are not yet paid, reserves for claims that have been
incurred but have not yet been reported and claims in the process of settlement.

The reserves reflected in the Company's consolidated financial
statements are calculated in accordance with GAAP. These reserves are based upon
the Company's best estimates of mortality and morbidity, persistency, expenses
and investment income, with appropriate provisions for adverse statistical
deviation. The Company uses the net level premium method for all non-interest
sensitive products and the retrospective deposit method for interest sensitive
products. GAAP reserves differ from statutory reserves due to the use of
different assumptions regarding mortality and morbidity, and interest rates and
the introduction of lapse assumptions into the GAAP reserve calculation.

REINSURANCE

Ceded

Consistent with the general practice of the life insurance industry, the
Company reinsures portions of the coverage provided by its life insurance
products to unaffiliated insurance companies under various reinsurance
agreements. Such agreements allow the Company to write policies in amounts
larger than the risk it is willing to retain on any one life, and to continue
writing a larger volume of new business. Such reinsurance agreements generally
provide for allowance for first year expenses in excess of the actual amount of
expenses, resulting in a profit to the Company. The mortality risk retention
limit on each policy varies generally between $25,000 and $75,000. The Company
cedes insurance primarily on an "automatic" basis, the Company receives
allowances from its reinsurers ranging from 100% to 142% of the reinsurers'
premium in the first policy year and at varying rates of up to 40% in renewal
years. Reinsurance is not maintained on any of the annuity policies in force.

The Company has "excess of loss" reinsurance agreements with unaffiliated
insurance companies on its accident & health insurance policies to reduce the
liability on individual risks to $60,000 at American Pioneer and $200,000 at
American Progressive. As of June 30, 1995, the Company effected a "quota share"
reinsurance agreement

12






with an unaffiliated reinsurer (rated A+ by A.M. Best) to cede 75% of the
remaining $60,000 of individual accident & health insurance risk at American
Pioneer. The Company received a ceding commission of $862,000, $625,000 of which
was offset by the amortization of the deferred acquisition cost asset related to
this business. The remaining $237,000 was recorded as deferred revenue and will
be recognized as income over the expected life of the reinsured business.
Approximately $80,000 of such deferred revenue was recognized as income during
1995 and the remaining deferral is expected to amortize over the next year. In
addition, the Company has a quota share agreement on its Accidental Death and
Dismemberment policies under which the reinsurer receives 90% of all premiums
and pays 90% of all losses and the Company receives allowances ranging from
20%-30% of the ceded premium. American Pioneer also reinsures all of the risk in
excess of two years of benefits on certain disability income policies.

As of June 30, 1993, the Company effected a "quota share" reinsurance
agreement with an unaffiliated reinsurer (rated A+ by A.M. Best) to cede 90% of
certain ordinary life insurance. Approximately $3,700,000 of reserves were ceded
with annual premiums in force amounting to approximately $1,500,000. The Company
received a ceding commission of $1,665,000, $680,000 of which was offset by
amortization of the present value of future profits asset related to this
business. The remaining $985,000 was recorded as deferred revenue and will be
recognized as income over the expected life of the reinsured business.
Approximately $120,000, $220,000 and $165,000 of such deferred revenue was
recognized as income during 1993, 1994 and 1995, respectively.

The Company is contingently liable to pay claims in the unlikely event that
a reinsurer fails to meet its obligations under the reinsurance agreement. The
Company's primary reinsurers are currently rated A+ (Superior) and A (Excellent)
by A.M. Best. To the Company's knowledge, no reinsurer of business ceded by the
Company has been unable to pay any policy claims on any reinsured business. The
reinsurance agreements are subject to cancellation on 90 days' notice as to
future business, but policies reinsured prior to such cancellation remain
reinsured as long as they remain in force. Management believes that if its
reinsurance agreements were canceled it would be able to obtain other
reinsurance arrangements on satisfactory terms to enable it to continue writing
new business.

Assumed

As part of its strategy of acquiring blocks of business, the Company has
acquired several blocks of business through reinsurance.

American Progressive participates in a modified coinsurance agreement with
an unaffiliated insurer under an agreement entered into in 1986. The business
assumed consists of non-participating premium-paying Whole Life and increasing
premium Whole Life policies. At December 31, 1995, premiums in force ceded to
American Progressive under this arrangement were approximately $400,000, the
amount of insurance in force was approximately $27.3 million and the reserves
assumed were approximately $4.5 million.

In 1994, the Company assumed 100% of the risk and premium on certain
accident & health insurance policies written by three insurers not affiliated
with the Company: North American Company for Life and Health Insurance, North
American Company for Life and Health Insurance of New York and Baptist Life
Insurance Company of New York. At December 31, 1995, the premium in force on
these policies was approximately $1 million and the associated reserves were
approximately $900,000.

Accident Insurance Pool

Effective January 1, 1994, American Progressive entered into a pooling
agreement through National Accident Insurance Underwriters, an unaffiliated
agency, and two unaffiliated insurers, General American Life Insurance Company
and Heritage Life Insurance Company, to underwrite travel accident insurance
policies. A third unaffiliated company, Westward Life Insurance Company, joined
the pool as of July 1, 1994. On December 31, 1994, General American Life
Insurance Company withdrew from the pool and on January 1, 1995, Trustmark
Insurance Company entered the pool. On December 31, 1995, Heritage Life
Insurance Company withdrew from the pool and on January 1, 1996 Home Life
Financial Assurance Corporation entered the pool. Under the terms of the pooling
agreement, a portion of each risk is reinsured to companies outside the pool.
American Progressive will issue policies on insureds located in New York State
when required policy forms are approved, reinsuring a portion of the pool's
retention to each

13






of the other carriers and assumes its portion of the pool's retention on polices
written by the other participants. As of December 31, 1994 and 1995,
respectively, American Progressive had approximately $9 million and $8 million,
respectively in premiums in force under this arrangement, all of which was
assumed from the other pool participants.

WORLDNET

Acquisitions

In January 1992, WorldNet, a newly-formed subsidiary, acquired certain
assets and the client base of a firm that provided managed care, travelers'
medical assistance and claims administration to insurance companies (foreign and
domestic) and affinity groups, including credit card companies.

On April 1, 1994, WorldNet acquired certain assets of Health Assistance for
Travelers, Inc. ("HAT") (a subsidiary of Ontario Blue Cross of Canada ("OBC"))
and an affiliated corporation for Can. $625,000 (approximately U.S. $470,000),
payable over five years. WorldNet also executed an agreement with HAT and OBC by
which WorldNet agreed to perform HAT's obligations under certain service
contracts between HAT and OBC, and other insurers. The assets acquired included
HAT's office in Miami Beach, Florida. In July 1994, the WorldNet facility in
Texas was closed and its functions and some of its personnel were transferred to
the Miami Beach facility acquired from HAT.

In 1995, substantially all of the assets of OBC (including the shares of
OBC's subsidiary HAT) was acquired by Liberty Mutual Insurance Company ("Liberty
Health"). In February, 1996, WorldNet and Liberty Health agreed to terminate the
service agreement between OBC and WorldNet. In connection with the termination
of the service agreement, Liberty Health agreed to cancel the promissory notes
executed on April 1, 1994, which notes amounted to $370,000 at December 31,
1995. At the same time, the Company wrote off corresponding assets, including
the value of the service agreement, which assets amounted to approximately
$170,000. The resulting net income from this transaction was approximately
$200,000 and will be reflected in the Company's financial statements for the
first quarter of 1996.

General

WorldNet is a fee-based company whose primary services are to provide
medical managed care and assistance to people traveling away from their homes.
These, and other related services, are sold by WorldNet to insurance companies
(for their insureds), credit card companies (for their card members) and
associations (for their members).

International Managed Care

WorldNet has achieved a significant portion of its revenue from the sale of
managed care, cost containment and claims adjudication services to foreign (to
date, primarily Canadian) insurers for their insureds while they are in the
United States. During 1995, the Company canceled certain unprofitable contracts,
which contracts had revenues of approximately $1,000,000 in 1994. WorldNet
arranges access to appropriate medical care, manages the care and cost while the
case is in process and often arranges evacuation to the country of origin.

WorldNet also provides complete claims adjudication services including
coordination of benefits, subrogation and audits. The clients who use WorldNet's
managed care services include a number of large insurers in Canada and Europe.

Travel Assistance and Related Claims Adjudication

WorldNet's travel assistance product is sold as an enhancement for its
clients' cardholders, policyholders and members. The service provides 24-hour
telephone access to assistance for medical, legal and other problems that arise
especially while away from home. Related to this function, WorldNet also
provides claims adjudication for travel-related insurance products such as
baggage, collision damage waiver and trip-cancellations. WorldNet services three

14






large credit card issuers in the United States and Canada and numerous domestic
and foreign insurers for travel assistance and related enhancement programs.

Operations

WorldNet operates a 24-hour multi-lingual communications center, which was
moved from Dallas, Texas to Miami, Florida in July 1994. This center is staffed
by managed care and assistance specialists. The company has developed
proprietary software applications that have been customized for its market.

Revenues

WorldNet's revenues for years ended December 31, 1993, 1994 and 1995 were
as follows:


Year ended December 31,
----------------------------------------------
1993 1994 1995
---------- ----------- ----------
Travel and other assistance. $1,421,219 $1,256,480 $ 971,103
Managed care and claims
adjudication.............. 967,101 2,812,519 2,099,438
---------- ----------- ----------

$2,388,320 $4,068,999 $3,070,541
========== ========== ==========

Marketing

WorldNet's services are marketed by direct contact from its staff to travel
insurance underwriters and brokers in the U.S. and abroad. WorldNet will
continue to focus its marketing efforts toward international insurance companies
that need access to managed care and cost containment techniques for their
insureds traveling in the U.S.

Competition

WorldNet has a number of domestic and foreign competitors. Most of the
competitors are owned by very large insurance organizations with greater
financial resources than WorldNet. WorldNet seeks to meet this competition by
emphasizing its high quality of service and the use of managed care and cost
containment techniques.

REGULATION

General

The Insurance Subsidiaries, like other insurance companies, are subject to
the laws, regulations and supervision of the states in which they are domiciled
(New York in the case of American Progressive and Florida in the case of
American Pioneer) and in various other states in which they are authorized to
transact business. The purpose of such laws and regulations is primarily to
provide safeguards for policyholders rather than to protect the interest of
shareholders.

The insurance laws regulate, among other things, capitalization,
permissible investments, premium rates on statutory disability insurance and
other health insurance policy forms, the form and content of policies which may
be offered, specified methods of accounting (statutory accounting or SAP) for
detailed financial statements submitted to the various Insurance Departments and
minimum capital and surplus required to continue in operation.

15






Most states have enacted legislation or adopted administrative regulations
covering such matters as the acquisition of control of insurance companies and
transactions between insurance companies and the persons controlling them.
Additional requirements are often imposed as a condition of approval of the
acquisition of an insurance company, as occurred in the case of the Company's
acquisition of both American Pioneer and American Progressive. The nature and
extent of the legislation and administrative regulations now in effect vary from
state to state and most states require administrative approval of the
acquisition of control of an insurance company incorporated in the state,
whether by tender offer, exchange of securities, merger or otherwise, and
require the filing of detailed information regarding the acquiring parties and
the plan of acquisition. The approval of the domiciliary insurance department is
also required before a controlling interest (10% as to New York, 5% as to
Florida) of an insurance company, or of a holding company which owns such an
insurance company, can be acquired or transferred. Every insurance company which
is authorized to do business in the state and is a member of an "insurance
holding company system" is generally required to register as such with the
insurance regulatory authorities and file periodic reports concerning its
relationships with the insurance holding company. Material transactions between
registered insurance companies and members of the holding company system are
required to be "fair and reasonable" and in some cases are subject to
administrative approval, and the books, accounts and records of each party are
required to be so maintained as to clearly and accurately disclose the precise
nature and details of the transactions.

Each Insurance Subsidiary is required to file detailed reports with the
insurance department of each state in which it is licensed to conduct business,
and its books and records are subject to examination by each such insurance
department. In accordance with the insurance codes of their domiciliary states
and the rules and practices of the NAIC, the Insurance Subsidiaries are examined
periodically by examiners of New York and Florida and by representatives (on an
"association" or "zone" basis) of the other states in which they are licensed to
do business. American Progressive was examined in 1992 for the three years ended
December 31, 1991 by the New York State Insurance Department and is currently
under examination for the three years ended December 31, 1994. American Pioneer
was examined in 1993 for the year ended December 31, 1992 by the Florida
Insurance Department. The Company has complied with all recommendations made on
such reports, and no issues were raised which the Company deems to be material.

Many states require deposits of assets for the protection of policyholders
either in those states or for all policyholders. At December 31, 1994 and 1995,
securities totaling $5,852,000 and $6,468,000, respectively (approximately 4.7%
and 4.8 %, respectively, of the carrying value of the Company's invested
assets), were on deposit with various state treasurers or custodians. Such
deposits must consist of securities that comply with the standards established
by the particular state.

Insurance Regulatory Changes

The NAIC and state insurance regulators have recently become involved in a
process of re-examining existing laws and regulations and their application to
insurance companies. This re-examination has focused on insurance company
investment and solvency issues, risk-based capital guidelines, assumption
reinsurance, interpretations of existing laws, the development of new laws, the
interpretation of nonstatutory guidelines, and the circumstances under which
dividends may be paid. The NAIC has encouraged states to adopt model NAIC laws
on specific topics such as holding company regulations and the definition of
extraordinary dividends. It is not possible to predict the future impact of
changing state regulation on the operations of the Company.

The statutory filings of American Progressive and American Pioneer require
classifications of investments and, since the annual statements required to be
filed for the year ended December 31, 1992, have required the maintenance of an
asset valuation reserve ("AVR") account and have required that investment gains
and losses resulting from changes in interest rate levels be deferred and taken
into income over a period of years through a new interest maintenance reserve
("IMR").

16





The AVR and IMR of the Insurance Subsidiaries as of December 31, 1994
and 1995 were:

December 31, 1994 December 31, 1995
----------------- -----------------
American Progressive
AVR ............................. $ 715,207 $ 523,893
IMR ............................. $ 146,582 $ 442,394

American Pioneer
AVR ............................. $ 589,205 $ 618,676
IMR ............................. $(428,102)(1) $(101,777)(1)

(1) For statutory accounting purposes, a negative IMR is treated as a
non-admitted asset.

New York State enacted legislation in 1992 that requires all health
insurance sold to individuals and groups with less than 50 employees, to be
offered on an open enrollment and community rated basis effective April 1, 1993.
Such insurance may continue to be sold to groups with more than 50 employees on
an underwriting basis, with premiums set to reflect expected or actual expenses.
This new law prohibits the use of individual underwriting techniques and health
insurers must accept all who apply regardless of medical condition. In addition,
the community rating aspect of the law prohibits the use of age, sex, health or
occupational factors in rating and will require that the same average rates be
used for all persons with the same policy residing in the same location. The
Medicare supplement actively marketed by American Progressive in New York State
and certain of its in force business is subject to the community rating rules.
If similar legislation were enacted in other states, principally Florida, in
which the Company writes substantial amounts of medically underwritten health
insurance, the Company might reduce the amount of such coverage written or cease
offering it entirely.

Dividend and Distribution Restrictions

Under the New York State Insurance Law, the declaration or payment of a
dividend by American Progressive requires the approval of the New York
Superintendent of Insurance, who, as a matter of present policy, would not
approve such payment until American Progressive had generated sufficient
statutory profits to offset its entire negative unassigned surplus, which was
approximately $8,169,000 as of December 31, 1994 and $9,025,000 at December 31,
1995.

Under current Florida State insurance law, a life insurer may pay a
dividend or make a distribution without the prior written approval of the
department when:

(a) the dividend is paid from that portion of the accumulated and
available surplus of the Company as is derived from the net operating
profits of its business and its net realized capital gains;

(b) the dividend is equal to or less than the greater of (i) 10% of
the insurer's surplus as to policyholders derived from net operating
profits on its business and net realized capital gains; or (ii) the
insurer's entire net operating profits and realized net capital gains
derived during the immediately preceding calendar year;

(c) the insurer will have surplus as to policyholders equal to or
exceeding 115% of the minimum required statutory surplus as to
policyholders after the dividend or distribution is made; and

17






(d) the insurer has filed notice with the department at least 10
business days prior to the dividend payment or distribution.

American Pioneer has the present capacity to pay dividends of approximately
$1,700,000 during the year ending December 31, 1996. Dividends of $1,000,000 and
$500,000 were paid by American Pioneer to American Progressive in 1994 and 1995,
respectively.

Risk-Based Capital Requirements

Effective December 31, 1993, the NAIC adopted new risk-based capital
("RBC") requirements, which have also been adopted in New York and Florida.
These are intended to provide for a measurement of statutory capital and surplus
needs based on the risks in a company's mix of products and investment
portfolio. As of December 31, 1994 and 1995, American Progressive's ratios of
total adjusted capital to RBC, based on the NAIC approved model, were
approximately 351% and 334% of the Authorized Control Level, respectively. As of
December 31, 1994 and 1995, American Pioneer's ratios of total adjusted capital
to RBC, based on the NAIC approved model, were approximately 658% and 756% of
the Authorized Control Level, respectively.

Guaranty Association Assessments

All states require insurance companies to participate in guaranty
associations designed to cover claims against insolvent insurers. The incurrence
and amount of such assessments have increased in recent years and are generally
expected to increase further in future years. American Progressive and American
Pioneer were assessed and paid approximately $20,000 and $55,000, respectively,
in 1994 and $12,000 and $152,000, respectively, in 1995. The likelihood and
amount of any other future assessments are now unknown and are beyond the
control of the Company.

Health Care Reform

From time to time numerous proposals have been introduced in Congress and
the state legislatures to reform the current health care system. Proposals have
included, among other things, employer-based insurance systems, subsidized
premiums for lower income people, "managed competition" among health plans,
programs to regulate policy availability and affordability and public and
private programs. Changes in health care policy could significantly affect the
Company's health insurance business.

Whether or not Congress passes any of these measures in the foreseeable
future, it is likely that these items will reappear on the legislative agenda in
the future. Reform proposals also could involve standardization of major medical
or long-term care coverages, impose mandated or target loss ratios or rate
regulation, require the use of community rating or other means that limit the
ability of insurers to differentiate among risks, or mandate utilization review
or other managed care concepts to determine what benefits would be paid by
insurers. These or other proposals could increase or decrease the level of
competition among health insurers. In addition, changes could be made in
Medicare that could necessitate revisions in the Company's Medicare Supplement
products. Other potential initiatives, designed to tax insurance premiums or
shift medical care costs from government to private insurers, could have an
adverse effect on the Company's business. The Company is unable to predict what
changes to the country's health care system will be enacted, if any, or their
effects on the Company's business. See "Regulation".

New York State enacted legislation in 1992 that requires all health
insurance sold to individuals and groups with less than 50 employees, to be
offered on an open enrollment and community rated basis effective April 1, 1993.
This legislation has had a limited effect on the Company's business, primarily
on the Medicare supplement and senior hospital cash business being written by
American Progressive, as well as a limited amount of its other in force medical
insurance. The adoption of similar legislation in certain other states,
particularly where the Company writes or has in force major medical insurance in
the issuance of which the Company relies upon medical underwriting, could have
an

18






adverse effect and could require the Company to curtail or eliminate the writing
of such business. See "Business--Products--Accident & Health Insurance" and
"Regulation".

Other Possible Changes in Legislation

Since insurance is a regulated business, with a high public profile, it is
always possible that legislation may be enacted which would have an adverse
effect on the Company's business.

The statutory disability benefits insurance ("DBL") sold by American
Progressive is mandatory pursuant to Article 9 of the New York Workers
Compensation Law. This benefit has been reviewed by the New York State
Legislature on several occasions since its adoption and the benefits provided
under such statute have been increased. If future laws reduce the requirement
for employers to provide this type of insurance, such laws might have an adverse
effect on the Company's writing of DBL business. However, the Company is not
aware that any such legislation is being actively considered by the New York
State Legislature at this time. See "Business--Products--Accident & Health
Insurance".

Another important portion of the Company's insurance business is the sale
of deferred annuities and certain life insurance products, which are attractive
to purchasers in part because policyholders generally are not subject to federal
income tax increases in the value of an annuity or life insurance contract until
some form of distribution is made from the contract. From time to time, Congress
has considered proposals to reduce or eliminate the tax advantages of annuities
and life insurance which, if enacted, might have an adverse effect on the
ability of the Company to sell the affected products in the future. The Company
is not aware that Congress is actively considering any legislation that would
reduce or eliminate the tax advantages of annuities or life insurance; however,
it is possible that the tax treatment of annuities or life insurance could
change by legislation or other means (for example, by Internal Revenue Service
regulations or judicial decisions).

Certain changes in insurance and tax laws and regulations could have a
material adverse effect on the operations of insurance companies. Specific
regulatory developments which could have a material adverse effect on the
operation of the insurance industry include, but are not limited to, the
potential repeal of the McCarran-Ferguson Act (which exempts insurance companies
from a variety of federal regulatory requirements), and adoption of laws, such
as those already in force in New York, limiting an insurer's ability to
medically underwrite and rate health insurance policies or to exclude
pre-existing conditions from coverage. In addition, the administration of such
regulations is vested in state agencies which have broad powers and are
concerned primarily with the protection of policyholders.

FEDERAL INCOME TAXATION OF THE COMPANY

The Company files a consolidated return for federal income tax purposes, in
which the Insurance Subsidiaries are not currently permitted to be included. At
December 31, 1995 the Company (exclusive of the Insurance Subsidiaries) had a
net operating tax loss carryforwards of approximately $5,900,000 which expire in
the years 1996 to 2009.

The Insurance Subsidiaries filed a separate consolidated federal income tax
return in which they are taxed as life insurance companies as provided in the
Tax Code. The Omnibus Budget Reconciliation Act of 1990 amended the Tax Code to
require a portion of the expenses incurred in selling insurance products to be
capitalized and amortized over a period of years, as opposed to an immediate
deduction in the year incurred. Instead of measuring actual selling expenses,
the amount capitalized for tax purposes is based on a percentage of premiums. In
general, the capitalized amounts are subject to amortization over a ten-year
period. Since this change only affects the timing of the deductions, it does
not, assuming stability of rates, affect the provisions for taxes reflected in
the Company's financial statements prepared in accordance with GAAP. However, by
deferring deductions, the change does have the effect of increasing the current
tax expense, thereby reducing statutory surplus. Because of the Insurance
Subsidiaries' net operating loss

19






carryforwards, there was no increase in the Company's current income tax
provision for the three years ended December 31, 1995 due to this change.

At December 31, 1995 American Progressive had net operating tax loss
carryforwards of approximately $6,400,000, which expire in the years 2002 to
2007. As a result of changes in ownership of the Company in 1988, use of the
loss carryforwards of American Progressive were subject to annual limitations
during the 1988 to 1994 tax years.

At December 31, 1995 American Pioneer had net operating tax loss
carryforwards, all incurred prior to its acquisition by the Company, of
approximately $1,800,000 which expire in the years 1997 to 2004 and capital loss
carryforwards of approximately $300,000, which expire in 1997. As a result of
changes in ownership of American Pioneer in May 1993, use of all the loss
carryforwards of American Pioneer are subject to annual limitations of
approximately $390,000.

EMPLOYEES

At December 31, 1995, the Company employed approximately 175 employees,
none of whom is represented by a labor union. The Company considers its
relations with its employees to be satisfactory.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND OFFICERS OF THE SUBSIDIARIES

The following table sets forth certain information concerning the Directors
and Officers of the Company and the Officers of the subsidiaries:





Position with the Company,
Present Principal Occupation or Employment
Name Age and Past Five-Year Employment History
- - ---- --- -------------------------------------------


Richard A. Barasch ................. 42 Director, President and Chief Executive Officer of the Company;
Director and President of American Progressive; and Chairman of
the Board of American Pioneer and WorldNet. Mr. Barasch has
been a director and executive officer of the Company since July
1988, President since April 1991 and Chief Executive Officer since
June 15, 1995. He has held his positions with the Company's
subsidiaries since their acquisition or organization by the Company.
Term as a Director expires in 1997.

Marvin Barasch .................... 73 Chairman of the Board of the Company and Vice-Chairman of
American Progressive (and its predecessor, John Adams) since July
1988, and a director of American Pioneer since May 1993. Mr.
Barasch was Chief Executive Officer of the Company from July
1988 to June 15, 1995. He has been in the insurance business as an
agent and broker for over 40 years. Term as a Director expires in
1998.


Robert A. Waegelein, C.P.A. ....... 35 Senior Vice President and Chief Financial Officer of the Company
(since October 1990) and of the Company's subsidiaries since they


20









were acquired or organized. Mr. Waegelein, a certified public
accountant, was employed by KPMG Peat Marwick LLP, the Company's
independent public accountants, in positions of increasing
responsibility from June 1982 to October 1990, finally serving
as Senior Manager.

Gary W. Bryant, C.P.A. ............ 46 President, CEO and Director of American Pioneer since April 1983
and Senior Vice President of the Company since June 15, 1995.


William E. Wehner ................. 52 Executive Vice President and Chief Operating Officer of American
Progressive since May 1991. From 1965 to 1987, Mr. Wehner was
employed by Mutual Life Insurance Company of New York and its
affiliates in positions of increasing responsibility, finally serving as
Vice President for Group Insurance. Mr. Wehner was President,
Chief Operating Officer, and a Director of J.T. Moran Financial
Corp. and Senior Executive Vice President and a Director of Moran
& Co. from October 1987 to January 1990.

John C. Caton F.S.A. .............. 58 Vice President and Chief Actuary of American Pioneer since May
1989.

Guy H. Hartman, FALU, CLU ......... 60 Vice President and Chief Underwriter (since January, 1986) and
Secretary (since January, 1994) of American Pioneer.

Shau H. Lyn, MAAA ................. 51 Vice President and Actuary of American Progressive since August
1991. Mr. Lyn was employed by Hemisphere Group, as Actuary &
Chief Financial Officer from March 1989 through July 1991.

Edward A. Tepper, C.P.A. .......... 47 Vice President and Chief Administration Officer of American
Pioneer since September, 1995. Mr. Tepper was Vice President and
Chief Financial Officer of The American Life Assurance
Corporation and its subsidiaries from September, 1993 to
September, 1995, an independent consultant from January, 1993 to
September, 1993 and a Partner at Ernst & Young from January,
1991 to December, 1992.

Sam Walden ........................ 56 Vice President-Information Systems of American Pioneer since
November, 1986.

Joan M. Ferrarone ................. 56 Secretary of the Company and American Progressive since June,
1995. Mrs. Ferrarone has been employed by the Company since
1991 and by American Progressive since 1984 in positions of
increasing responsibility.

Michael A. Barasch ................ 40 Director of the Company since July, 1988 and American Progressive
(and its predecessor, John Adams) from July, 1988 to June, 1995.
Mr. Barasch was a member of the law firm of Altier and Barasch
from February 1989 to February 1995. Since February 1995, Mr.


21










Barasch has been a member of the law firm of Barasch and
McGarry. Term as a Director expires in 1996.

Stuart Becker, C.P.A. ............. 52 Director of the Company since July 1990. A partner in the
accounting firm of Becker & Company, LLC. and predecessors,
since 1990. Mr. Becker was a partner in the New York City office
of Laventhol & Horwath from 1988 to 1990. Mr. Becker has more
than 30 years experience as a certified public accountant. Term as
a Director expires in 1997.

David F. Bolger ................... 63 Director of the Company since December, 1992. Since 1966, Mr.
Bolger has been Chief Executive Officer of Bolger & Co., Inc., an
investment banking firm. Term as a Director expires in 1996.

Mark M. Harmeling ................. 43 Director of the Company since July 1990 and Director of American
Progressive since December, 1992. Mr. Harmeling has been
President of Bay State Realty Advisors since January 1994 and
previously President of Intercontinental Real Estate Corporation, a
real estate management and development company for more than the
past five years. Mr. Harmeling is also a Director of the following
companies: Rochester Shoetree Corporation (since 1988) and
Applied Extrusion Technologies (since 1987). Term as a Director
expires in 1998.


Walter L. Harris .................. 44 Director of the Company since July 1993 and of American
Progressive (and its predecessor, John Adams) since July 1988.
Since 1979, Mr. Harris has been President of Tanenbaum-Harber
Company, Inc., a general insurance brokerage firm. Term as a
Director expires in 1996.

Harry B. Henshel .................. 77 Director of the Company since June 1992. Mr. Henshel has been
Chairman of the Board of the Bulova Corporation, a manufacturer
of timepieces located in New York City, for more than the past five
years. Mr. Henshel is also a Director of Ponce Hotel Corporation
(since 1973) and Ampal Industries, Inc. (since 1983). Term as a
Director expires in 1997.

Patrick J. McLaughlin ............. 37 Director of the Company since January 1995. Mr. McLaughlin has
been Managing Director of Emerald Capital Group, Ltd., an asset
management and consulting firm specializing in the insurance
industry, since April 1993. Prior to that he was an Executive Vice
President and Chief Investment Officer of Life Partners Group, Inc.
(April 1990 to April 1993), Managing Director of Conning &
Company (August 1989 to April 1990) and Senior Vice President
and Chief Investment Officer of ICH Corporation (March 1987 to
August 1989). Term as a Director expires in 1997 .


Michael Barasch is Marvin Barasch's son. Richard Barasch is Marvin
Barasch's nephew.

22






All of the executive officers listed above devote their full business time
to the Company.

All of the Company's and its subsidiaries' officers are elected annually.
The Company's directors are elected for three year terms, classified into three
classes with the Directors in each class serving for three years, with the terms
staggered by class so that one class is elected at each annual meeting of
shareholders for a full three year term. All officers and directors hold office
until their successors are duly elected and qualified, subject to early removal
by the Board.

As is noted above, Mr. Becker was a partner in Laventhol & Horwath from
1988 to 1990 and Mr. Wehner was an officer of JT Moran Financial Corp. and Moran
& Co. (collectively "Moran") from 1987 to 1990. In November 1990, Laventhol &
Horwath filed a petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code. In July 1992, as a result of obligations arising out of the
Laventhol & Horwath failure, Mr. Becker filed personally for reorganization
under Chapter 11 of the Federal Bankruptcy Code. Moran declared bankruptcy in
January 1990, and in July 1992 the SEC instituted a civil suit against six
former officers of Moran, including Mr. Wehner. Mr. Wehner settled the SEC suit
by consenting to the entry of an injunction against his future activity in the
securities business, without admitting any of the allegations of the SEC's
Complaint.

The By-laws of the Company provide that the number of directors shall be
set by the Board of Directors and that the number of directors in each class
shall be equal, or as nearly as practical. The Company's Board of Directors
consists of nine directors and one vacancy.

The Board of Directors has an Audit Committee, consisting of Messrs.
Becker, Bolger, Henshel, and McLaughlin and a Compensation Committee consisting
of Messrs. Becker, Harmeling and Harris and an Executive Committee consisting of
Messrs. Marvin, Richard and Michael Barasch, and Mr. Bolger. The Audit Committee
is empowered to consult with the Company's independent auditors with respect to
their audit plans and to review their audit report and the accompanying
management letters. The Compensation Committee reviews and recommends
compensation, including incentive stock option grants, of officers of the
Company. The Executive Committee has the authority to act between Board meetings
on behalf of the Board, on all matters allowed by law.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

WAND/MIDLAND TRANSACTION

On March 7, 1994, the Company entered into an agreement with Midland
National Life Insurance Company ("Midland"), the holder of all of the Company's
outstanding Series A Convertible Preferred Stock ("Series A Preferred"), under
which the Company was granted the right to redeem the Series A Preferred for $4
million in cash plus a $1 million five year Convertible Debenture ("the Midland
Debenture") bearing interest at 7%.

To effectuate this transaction, the Company as of December 30, 1994*, sold
400 shares of Series B Preferred Stock to Wand/Universal Investments L.P.
("Wand") for $4 million. This sale was made pursuant to a stock subscription
agreement ("the Wand Agreement") entered into on August 12, 1994.

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

* Upon issuance on December 30, 1994, the Series B Preferred was placed in
escrow pending receipt of required regulatory actions by the New York and
Florida Insurance Departments. On January 6, 1995 regulatory approval was
obtained and the escrow was formally released on January 11, 1995.

23






The Series A Preferred was redeemed as of December 30, 1994**, by a payment of
the $4 million proceeds of the Wand sale and the issuance of the Midland
Debenture. Since the Midland Debenture was convertible at the option of the
holder into 750,000 shares of the Company's common stock, its fair value was
taken as $1,618,062 as of December 30, 1994. As of that date, the Series A
Preferred had a liquidation preference of $7,139,757, so that the redemption
resulted in an increase of $1,521,695 in earnings applicable to common
shareholders.

On February 12, 1995, as of which date the Company had called the Midland
Debenture, Midland elected to convert $893,504 of its outstanding principal face
amount into 671,807 shares of Common Stock; the balance of the $106,496 was paid
in cash. The issuance of these shares, which had a fair value of $1,496,114 on
the date of their issuance, resulted in additional $602,610 of shareholders'
equity.

The Series B Preferred Stock is convertible into Common Stock at $2.25 per
share (subject to adjustment) and is entitled to dividends as if already
converted, only when and if dividends are declared on the Common Stock. The
holder of the Series B Preferred Stock may not require the Company to redeem it
unless the Company engages in certain defined transactions. The Company has the
right to require a conversion if it raises additional equity from the public on
pricing terms that meet certain criteria.

Pursuant to the Wand Agreement, the Company increased the size of its Board
to ten, elected Patrick J. McLaughlin to fill the vacancy and paid Wand an
acquisition fee of $225,000 to cover its expenses in connection with the
closing. In addition, two agreements have been entered into:

The Company and Wand Partners L.P., an affiliate of Wand, entered into
a financial advisory agreement, under which such Wand affiliate is to
render advisory services to the Company and is to be paid a fee of $100,000
per year for such services as long as Wand owns 500,000 shares of Common
Stock or common stock equivalent, reduced by any director's fees paid to
the director designated by Wand.

The Company, Wand and certain shareholders of the Company, including
BALP, entered into a shareholders' agreement which provided, among other
things that: (a) after the Series B Preferred Stock was converted into
Common Stock, the contracting shareholders agreed to vote their shares of
the Company for the election of one director designated by Wand; (b) the
holder of the Series B Preferred Stock (and the Common Stock into which it
is convertible) agreed to vote its shares for BALP's designees for election
to the other positions on the Board of Directors of the Company; (C) the
holder of the Series B Preferred Stock had the right to require the Company
to register the Series B Preferred Stock and the Common Stock issuable upon
its conversion at any time on a "piggy-back" basis and on two occasions on
a "demand" basis; (d) Wand may not acquire more than an additional 5% of
the Company's outstanding Common Stock without the Company's consent, as
long as BALP and certain partners in BALP continue to hold at least certain
percentages of the Company's Common Stock, on an outstanding and fully
diluted basis; and (e) BALP and certain of its partners may not make
private sales of their shares of Common Stock unless Wand is given the
opportunity to sell a proportionate part of its holding on the same terms.

In addition with the determination by the New York Superintendent of
Insurance (the "Superintendent") that Wand is not a controlling shareholder of
Company, within the meaning of the New York Insurance Law (see "Regulation"),
commitments were entered into by the Company and Wand and certain of their
controlling parties.

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

** The redemption of the Series A Preferred was also closed in escrow on
December 30, 1994, and released from escrow on January 11, 1995.

24






Under these commitments:

Wand, its general partner and the two individuals who own all of the
stock of its general partner are prohibited from engaging in any proxy
contest with respect to the Company; exercising, or attempting to exercise,
control over the Company; acquiring any additional securities of the
Company (except by conversion of the Series B Preferred Stock); or
admitting any new general or limited partner to the partnership.

The Company, American Progressive, BALP, BALP's general partner and
certain limited partners, and its general partner's shareholders are
prohibited from decreasing the size of the Company's Board of Directors,
electing any designee or affiliate of Wand (except for the one director of
the Company to be designated by Wand) as a director or officer of the
Company or American Progressive or engaging in any transaction (except for
performance of the financial advisory agreement) with Wand or any of its
partners.

These prohibitions generally apply as long as Wand owns 10% or more of the
outstanding voting power of the Company, and unless the approval of the
Superintendent has been obtained.

OTHER TRANSACTIONS

In December 1994, the Company sold 688,610 shares of Common Stock to
several persons and a corporation for an aggregate consideration of $1,549,372
($2.25 per share). The purchasers, some of whom were granted registration rights
by the Company, include the following persons who were officers and directors of
the Company, members of their families and a holder of more than 5% of the
Company's common stock.

Purchaser No. of Shares Purchase Price
- - --------- ------------- --------------
Marvin Barasch and Family ........... 81,000 $182,250
Norman Barasch ...................... 44,444 $100,000
Richard A. Barasch and Family ....... 22,222 $ 50,000
Michael A. Barasch .................. 10,000 $ 22,500
Harry Henshel and Family ............ 47,500 $106,875
Patrick J. McLaughlin ............... 22,500 $ 50,625
William E. Wehner ................... 40,000 $ 90,000

The corporate purchaser was Adventist Health System/Sunbelt Healthcare
Corp. ("Adventist"), a not-for-profit operator of hospitals predominantly in
Florida, which purchased 280,000 shares for a total price of $630,000.

ITEM 2--PROPERTIES

The Company currently leases approximately 15,000 square feet of office
space in Brewster, New York, under a lease expiring in October 2001; 18,000
square feet in Orlando, Florida, under a lease expiring in January, 2002; and
8,000 square feet in Miami, Florida, under a month to month lease arrangement,
as the principal offices of American Progressive, American Pioneer and WorldNet,
respectively, at an aggregate annual rental of approximately $464,000. It also
leases smaller offices in Elmhurst, New York; Andalusia, Alabama; and Waterloo,
Ontario, for an aggregate annual rental of approximately $69,000.

25






ITEM 3 - LEGAL PROCEEDINGS

No reportable litigation was pending at December 31, 1995. The Company
is party to various lawsuits arising out of the ordinary conduct of its
business, none of which, the Company believes, would have a material adverse
effect upon the business of the Company if it were to be adversely determined.

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

There were no matters submitted by the Company to a vote of stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year for which this report is filed.

PART II

ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF PUBLICLY TRADED SECURITIES

The Company's Common Stock has been traded in the over-the-counter market
and quoted on the Nasdaq National Market under the symbol UHCO since May 12,
1983. The 1999 Warrants have been so traded and so quoted, under the symbol
UHCOW, since September 1990. The following table sets forth the high and sales
prices per share of Common Stock and 1999 Warrants as reported on the Nasdaq
National Market for the periods indicated.




Common Stock 1999 Warrants
------------------ ----------------
High Low High Low
---- --- ---- ---

1993
- - ----
First Quarter........................................... 1-15/16 1-3/16 1-1/8 21/32
Second Quarter.......................................... 1-7/8 1-1/32 1-1/8 11/16
Third Quarter........................................... 2-15/16 1-7/16 1-7/8 5/8
Fourth Quarter.......................................... 3-3/4 2-3/8 3-9/16 1-9/16

1994
- - ----
First Quarter........................................... 5 3-1/8 4-3/8 2-1/4
Second Quarter.......................................... 4-1/8 2-5/8 2 1-3/4
Third Quarter........................................... 3-1/2 2-3/8 1-3/4 1-3/4
Fourth Quarter.......................................... 3-1/2 2-1/16 1-3/4 1-3/4

1995
- - ----
First Quarter........................................... 3-3/8 2-1/8 1-3/4 1-3/4
Second Quarter.......................................... 3-3/4 2-5/8 1-3/4 1-3/4
Third Quarter........................................... 3-5/8 2-5/8 1-3/4 1-1/4
Fourth Quarter.......................................... 3-1/8 2-1/8 1-1/4 1-1/4

1996
- - ----
First Quarter (through February 29).................... 3 2-1/4 1-1/2 1-1/4

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


26


As of January 31, 1996, there were approximately 1,700 holders of the
Common Stock and 100 holders of the 1999 Warrants. On February 29, 1996, the bid
and ask sales prices for the Common Stock were $3-1/8 and $2-5/8. On February
20, 1996, the last date on which the 1999 Warrants were traded, the sales price
was $1-1/2.

DIVIDENDS

The Company has neither declared nor paid dividends on its Common Stock and
no such dividends are likely in the foreseeable future. Any future decision to
pay dividends will be made by the Board of Directors in light of conditions then
existing, including the Company's results of operations, financial condition and
requirements, loan covenants, insurance regulatory restrictions, business
conditions and other factors. In addition, the ability of the Company to pay
dividends, if and when it should wish to do so, may depend on the ability of its
subsidiaries to pay dividends to the Company. See "Regulation--Dividend and
Distribution Restrictions".

(Intentionally Left Blank)

27






ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below should be read in
conjunction with the consolidated financial statements of the Company, the
related notes thereto and the auditors' report thereon and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
selected consolidated financial data presented below for, and at the end of,
each of the years from December 31, 1991 through 1995 are derived from the
consolidated financial statements of the Company, which have been audited and
reported upon by KPMG Peat Marwick LLP, independent certified public
accountants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations".




Year ended December 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(In thousands, except for per share data)

Income Statement Data:
Premium and other
policyholder fees...... $6,729 $ 9,744 $21,526 $40,324 $36,811
Net investment income... 1,636 1,803 2,611 3,322 2,855
Realized gains (losses). 1,066 (193) 676 42 674
Fee income.............. 79 1,554 2,466 4,126 3,137
Other income............ -- -- 801 219 244
Total revenues.......... 9,510 12,908 28,080 48,033 43,722
Total benefits, claims and
other deductions....... 9,257 12,515 26,455 45,795 41,071
Net income after taxes
and before extraordinary
credit................. 119 145 1,553 2,228 2,642
Net income after taxes
and extraordinary credit(1) 253 393 1,553 2,228 2,642
Net income (loss) applicable
to common shareholders(2) (31) (94) 1.024 3,174 2,642
Net income (loss) per share
of Common Stock after
taxes and extraordinary
credit................. (0.01) (0.02) 0.14 0.37 0.25







December 31,
----------------------------------------------------------
1991 1992 1993 1994(3) 1995(3)
---- ----- ---- ------- ------
(In thousands, except for per share data)

Balance Sheet Data:
Total investments............ $72,443 $77,551 $123,038 $125,487 $135,603
Total assets................. 88,242 95,616 153,687 164,862 182,994
Policyholder account balances 59,941 64,780 105,091 108,777 118,609
Series A Preferred Stock 5,548 6,034 6,564 -- --
Stockholders' equity......... 13,146 13,902 16,377 15,321 24,114
Stockholders' equity per share
of Common Stock............. 1.68 1.71 1.87 1.83 2.89

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


(1) The extraordinary credit reported in the two years ended December 31, 1992
represents the realization of the tax benefit for operating loss
carryforwards accounted for prior to Financial Accounting Standards Board
Statement 109, "Accounting for Income Taxes," which Statement was adopted
by the Company as of January 1, 1993.

(2) After provision for Series A Preferred Stock dividends of $284,000,
$487,000, $529,000 and $576,000 for the years ended December 31, 1991,
1992, 1993 and 1994, respectively.

(3) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Effects of Accounting Pronouncements" for a
discussion of the impact of changes in accounting principles.

28






ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The Company is an insurance holding company representing the strategic
combination of two life insurance companies, American Progressive and American
Pioneer, and WorldNet, an international managed care company. These companies
were assembled in 1991-1993, with the Insurance Subsidiaries each being acquired
at prices approximately equal to or below their adjusted statutory book value.
Management is now focused on growth, both internal, through aggressive marketing
and product development programs directed at specialty life and accident &
health insurance products, and by seeking further acquisitions of insurance
companies or blocks of business. It also has embarked on a program to
rationalize operations through consolidation of administrative and processing
facilities.

The Insurance Subsidiaries had revenues of approximately $25.6 million,
$43.9 million and $40.5 million for the years ended December 31, 1993, 1994 and
1995, respectively, representing 91%, 91% and 93%, of the Company's total
revenues for each period, respectively. Although American Progressive, domiciled
in New York, primarily sells its products in New York and the northeastern
United States and American Pioneer, domiciled in Florida, primarily sells its
products in Florida and the southeastern United States, one or both of the
Insurance Subsidiaries is licensed in 45 states and in the District of Columbia.
American Pioneer and American Progressive have been rated "B+" and "B" by A.M.
Best, respectively. A.M. Best's ratings are based upon factors relevant to
policyholders, agents, insurance brokers and intermediaries and are not directed
to the protection of shareholders in the rated company. See "Business--Ratings".

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994 AND 1995

The results of operations for the year ended December 31, 1994 and 1995
include the operations of American Progressive, American Pioneer and WorldNet.

Net Income. For the year ended December 31, 1995, the Company earned net
income of approximately $2,642,000 resulting in an earnings per share applicable
to common shareholders of $0.25. For the year ended December 31, 1994, the
Company earned net income of approximately $2,228,000 before its dividend
requirement on the Series A Preferred Stock, which dividend amounted to
approximately $576,000, resulting in an earnings per share of $0.20. On December
30, 1994, the Company redeemed the Series A Preferred Stock at a discount of
approximately $1,522,000 ($0.17 per share), which discount increased the 1994
net income applicable to common shareholders to approximately $3,173,000, or
$0.37 per share.

Revenues. Total revenues decreased approximately $4,311,000 from total
revenues of approximately $48,033,000 for the year ended December 31, 1994 to
approximately $43,722,000 for the year ended December 31, 1995. Total premiums
and policyholder fees earned decreased approximately $3,514,000. Supplemental
health insurance premiums at American Progressive increased approximately
$1,842,000 (primarily in NYS DBL, Medicare supplement and hospital indemnity)
and its life premiums grew approximately $340,000, while American Pioneer's life
premiums grew approximately $656,000 and its group dental premiums grew
approximately $892,000. The increase in these life and supplemental health
premiums of $3,730,000 was offset by the decrease of approximately $4,757,000 in
American Pioneer's major hospital and major medical premiums and the decrease in
American Progressive's premiums from its participation in NAIU accident pool
(approximately $1,531,000) and other accident & health products that are no
longer being actively marketed by the Company (approximately $956,000). Realized
gains on investments increased approximately $632,000 to approximately $674,000,
compared to a gain of approximately $42,000 for the prior year, and are
primarily attributed to increasing interest rates throughout 1995. As a result
of realizing these investment gains, net investment income decreased
approximately $466,000.

29






Fee income for the year ended December 31, 1995 decreased approximately
$988,000 which reflects the fees earned by WorldNet for managed care, travel
assistance, claims administration and communication services. This reduction is
a result of the Company's termination of certain nonprofitable contracts. For
the year ended December 31, 1995, the Company amortized approximately $244,000
of the deferred revenue compared to the $219,000 amortized in the same period in
1994, which increase is attributable to the $80,000 of additional amortization
generated by the 75% quota share reinsurance agreement effected on July 1, 1995.
See "Business-Reinsurance Ceded".

Benefits, Claims and Other Deductions. Total benefits, claims and other
deductions decreased approximately $4,724,000 to $41,071,000 for the year ended
December 31, 1995. The change in future policy benefits amounted to a decrease
of approximately $4,267,000. The decrease in reserves for the year ended
December 31, 1995 was $1,337,000 and primarily relates to the reduction in the
1995 NAIU premium, (approximately $491,000) the non-marketed accident & health
business of American Progressive ($827,000) and the major hospital and major
medical of American Pioneer ($430,000) offset by an increase in the supplemental
health insurance reserves currently being sold (approximately $559,000). This
decrease compares to an increase in 1994 of approximately $2,930,000, which
increase in 1994 primarily relates to the increase in reserves of American
Progressive when it entered the NAIU accident pool and assumed the North
American Company businesses of approximately $2,556,000 (See "Business -
Reinsurance"). Claims and other benefits increased approximately $1,247,000.
This increase is a result of increased mortality of approximately $344,000 at
American Progressive and increased supplemental health benefits of approximately
$2,456,000 and increased morbidity of approximately $651,000 on the non-marketed
health business at both insurance companies. This increase was offset by a
reduction of approximately $2,204,000 in major hospital and major medical
benefits at American Pioneer, which reduction is a result of the lower premium
revenue discussed above. The increase in deferred acquisition costs increased
approximately $386,000 and was due to the increase in new business production
noted above.

Other operating costs and expenses decreased approximately $1,286,000.
Expenses incurred by the insurance subsidiaries during 1995 exceeded the 1994
amount by approximately $151,000. Commissions, new business expenses and premium
taxes increased approximately $509,000, while the general overhead expenses
decreased approximately $358,000. The remaining decrease of $1,437,000 results
from a decrease of continuing operation expenses incurred by WorldNet
(approximately $1,708,000) resulting from the termination of certain
unprofitable contracts, (approximately $1,208,000) and the relocation of
WorldNet to Florida from Texas in 1994 (approximately $500,000) offset by an
increase by the Parent Company (approximately $271,000). Amortization of the
present value of future profits was approximately $205,000 for 1995 compared to
$237,000 in 1994, which decrease is due to the lower amount of insurance in
force.

YEARS ENDED DECEMBER 31, 1993 AND 1994

The results of operations for the year ended December 31, 1994 include the
operations of American Progressive, American Pioneer and WorldNet. The results
of operations for the year ended December 31, 1993 include all the operations of
American Progressive and WorldNet and the results of the operations of American
Pioneer from May 26, 1993 (the date of acquisition) to December 31, 1993.

Net Income. For the year ended December 31, 1994, the Company earned net
income of approximately $2,228,000 before its dividend requirement on the Series
A Preferred Stock, which dividend amounted to approximately $576,000, resulting
in an earnings per share of $0.20. On December 30, 1994, the Company redeemed
the Series A Preferred Stock at a discount of approximately $1,522,000 ($0.17
per share), which discount increased the net income applicable to common
shareholders to approximately $3,173,000, or $0.37 per share. For the year ended
December 31, 1993, the Company reported net income of approximately $1,553,000
before its dividend requirement on the Series A Preferred Stock, which amounted
to $529,000, resulting in an earnings per share of $0.14.

30






Revenues. Total revenues increased approximately $19,953,000 to
approximately $48,033,000 for the year ended December 31, 1994 compared to total
revenues of approximately $28,089,000 for the year ended December 31, 1993.
Premiums and policyholder fees earned increased approximately $18,798,000. The
most significant component of this increase is the inclusion of the premiums of
American Pioneer for the entire year in 1994 compared to only seven months in
1993, which amounted to approximately $8,725,000. The remaining increase of
$10,073,000 is a result of new supplemental health premiums at American
Progressive, which amounted to approximately $9,291,000, acquired blocks of
accident insurance amounting to approximately $1,447,000, an increase of life
premiums of approximately $215,000 and offset by a decrease in its in force
health premiums of approximately $880,000. Net investment income increased
approximately $710,000. This increase is attributable to the inclusion of the
net investment income of American Pioneer in 1994 offset by the decrease in
interest income of American Progressive due to its purchase of American Pioneer.
Realized gains on investments decreased approximately $634,000 to a gain of
approximately $42,000, compared to a gain of approximately $676,000 for the same
period last year and is primarily attributed to the lack of sales in 1994 due to
the increase of prevailing interest rates in 1994 compared to declining rates in
1993.

Fee income for the year ended December 31, 1994 increased approximately
$1,660,000 which reflects an increase in fees earned by WorldNet for managed
care, travel assistance, claims administration and communication services. For
the year ended December 31, 1994, the Company amortized approximately $219,000
of the deferred revenue which was generated in 1993 through the reinsurance of
certain ordinary life insurance policies compared to $801,000 amortized in the
same period in 1993. See "Results of Operations--Years Ended December 31, 1993
and 1992--Revenues" for further discussion of the 1993 amount.

Benefits, Claims and Other Deductions. Total benefits, claims and other
deductions increased approximately $19,340,000 to $45,795,000 for the year ended
December 31, 1994. The change in future policy benefits amounted to an increase
of approximately $3,938,000, which is the result of the increase in health
insurance writings in American Progressive. Claims and other benefits increased
approximately $6,939,000. The most significant component of this increase is the
inclusion of claims of American Pioneer, which amounted to approximately
$3,994,000. The remaining increase of $2,945,000 is a result of the increase in
health premiums of American Progressive noted above. The increase in deferred
acquisition costs increased approximately $1,594,000 due to the inclusion of
American Pioneer and the increase in new business production at American
Progressive.

Other operating costs and expenses increased approximately $10,613,000. As
a result of the transaction with HAT discussed below (See "--Liquidity and
Capital Resources--WorldNet"), the Company decided to discontinue the operations
of its subsidiary, WorldNet Services Corp., a Texas corporation
("WorldNet-Texas"), effective August 31, 1994. The loss incurred for the
disposal of WorldNet-Texas amounted to approximately $500,000 ($0.05 per share),
which primarily consisted of employee severance and employee relocation.
Expenses incurred by American Pioneer during 1994 exceeded the 1993 amount by
approximately $4,773,000. The remaining increase of $5,840,000 results from an
increase of continuing operation expenses incurred by WorldNet as a result of
increased revenues (approximately $2,575,000), American Progressive
(approximately $3,038,000) and the Parent Company (approximately $226,000). The
increase in expenses at American Progressive was primarily attributable to
increased business. Commission and new business expenses and premium taxes
increased approximately $3,172,000, while the general overhead expenses
decreased approximately $134,000.

When the Company acquired American Pioneer in May 1993, it established an
asset account for the present value of future profits related to its insurance
in force. Approximately $237,000 was amortized from this account as a charge
against income in 1994, while in the corresponding period of 1993, $793,000 was
amortized, $680,000 of which was as a result of the reinsurance of certain life
policies by American Pioneer. See "Results of Operations--Years Ended December
31, 1993 and 1992--Benefits, Claims and Other Deductions" for further discussion
of the 1993 amount.

31






The provision for federal income taxes was a current tax expense of
approximately $10,000 for the year ended December 31, 1994, which was derived
from alternative minimum tax calculations resulting from the use of tax loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

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

The Company

The Company requires cash to pay the operating expenses necessary to
support its status as an insurance holding company (which under applicable
Insurance Department regulations must bear its own expenses) and to meet the
cost involved in being a publicly-owned company.

As of December 30, 1994, the Company sold 400 shares of the Series B
Preferred Stock to Wand/Universal Investments L.P. ("Wand") for $4 million
pursuant to a stock subscription agreement entered into on August 12, 1994. See
"Certain Relationships and Related Transactions--Wand/Midland Transaction" for
additional information. The proceeds of the sale were used to redeem all of the
Series A Preferred Stock. The liquidation preference (including accumulated
dividends) of the Series A Preferred Stock as of December 30, 1994 was
approximately $7.1 million, which was eliminated as a consequence of the
redemption, resulting in an increase in earnings per share applicable to common
shareholders and stockholders' equity of approximately $1.5 million. The
redemption price of $5,618,062 (the "Redemption Price") was paid by a cash
payment of $4,000,000 and the issuance of a convertible debenture with a fair
value of $1,618,062 (based on the then market price of the common stock then
issuable upon conversion of the debenture) and a face amount of $1,000,000 (the
"Debenture"). This redemption was effected pursuant to a repurchase agreement
between the Company and Midland entered into on March 7, 1994. The Series A
Preferred Stock had been issued to Midland in 1991 in connection with the
Company's purchase of all the outstanding common stock of American Progressive
from Midland. The Debenture was called for redemption on February 12, 1995, at
which time $106,496 of its principal was paid in cash and the balance of the
principal was converted into 671,807 shares of Common Stock.

In December 1994, the Company sold 688,610 shares of Common Stock to
various persons and a corporation for an aggregate consideration of $1,549,372
($2.25 per share). Some of the purchasers were granted registration rights by
the Company. The purchasers included certain officers and directors of the
Company, members of their families and a holder of more than 5% of the Company's
common stock, whose purchases totaled 267,666 shares. See "Certain Relationships
and Related Transactions--Other Transactions".

On September 30, 1994, the Company entered into a new agreement with its
commercial bank, under which it borrowed $800,000 on a one year term loan,
extended by the Company for a second year. The borrowing under the new agreement
was utilized to pay off the $400,000 borrowed under a prior $500,000 line of
credit with the same bank and as working capital for the Company and operating
expenses for WorldNet. The new loan is secured by the pledge of 100% of the
outstanding common stock of Quincy Coverage Corp. ("Quincy"), an immaterial
subsidiary engaged in the insurance brokerage business, the receivables of
Quincy and WorldNet and 9.9% of the outstanding common stock of American
Progressive. As of December 31, 1994 and December 31, 1995, $800,000 was
outstanding on this loan agreement, which bears interest at 2.0% over prime. The
Company expects to refinance this loan when it matures.

32






Insurance Subsidiaries

American Progressive and American Pioneer are required to maintain minimum
amounts of capital and surplus as determined by statutory accounting. The
minimum statutory capital and surplus requirements of American Progressive and
American Pioneer as of December 31, 1995 for the maintenance of authority to do
business were $2,500,000 and $1,561,917, respectively, but substantially more
than this is needed to permit continued writing of new business. At December 31,
1995 the adjusted statutory capital and surplus, including asset valuation
reserve, of American Progressive and American Pioneer were $9,255,846 and
$13,815,357 respectively.

The NAIC has adopted risk based capital ("RBC") rules which became
effective December 31, 1993 and have been adopted by both New York and Florida.
See "Regulation--Risk-Based Capital Requirements". The new RBC rules provide for
various regulatory actions when the ratio of a company's total adjusted surplus
to its RBC falls below 100%. At December 31, 1995, American Progressive and
American Pioneer had RBC ratios of approximately 334% and 756% of the Authorized
Control Level, respectively.

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

Liquidity is also affected by unscheduled benefit payments including death
benefits, benefits under accident and health policies and interest-sensitive
policy surrenders and withdrawals. The amount of surrenders and withdrawals is
affected by a variety of factors such as credited interest rates for similar
products, general economic conditions and events in the industry which affect
policyholders' confidence. Although the contractual terms of substantially all
of the Company's in force life insurance policies and annuities give the holders
the right to surrender the policies and annuities, the Company imposes penalties
for early surrenders. At December 31, 1995 the Company held reserves that
exceeded the underlying cash surrender values of its in force life insurance and
annuities by more than $9.9 million. The insurance companies have not
experienced any material changes in surrender and withdrawal activity over the
past years.

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

The net yield on cash and invested assets declined from 7.83% in 1993, to
7.48% in 1994 and to 6.97% in 1995. These decreases came as a result of
declining market interest rates in 1993 and 1994, which caused higher yielding
securities to be called or prepaid from the portfolio with the reinvestment of
the proceeds at lower interest rates. In addition, the Company invested in
shorter maturity investments to better match its policyholder liabilities and
decrease its exposure to interest rate volatility. A significant portion of
these securities are held to support the liabilities for policyholder account
balances, which liabilities are subject to periodic adjustments to their
credited interest rates. The credited interest rates of the interest-sensitive
policyholder account balances are determined by management based upon factors
such as portfolio rates of return and prevailing market rates and typically
follow the pattern of yields on the assets supporting these liabilities.

At December 31, 1995, the investment portfolios of the life insurance
subsidiaries included cash and short-term investments totaling $12,290,000, as
well as fixed maturity securities that could readily be converted to cash with
carrying values of (and fair values) of $116,429,000. The fair values of these
liquid investments totalled more than

33






$128,719,000 and constituted approximately 95% of the Company's investments at
December 31, 1995. At December 31, 1995, all of the Company investments were
income producing and current in interest and principal payments except for one
security with a carrying value of $243,750. In addition, the Company has no
investment in any derivative instruments or other hybrid securities that contain
any off balance sheet risk or investments in other securities whose fair values
and principal repayments would be highly volatile to changes in interest rates,
except for GNMA's, FNMA's and investment grade corporate collateralized mortgage
obligations.

WorldNet

In December 1991, WorldNet was formed to provide travel assistance, claims
administration and communication services and acquire certain assets of an
unaffiliated company which had previously been engaged in that business.

On April 1, 1994, WorldNet purchased certain assets of HAT and an
affiliated corporation for Can. $625,000 (approximately U.S. $470,000), payable
over five years. WorldNet also executed an agreement with HAT and OBC under
which WorldNet subcontracted HAT's obligations under certain service contracts
between HAT and OBC, and between HAT and other insurers. The note payable to HAT
required annual payments of Can. $125,000 (approximately U.S. $94,000) plus
accrued interest, beginning on April 1, 1994, and bore interest at 6%. In 1995,
substantially all of the assets of OBC (including the shares of OBC's subsidiary
HAT) were acquired by Liberty Mutual Insurance Company ("Liberty Health"). In
February, 1996, WorldNet and Liberty Health agreed to terminate the service
agreement between OBC and WorldNet. In connection with the termination of the
service agreement, Liberty Health agreed to cancel the promissory notes executed
on April 1, 1994, which notes amounted to $370,000 at December 31, 1995. At the
same time, the Company wrote off the corresponding assets, including the value
of the service agreement, which assets amounted to approximately $170,000. The
resulting net income from this transaction was approximately $200,000 and will
be reflected in the Company's financial statements for the first quarter of
1996.

Through December 31, 1995, the Company has provided approximately $3.4
million to WorldNet. These funds were used to support WorldNet's start-up costs,
a portion of the costs of acquiring the HAT assets and the cost of acquiring
WorldNet's Dallas, Texas facility and later closing it and relocating certain of
its operations to the facility purchased from HAT in Miami Beach, Florida.
WorldNet's revenues were $2,338,000, $4,068,000 and $3,071,000 for 1993, 1994
and 1995, respectively. WorldNet incurred a net loss of approximately $481,000,
$1,375,000 and $665,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The 1994 loss included a charge of approximately $500,000 related
to employee severance and relocation costs incurred in connection with the
consolidation of WorldNet's facilities. During 1993 and 1994, WorldNet incurred
approximately $144,000 and $190,000 respectively of organizational expenses
which are being amortized over a five-year period. In 1995 no organizational
expenses were incurred.

EFFECTS OF ACCOUNTING PRONOUNCEMENTS

In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement 115, "Accounting for Certain Debt and Equity Securities", which is
effective for fiscal years beginning after December 15, 1993, with earlier
adoption permitted. Statement 115 requires that debt and equity securities be
classified into three categories and accounted for as follows:

o Debt securities that the Company has the positive intent and the
ability to hold to maturity would be classified as "held to maturity" and
reported at amortized cost.

o Debt and equity securities that are held for current resale would be
classified as "trading securities" and reported at fair value, with
unrealized gains and losses included in earnings.

34






o Debt and equity securities not classified as held to maturity or as
trading securities would be classified as "available for sale" and reported
at fair value. Unrealized gains and losses would not be reflected in
earnings but would be reported as a separate component of stockholders'
equity.

The Company adopted Statement 115 on January 1, 1994, the effect of which
increased its unrealized gains by $494,541. In November, 1995, the FASB issued a
Special Report titled "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities", which report allows
enterprises to reassess the appropriateness of the classifications of all
securities held and account for any resulting reclassifications between the
investment accounts. This one-time reassessment had to be made prior to December
31, 1995 and be appropriately disclosed in the financial statements. In
December, 1995, the Company did reassess the appropriateness of the
classifications of its securities and reclassified all of the securities
contained in the held to maturity account to the available for sale account as
they may be considered for sale prior to maturity as part of the asset/liability
management strategy. The carrying value of the securities reclassed to available
for sale amounted to $35,942,303 and the fair value amounted to $36,098,026.
This transfer resulted in the Company increasing its unrealized gains by
$155,723. As changes in interest rates occur, the carrying value of the
securities classified as available for sale, as well as any securities which may
in the future be classified as held for maturity, will be impacted. Typically,
as interest rates rise, the carrying value of these securities may decline.
Conversely, if interest rates decline, the carrying value of these securities
may increase. Management cannot predict the impact that changes in future
interest rates will have on the Company's financial statements.

In October, 1995, the FASB issued Statement 123, "Accounting for
Stock-Based Compensation" which requires disclosure of new employee stock
options in the form of a note to the financial statements based on the fair
value at the date of the grant and is effective for financial statements for
fiscal years beginning after December 15, 1995, with earlier adoption permitted.
Companies also may base the recognition of compensation cost for new and
modified options on these fair values. The disclosures required in Statement 123
must include the pro forma effects on the Company's net income resulting from
the grant of these options and other stock awards. The Company will adopt
Statement 123 in its 1996 financial statements and intends to disclose the
impact in the footnotes to the financial statements rather than record these
charges in its statement of operations.

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary schedules are listed in the
accompanying Index to Consolidated Financial Statements and Financial Statement
Schedules on Page F - 1.

ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors and executive officers of the Registrant is
set forth in Part I, Item 1, under the caption "Executive Officers and
Directors".

ITEM 11- EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated by reference
to Universal Holding Corp.'s definitive proxy statement to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days after
the end of the Company's fiscal year ended December 31, 1995

35







ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding beneficial ownership of Universal Holding Corp.'s
voting securities by directors, officers and persons who, to the best knowledge
of the Company, are known to be the beneficial owners of more than 5% of the
Company's voting securities as of December 31, 1995, is incorporated by
reference to Universal Holding Corp.'s definitive proxy statement to be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120
days after the end of the Company's fiscal year ended December 31, 1995.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions is
incorporated by reference to Universal Holding Corp.'s definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 within 120 days after the end of the Company's fiscal year ended
December 31, 1995.

PART IV-

ITEM 14-EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1 AND 2 FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

See separate index to Financial Statements and Financial Statement
Schedules on Page F - 1.

3 EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

3(a) Restated Certificate of Incorporation, consisting of :

(I) Restated Certificate of Incorporation filed
October 4, 1993, is hereby incorporated by
reference to Exhibit 3(a)(3) to Form 10-Q
dated November 11, 1994.

(ii) Certificate of Correction of Restated
Certificate of Incorporation, dated December
13, 1993, is hereby incorporated by
reference to Exhibit 3(a)(2) to Form 10-K
dated March 28, 1994.

(iii) Certificate of Amendment to Restated
Certificate of Incorporation relating to
Series B Preferred Stock, is hereby
incorporated by reference to Exhibit
3.2(III) to Form 8-K dated January 18, 1995.

3(b) By-Laws, as amended, are hereby incorporated by reference to Exhibit
3(b) to Form 10-K for 1989.

4(a) Form of Warrant Certificate:

(I) for Warrants registered under the Exchange
Act of 1934, as amended, is hereby
incorporated by reference to Exhibit 4 to
Current Report on Form 8-K dated July 24,
1992; and

36







(ii) for Warrants not so registered under the
Exchange Act of 1934, is hereby incorporated
by reference to Exhibit 4.2 to Form S-1
filed March 30, 1990, as amended by the
Warrant Exchange Agreement dated July 15,
1992, filed as Exhibit 28(I) to Current
Report on Form 8-K dated July 24, 1992.

10(a) Agreement dated March 7, 1994 among Registrant and Midland with Exhibit A
is hereby incorporated by reference to Exhibit 10(d)(1) to Form 10-K for
1993.

10(b) Stock Subscription Agreement as of August 12, 1994, between Registrant and
Wand/Universal L.P., as amended by Agreement dated November 23, 1994 is
incorporated by reference to Exhibit 10(e) to Current Report on Form 8-K
dated August 12, 1994 and Exhibit 10.4(1) to Current Report on Form 8-K
dated January 18, 1995.

10(c) Financial Advisory Agreement as of September 1, 1994 between Registrant
and Wand Partners L.P. is incorporated by reference to Exhibit 10(f) to
Current Report on Form 8-K dated August 12, 1994.

10(d) Shareholder Agreement among the Registrant, Wand/Universal Investments
L.P., Barasch Associates Limited Partners and Others, dated December 30,
1994 is incorporated by reference to Exhibit 10(d) to Form 10-K for 1994.

10(e) Special Commitments to the Superintendent of Insurance of the State of New
York, dated January 6, 1995, signed by:

(I) the Registrant, American Progressive, BALP and NMRB Corp. and

(ii) WAND, Wand (Universal) Inc., David S. Callard and Bruce W.
Schnitzer

are incorporated by reference to Exhibit 10(e) to Form 10-K for 1994.

10(f) Loan Agreement between Registrant and Country Bank, dated September 30,
1994, incorporated by reference to Exhibit 10(e) of Form 10-Q dated
November 11, 1994.

22 List of Subsidiaries:

Name Place of Incorporation
---------------------------------- ----------------------
American Progressive Life & Health
Insurance Company of New York New York
American Pioneer Life Insurance Co. Florida
Quincy Coverage Corporation New York
WorldNet Services Corporation Florida
WorldNet Services Corporation Ontario, Canada

(B) REPORTS ON FORM 8-K

None.

37






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 on the 29th day of
March 1996.

UNIVERSAL HOLDING CORPORATION
(Registrant)

By: /s/ RICHARD A. BARASCH
-----------------------
Richard A. Barasch
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1996 by the following persons in the
capacities indicated:

Signatures Title
---------- -----

/s/ MARVIN BARASCH Chairman of the Board and Director
- - ---------------------------
Marvin Barasch


/s/ RICHARD A. BARASCH President and Chief Executive Officer
- - --------------------------- and Director
Richard A. Barasch (Principal Executive Officer)


/s/ ROBERT A. WAEGELEIN Senior Vice President and Chief
- - --------------------------- Financial Officer
Robert A. Waegelein (Principal Accounting Officer)


/s/ MICHAEL A. BARASCH Director
- - ---------------------------
Michael A. Barasch


/s/ STUART BECKER Director
- - ---------------------------
Stuart Becker


/s/ DAVID F. BOLGER Director
- - ---------------------------
David F. Bolger


/s/ MARK M. HARMELING Director
- - ---------------------------
Mark M. Harmeling


/s/ WALTER L. HARRIS Director
- - ---------------------------
Walter L. Harris

Director
- - ---------------------------
Harry B. Henshel


/s/ PATRICK J. McLAUGHLIN Director
- - ---------------------------
Patrick J. McLaughlin

38






UNIVERSAL HOLDING CORP. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES OF THE REGISTRANT:

Independent Auditors' Report............................................. F-2

Consolidated Balance Sheets as of December 31, 1994 and 1995............. F-3

Consolidated Statements of Operations
for the Three Years Ended December 31, 1995............................. F-4

Consolidated Statements of Stockholders' Equity
for the Three Years Ended December 31, 1995............................. F-5

Consolidated Statements of Cash Flows
for the Three Years Ended December 31, 1995............................. F-6

Notes to Consolidated Financial Statements............................... F-8

Schedule II -- Condensed Financial Information of Registrant............. F-26

Schedule III -- Supplementary Insurance Information...................... F-29

F-1





Independent Auditors' Report

The Board of Directors and Stockholders
Universal Holding Corp.:

We have audited the consolidated financial statements of Universal Holding Corp.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedules as listed in the accompanying index.
These consolidated financial statements and financial statements schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Universal Holding
Corp. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for debt and equity securities in 1994 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities".

KPMG Peat Marwick LLP

New York, New York
March 26, 1996

F-2





UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995




ASSETS 1994 1995
------------ ------------

Investments (Notes 2c and 4)
Cash and cash equivalents..................................................... $ 16,420,763 $ 12,289,801
Fixed maturities:
Held to maturity, at amortized cost (fair value $33,356,133) ................ 38,354,572 --
Available for sale, at fair value (amortized cost $67,647,704
and $114,112,556) .......................................................... 63,845,179 116,428,921
Equity securities, at fair value (cost $61,133 and $46,133)................... 33,502 15,297
Policy loans.................................................................. 5,510,141 5,622,136
Property tax liens............................................................ 175,675 178,908
Mortgage loans................................................................ 1,147,409 1,067,605
------------ ------------
Total investments.............................................. 125,487,241 135,602,668

Accrued investment income..................................................... 2,151,759 2,412,576
Deferred policy acquisition costs (Note 2d)................................... 14,485,850 16,610,280
Amounts due from reinsurers................................................... 11,943,628 17,635,580
Due and unpaid premiums ...................................................... 1,632,681 2,826,833
Present value of future profits .............................................. 1,847,383 --
Deferred income tax asset..................................................... 391,073 1,328,314
Other assets.................................................................. 6,922,551 6,578,136
------------ ------------
Total assets......................................................... 164,862,166 182,994,387
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Policyholder accounts balances (Note 2e)...................................... 108,777,009 118,608,836
Reserves for future policy benefits........................................... 22,674,799 22,099,350
Policy and contract claims - life............................................. 834,855 693,679
Policy and contract claims - health........................................... 8,698,434 8,681,136
Short-term debt (Note 9)...................................................... 800,000 800,000
Notes payable (Notes 3 & 6)................................................... 1,987,760 369,698
Amounts due to reinsurers..................................................... 862,349 1,294,295
Deferred revenues............................................................. 645,203 638,293
Other liabilities............................................................. 4,261,165 5,694,824
------------ ------------
Total liabilities.................................................... 149,541,574 158,880,111
------------ ------------

Commitments and contingencies (Note 10) ...................................... -- --
------------ ------------

STOCKHOLDERS' EQUITY (Note 6)

Series B preferred stock...................................................... 4,000,000 4,000,000
Common stock (Authorized 20,000,000; issued and outstanding 6,176,290 and
6,957,532)................................................................... 61,763 69,575
Common stock warrants (Authorized, issued and outstanding 689,871
and 679,621) ................................................................ -- --
Additional paid-in capital.................................................... 14,501,889 15,849,542
Net unrealized investment gains (losses) (Note 4)............................. (3,426,746) 1,369,651
Retained earnings ............................................................ 183,686 2,825,508
------------ ------------
Total stockholders' equity........................................... 15,320,592 24,114,276
------------ ------------
Total liabilities and stockholders' equity........................... $164,862,166 $182,994,387
============ ============


See notes to consolidated financial statements.

F-3





UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended December 31, 1995





REVENUES: (Notes 2e and f) 1993 1994 1995
----------- ----------- -----------

Premiums and policyholders fees earned (Note 8)................. $21,526,142 $40,324,480 $36,810,937
Net investment income (Note 4).................................. 2,611,464 3,321,853 2,855,420
Realized gains on investments (Note 4).......................... 675,529 41,568 673,868
Fee income...................................................... 2,466,171 4,125,753 3,137,294
Amortization of deferred revenue (Note 2g)...................... 800,536 219,261 244,202
----------- ----------- -----------
Total revenues......................................... 28,079,842 48,032,915 43,721,721
----------- ----------- -----------

BENEFITS, CLAIMS AND OTHER DEDUCTIONS:
(Decrease) increase in future policy benefits................... (1,008,588) 2,929,747 (1,337,161)
Claims and other benefits....................................... 14,180,954 21,120,441 22,367,066
Increase in deferred acquisition costs.......................... (1,383,272) (2,977,769) (3,363,353)
Amortization of present value of future profits................. 792,831 236,716 204,564
Commissions .................................................... 3,553,556 7,471,754 6,781,537
Other operating costs and expenses.............................. 10,319,341 17,014,295 16,418,204
----------- ----------- -----------
Total benefits, claims and other deductions............ 26,454,822 45,795,184 41,070,857
----------- ----------- -----------
Operating income before income taxes............................ 1,625,020 2,237,731 2,650,864
Federal income tax expense (Note 5)............................. 72,168 9,974 9,032
----------- ----------- -----------
Net income...................................................... 1,552,852 2,227,757 2,641,822
Dividends on Series A preferred stock (Note 6).................. (529,497) (575,961) --
Discount on the redemption of Series A preferred stock (Note 6) -- 1,521,695 --
----------- ----------- -----------
Net income applicable to common shareholders.................... $ 1,023,355 $ 3,173,491 $ 2,641,822
=========== =========== ===========
Earnings per common share:
Net income per common share..................................... $ 0.14 $ 0.37 $ 0.25
=========== =========== ===========




See notes to consolidated financial statements.

F-4







UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1995


NET
SERIES A SERIES B ADDITIONAL UNREALIZED RETAINED
PREFERRED PREFERRED COMMON PAID-IN INVESTMENT EARNINGS
STOCK STOCK STOCK CAPITAL GAIN (LOSS) (DEFICIT) TOTAL
---------- -------- ------- ----------- ---------- ----------- -----------

Balance, December 31, 1992 ......... $6,034,299 $ -- $45,929 $11,774,992 $ 60,059 $(4,013,160) $13,902,119
Issuance of common stock ........... -- -- 6,534 763,943 -- -- 770,477
Change in net unrealized
investment gain (loss)............. -- -- -- -- 151,392 -- 151,392
Net income.......................... -- -- -- -- -- 1,552,852 1,552,852
Series A preferred stock dividends.. 529,497 -- -- -- -- (529,497) --
---------- ---------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1993 ......... 6,563,796 -- 52,463 12,538,935 211,451 (2,989,805) 16,376,840
Issuance of common stock............ -- -- 9,300 1,962,954 -- -- 1,972,254
Implementation of
Statement No. 115.................. -- -- -- -- 494,541 -- 494,541
Change in net unrealized
investment gain (loss)............. -- -- -- -- (4,132,738) -- (4,132,738)
Net income.......................... -- -- -- -- -- 2,227,757 2,227,757
Series A preferred stock dividends.. 575,961 -- -- -- -- (575,961) --
Redemption of Series
A preferred stock.................. (7,139,757) -- -- -- -- 1,521,695 (5,618,062)
Issuance of Series B
preferred stock.................... -- 4,000,000 -- -- -- -- 4,000,000
---------- ---------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1994 ......... -- 4,000,000 61,763 14,501,889 (3,426,746) 183,686 $15,320,592
Issuance of common stock ........... -- -- 7,812 1,347,653 -- -- 1,355,465
Transfer of investments from
held to maturity to available for
sale .............................. -- -- -- -- 155,723 -- 155,723
Change in net unrealized
investment gain (loss)............. -- -- -- -- 4,640,674 -- 4,640,674
Net income.......................... -- -- -- -- -- 2,641,822 2,641,822
---------- ---------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1995 ......... $ -- $4,000,000 $69,575 $15,849,542 $1,369,651 $ 2,825,508 $24,114,276
========== ========== ======= =========== ========== =========== ===========

See notes to consolidated financial statements.



F-5







UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1995



1993 1994 1995
----------- ----------- -----------

Cash flows from operating activities:
Net income........................................... $ 1,552,852 $ 2,227,757 $ 2,641,822
----------- ----------- -----------
Adjustments to reconcile net income to net cash
used by operating activities:
Change in reserves for future policy benefits...... (4,321,773) 6,459,856 (575,449)
Change in policy and contract claims............... 1,488,910 86,385 (158,474)
Change in deferred policy acquisition costs........ (1,383,272) (2,977,769) (3,363,353)
Amortization of present value of future profits.... 792,831 236,716 204,564
Change in deferred revenue......................... 864,464 (219,261) (244,202)
Change in policy loans............................. (684,500) (618,900) (111,995)
Change in accrued investment income................ (31,850) (184,583) (260,817)
Change in reinsurance balance...................... (3,074,065) (3,618,516) (4,596,165)
Realized gains on investment....................... (675,529) (41,568) (673,868)
Other, net......................................... (2,657,716) (1,224,772) 1,056,691
----------- ----------- -----------
Net cash (used by) provided from operating activities.. (8,129,648) 125,345 (6,081,246)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed maturities available
for sale............................................ 83,169,036 53,509,107 50,442,336
Proceeds from sale of fixed maturities held to
maturity............................................ 4,422,168 187,500 928,180
Proceeds from redemption of fixed maturities
available for sale.................................. 17,811,653 6,250,281 8,049,240
Proceeds from redemption of fixed maturities
held to maturity.................................... 16,030,305 7,084,125 2,210,089
Cost of fixed maturities purchased available
for sale............................................ (89,132,130) (65,538,303) (68,529,621)
Cost of fixed maturities purchased held to
maturity............................................ (27,476,396) (15,306,019) (795,741)
Proceeds from sale of equity securities.............. 860,239 -- --
Cost of equity securities purchased.................. (5,464) (46,133) --
Change in other invested assets...................... (4,315,719) 4,761,115 76,571
Purchase of business, net of cash acquired........... (3,703,590) (502,843) --
----------- ----------- -----------
Net cash used by investing activities.................. (2,339,898) (9,601,170) (7,618,946)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock........... 770,477 1,972,254 1,355,465
Proceeds from the issuance of Series B
preferred stock..................................... -- 4,000,000 --
Redemption of the Series A preferred stock........... -- (4,000,000) --
Increase in policyholder account balances............ 12,909,721 3,686,182 9,831,827
Change in short-term debt............................ 68,000 400,000 --
Change in notes payable.............................. -- 369,698 (1,618,062)
----------- ----------- -----------
Net cash provided from financing activities.......... 13,748,198 6,428,134 9,569,230
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents........................................... 3,278,652 (3,047,691) (4,130,962)
Cash and cash equivalents at beginning of year......... 16,189,802 19,468,454 16,420,763
----------- ----------- -----------
Cash and cash equivalents at end of year............... $19,468,454 $16,420,763 $12,289,801
=========== =========== ===========

(Continued)



F-6








1993 1994 1995
----------- ----------- -----------

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 14,593 $ 38,650 $ 96,289
=========== =========== ===========
Income taxes..................................... $ -- $ -- $ --
=========== =========== ===========

Supplemental schedule of non-cash investing and
financing activities:
Implementation of Statement 115 (Note 2c)
Transfer of securities from available for
sale to held to maturity......................... $ -- $16,624,288 $ --
=========== =========== ===========
Transfer of securities held to maturity
to available for sale............................ $ -- $18,780,607 $36,098,026
=========== =========== ===========




On December 30, 1994, the Company redeemed the Series A preferred stock at a
discount for part cash and issuance of a debenture (see Note 6).

Liquidation preference ................... $ 7,139,757
Cash paid ................................ (4,000,000)
Fair value of debenture issued ........... (1,618,062)
-----------
Amount credited to retained earning ...... $ 1,521,695
===========

See notes to consolidated financial statements.

F-7





UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND COMPANY BACKGROUND:

Universal Holding Corp. (the "Company") was incorporated under the laws of
the State of New York in August 1981, for the purpose of conducting insurance
and related business primarily through its then wholly-owned subsidiary, John
Adams Life Insurance Company of New York ("John Adams"). On May 17, 1991, the
Company acquired 100% of the outstanding common stock of American Progressive
Life & Health Insurance Company of New York ("American Progressive") and on June
27, 1991 merged John Adams into American Progressive. In 1988, the Company
organized Quincy Coverage Corp. ("Quincy") an insurance agent and broker. In
January, 1992, the Company began operations in WorldNet Services Corp.
("WorldNet"), a provider of managed care and assistance to travelers. On May 26,
1993, the Company acquired 100% of the outstanding common stock of American
Pioneer Life Insurance Company ("American Pioneer") (see Note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. BASIS OF PRESENTATION: The significant accounting policies followed by
Universal Holding Corp. and subsidiaries that materially affect
financial reporting are summarized below. The accompanying
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) which, as to
American Progressive and American Pioneer, differs from statutory
accounting practices permitted by regulatory authorities. The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported revenues and expenses during the reporting period. Actual
results could differ from those estimates.

b. PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of Universal Holding Corp. and its
wholly-owned subsidiaries, including the results of American Pioneer's
operations since May 26, 1993, the date of acquisition, which
acquisition was accounted for under the purchase method of accounting.
All material intercompany transactions and balances have been
eliminated.

c. INVESTMENTS: Investments are shown on the following bases:

In May, 1993, the Financial Accounting Standards Board ("FASB") issued
Statement 115, "Accounting for Certain Debt and Equity Securities" and
is effective for fiscal years beginning after December 15, 1993, with
earlier adoption permitted. Statement 115 requires that debt and
equity securities be classified into three categories and accounted
for as follows:

o Debt securities that the Company has the positive intent and the
ability to hold to maturity would be classified as "held to
maturity" and reported at amortized cost.

o Debt and equity securities that are held for current resale would
be classified as "trading securities" and reported at fair value,
with unrealized gains and losses included in earnings.

o Debt and equity securities not classified as held to maturity or
as trading securities would be classified as "available for sale"
and reported at fair value. Unrealized gains and losses would be
excluded from earnings and reported as a separate component of
stockholders' equity, net of tax.

F-8






The Company adopted Statement 115 on January 1, 1994, the effect of
which was an increase in unrealized gains of $494,541. In November,
1995, the FASB issued a Special Report titled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities", which report allows enterprises to
reassess the appropriateness of the classifications of all securities
held at the time of the Special Report issuance. In December, 1995,
the Company did reassess the appropriateness of the classifications of
its securities and reclassified all of the securities contained in the
held to maturity account to the available for sale account as they may
be considered for sale prior to maturity as part of the
asset/liability management strategy. The carrying value of the
securities reclassed to available for sale amounted to $35,942,303 and
the fair value amounted to $36,098,026. This transfer resulted in the
Company increasing its unrealized gains by $155,723, net of tax and
deferred policy acquisition cost adjustment.

Fixed maturity securities classified as investments held to maturity
prior to reclassification were carried at amortized cost because the
Company had the positive intent and ability to hold such investments
until maturity. All other fixed maturity securities were classified as
available for sale and were carried at fair value, with the unrealized
gain or loss, net of tax and other adjustments (deferred policy
acquisition costs), included in stockholders' equity. As of December
31, 1995, all fixed maturity securities were classified as available
for sale. Equity securities are carried at current fair value. Policy
loans and mortgage loans are stated at the unpaid principal balance.
Short term investments are carried at cost which approximates fair
value. Property tax liens are carried at cost. Investment income is
recorded when earned. Realized investment gains and losses on the sale
of securities are based on the specific identification method.
Unrealized gains and losses from revaluation of equity investments and
fixed maturity securities to current market value are reflected in
stockholders' equity.

d. DEFERRED POLICY ACQUISITION COSTS: The cost of acquiring new business,
principally commissions and certain expenses of the policy issuance
and underwriting departments, all of which vary with, and are
primarily related to the production of new and renewal business, have
been deferred. These costs are being amortized in relation to the
present value of expected gross profits on the policies arising
principally from investment, mortality and expense margins for
Statement No. 97 products and in proportion to premium revenue using
the same assumptions used in estimating the liabilities for future
policy benefits for Statement No. 60 products. Deferred policy
acquisition costs would be written off to the extent that it is
determined that future policy premiums and investment income or gross
profits would not be adequate to cover related losses and expenses.
There were no write offs for the years ended December 31, 1993, 1994
and 1995. Details with respect to deferred policy acquisition costs
for the three years ended December 31, 1995 are as follows:

Balance at January 1, 1993........................ $ 9,721,395
Capitalized costs............................. 2,557,188
Amortization.................................. (1,173,916)
-----------
Balance at December 31, 1993...................... 11,104,667
Capitalized costs............................. 4,653,342
Adjustment relating to unrealized
loss on available for sale securities..... 403,414
Amortization.................................. (1,675,573)
-----------
Balance at December 31, 1994...................... 14,485,850
Capitalized costs............................. 5,316,328
Adjustment relating to unrealized
gain on available for sale securities..... (613,715)
Amortization.................................. (2,578,183)
-----------
Balance at December 31, 1995...................... $16,610,280
===========

F-9





e. RECOGNITION OF REVENUES, CONTRACT BENEFITS AND EXPENSES FOR INVESTMENT
AND UNIVERSAL LIFE TYPE POLICIES: Revenues for universal life-type
policies and investment products consist of mortality charges for the
cost of insurance and surrender charges assessed against policyholder
account balances during the period. Interest credited to policyholder
account balances is netted against investment income. Benefit claims
incurred in excess of policyholder account balances are expensed. The
liability for policyholder account balances for universal life-type
policies and investment products under Financial Accounting Standards
Board Statement No. 97 are determined following a "retrospective
deposit" method and consist principally of policy account values
before any applicable surrender charges. Credited interest rates for
these products range from 5.00% to 7.25%. For the three years ended
December 31, 1993, 1994 and 1995, one general agency of American
Progressive produced $4,302,111, $3,645,611 and $4,477,034 of annuity
receipts, respectively, which represented approximately 41%, 41% and
33%, respectively, of total annuity receipts of American Progressive.

f. RECOGNITION OF PREMIUM REVENUES AND POLICY BENEFITS FOR ACCIDENT AND
HEALTH INSURANCE PRODUCTS: Premiums are recorded when due and
recognized as revenue over the period to which the premiums relate.
Benefits and expenses are associated with earned premiums so as to
result in recognition of profits over the life of the policies. This
association is accomplished by recording a provision for future policy
benefits, establishing an unearned premium reserve and amortizing
deferred policy acquisition costs. Claim reserves are established for
future payments not yet due on claims already incurred, primarily
relating to individual disability insurance and group long-term
disability insurance products. These reserves are established based on
past experience and are continuously reviewed and updated with any
related adjustments recorded to current operations. Claim liabilities
represent policy benefits due but unpaid at year end and primarily
relate to individual health insurance products. Activity in the
accident and health policy and contract claim liability is as follows:




1993 1994 1995
------------ ------------ ------------

Balance at beginning of year ............. $ 2,889,425 $ 8,001,097 $ 8,698,434
Less reinsurance recoverables ......... (91,483) (1,532,736) (1,947,218)
------------ ------------ ------------
Net balance at beginning of year ......... 2,797,942 6,468,361 6,751,216
------------ ------------ ------------
Incurred related to:
Current year .......................... 34,612,173 19,423,563 33,533,192
Prior years ........................... (16,749,472) (1,737,163) (14,743,820)
------------ ------------ ------------
Total incurred ........................... 17,862,701 17,686,400 18,789,372
------------ ------------ ------------
Paid related to:
Current year .......................... 8,933,986 13,107,971 14,830,355
Prior years ........................... 5,258,296 4,295,574 4,679,743
------------ ------------ ------------
Total paid ............................... 14,192,282 17,403,545 19,510,098
------------ ------------ ------------
Net balance at end of year ............... 6,468,361 6,751,216 6,030,490
Plus reinsurance recoverables ........ 1,532,736 1,947,218 2,650,646
------------ ------------ ------------
Balance at end of year ................... $ 8,001,097 $ 8,698,434 $ 8,681,136
============ ============ ============


g. DEFERRED REVENUE: The Company entered into a 75% quota share
reinsurance agreement with an unaffiliated reinsurer on the $60,000
retention of certain individual accident & health insurance policies
in force as of June 30, 1995. The Company received $862,000 as a
ceding commission, $625,000 of which was offset by the amortization of
the deferred acquisition cost asset related to this business. The
remaining $237,000 was recorded as deferred revenue and will be
recognized as

F-10





income over the expected life of the reinsured business. In 1995,
$79,098 of this deferred revenue was amortized into income.

The Company entered into a 90% quota share reinsurance agreement with
an unaffiliated reinsurer on certain life insurance policies in force
as of June 30, 1993. The Company ceded $3,696,101 of life insurance
reserves and received $1,665,000 as a ceding commission, which ceding
commission was recorded as deferred revenue. The Company amortized
$800,536, $219,261 and $165,104 of deferred revenue during 1993, 1994
and 1995 respectively.

h. WORLDNET SERVICES CORP.: WorldNet began operations in early 1992 and,
on January 15, 1992, it purchased certain assets of Interclaim
Services Corp. by assuming related liability commitments which totaled
approximately $150,000. In 1993, WorldNet began operations in Canada
to market its services. During 1993 and 1994, WorldNet capitalized
$144,247 and $189,749, respectively, of organizational expenses, which
expenses are being amortized over a five year period.

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

j. REINSURANCE ACCOUNTING: Amounts paid for a recoverable under
reinsurance contracts are included in total assets as reinsurance
recoverable amounts. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for
the underlying policies.

k. EARNINGS PER COMMON SHARE: Net income per common share was computed by
dividing the net income applicable to common shareholders by the
weighted average number of common equivalent shares outstanding during
each period. Income before extraordinary credit and net income were
adjusted to deduct the dividend requirements of the Series A preferred
stock for the two years ended December 31, 1994 and include the
discount earned on the redemption of the Series A preferred stock in
1994.

l. CASH FLOW INFORMATION: Included in cash and cash equivalents are cash
on deposit, money market funds, and short term investments which had
an original maturity of three months or less from the time of
purchase.

m. RECENT ACCOUNTING PRONOUNCEMENT: In October, 1995, the FASB issued
Statement 123, "Accounting for Stock-Based Compensation" which
requires disclosure of new employee stock options in the form of a
note to the financial statements based on the fair value at the date
of the grant and is effective for financial statements for fiscal
years beginning after December 15, 1995, with earlier adoption
permitted. Companies also may base the recognition of compensation
cost for new and modified options on these fair values. The
disclosures required in Statement 123 must include the pro forma
effects on the Company's net income resulting from the grant of these
options and other stock awards. The Company will adopt Statement 123
in its 1996 financial statements and intends to disclose the impact in
the footnotes to the financial statements, rather than record these
charges in its statement of operations.

n. RECLASSIFICATIONS: Certain reclassifications have been made to prior
years' financial statements to conform with current period
classifications.

F-11






3. RECENT ACQUISITIONS:

On May 26, 1993 the Company, through its wholly-owned subsidiary, American
Progressive, acquired 100% of the outstanding common stock of American Pioneer
from the Resolution Trust Company, in an auction sale. The Company paid
$6,827,064 in cash. This acquisition was accounted for as a purchase. The
following proforma unaudited information reflects the revenues, net income to
common shareholders and earnings per share as if the acquisition had occurred on
January 1, 1993:

Year Ended
December 31, 1993
-----------------
Total revenues........................................ $39,255,486
===========
Net income applicable to common shareholders.......... $ 1,610,000
===========
Earnings per share.................................... $ 0.21
===========

On April 1, 1994, the Company, through WorldNet Services Corp., a newly
formed Florida corporation (WorldNet - Florida), purchased from Health
Assistance for Travelers, Inc. ("HAT") (a subsidiary of Ontario Blue Cross of
Canada ("OBC")) certain assets of HAT and an affiliated corporation for Canadian
$625,000 (approximately US $470,000), payable over five years. The note payable
to HAT requires annual payments of Canadian $125,000 plus accrued interest
beginning on April 1, 1994 and bears interest at 6%. WorldNet - Florida also
executed an agreement with HAT for the subcontracting of HAT's obligations under
certain service contracts between HAT and OBC, and other insurers. For the year
ended December 31, 1994 and 1995 the Company received $1,036,639 and $1,204,270,
respectively, under these service agreements. In 1995, substantially all of the
assets of OBC (including the shares of OBC's subsidiary HAT) was acquired by
Liberty Mutual Insurance Company ("Liberty Health"). In February, 1996, WorldNet
and Liberty Health agreed to terminate the service agreement between OBC and
WorldNet. In connection with the termination of the service agreement, Liberty
Health agreed to cancel the promissory notes executed on April 1, 1994, which
notes amounted to $370,000 at December 31, 1995. At the same time, the Company
wrote off corresponding assets, including the value of the service agreement,
which assets amounted to approximately $170,000. The resulting net income from
this transaction will be approximately $200,000 and will be reflected in the
Company's financial statements for the first quarter of 1996.

4. INVESTMENTS:

As of December 31, 1994 and 1995, investments consisted of the following:




December 31, 1994
-----------------------------------------------------------------------------
Face Amortized Fair Carrying
Classification Value Cost Value Value
- - -------------- ------------ ------------ ------------ ------------

Cash and cash equivalents...... $ 16,420,763 $ 16,420,763 $ 16,420,763
US Treasury bonds and notes.... $ 11,625,000 11,710,900 11,313,097 11,587,461
Corporate bonds................ 100,904,973 94,291,376 85,888,215 90,612,290
Common stocks.................. 61,133 33,502 33,502
------------ ------------ ------------
Sub-total.................... 122,484,172 $113,655,577 $118,654,016
============

Property tax liens............. 175,675 175,675
Policy loans................... 5,510,141 5,510,141
Mortgage loans................. 1,147,409 1,147,409
------------ ------------

Total investments............ $129,317,397 $125,487,241
============ ============




F-12








December 31, 1995
-----------------------------------------------------------------------------
Face Amortized Fair Carrying
Classification Value Cost Value Value
- - -------------- ------------ ------------ ------------ ------------

Cash and cash equivalents..... $ 12,289,801 $ 12,289,801 $ 12,289,801
US Treasury bonds and notes.... $11,565,000 11,719,311 11,957,792 11,957,792
Corporate bonds................ 103,056,601 102,393,245 104,471,129 104,471,129
Common stocks.................. 46,133 15,297 15,297
------------ ------------ ------------
Sub-total.................... 126,448,490 $128,734,019 $128,734,019
============
Property tax liens............. 178,908 178,908
Policy loans................... 5,622,136 5,622,136
Mortgage loans................. 1,067,605 1,067,605
------------ ------------
Total investments............ $133,317,139 $135,602,668
============ ============


The amortized cost and fair value of debt securities classified as fixed
maturity investments held to maturity by category of securities as of December
31, 1994 are as follows:




December 31, 1994
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- - -------------- ----------- -------- ------------ -----------

US Treasury securities
and obligations of
US government................ $ 7,665,033 $ 7,821 $ (679,517) $ 6,993,337
Foreign government
debt securities.............. 560,167 -- (66,322) 493,845
Corporate debt
securities................... 17,481,855 -- (2,629,351) 14,852,504
Mortgage-backed securities..... 12,647,517 110,518 (1,741,588) 11,016,447
----------- -------- ------------ -----------
$38,354,572 $118,339 $(5,116,778) $33,356,133
=========== ======== ============ ===========



The amortized cost and fair value of debt securities classified as
available for sale investments as of December 31, 1994 and 1995 are as follows:




December 31, 1994
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- - -------------- ----------- -------- ------------ -----------


US Treasury securities
and obligations of
US government................ $11,896,393 $ 12,616 $ (540,946) $11,368,063
Corporate debt securities...... 41,025,877 68,346 (2,288,755) 38,805,468
Mortgage-backed securities..... 14,725,434 93,814 (1,147,600) 13,671,648
----------- -------- ---------- ------------
$67,647,704 $174,776 $(3,977,301) $63,845,179
=========== ======== ============ ===========



F-13








December 31, 1995
----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- - -------------- ------------ ---------- ----------- ------------

US Treasury securities
and obligations of
US government................ $ 19,546,697 $ 393,356 $ (150,445) $ 19,789,608
Corporate debt securities...... 72,149,554 2,669,249 (294,300) 74,524,503
Mortgage-backed securities..... 22,416,305 373,429 (674,924) 22,114,810
------------ ---------- ----------- ------------
$114,112,556 $3,436,034 $(1,119,669) $116,428,921
============ ========== ============ ============



The amortized cost and fair value of fixed maturities at December 31, 1995
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

Amortized Fair
Cost Value
------------ ------------
Due in 1 year or less........................ $ 7,331,731 $ 7,368,357
Due after 1 year through 5 years............. 22,160,363 22,635,059
Due after 5 years through 10 years........... 29,206,925 30,621,545
Due after 10 years........................... 25,169,845 25,857,334
Mortgage-backed securities................... 30,243,692 29,946,626
------------ ------------
$114,112,556 $116,428,921
============ ===========

Included in fixed maturities at December 31, 1994 and 1995 were securities
with carrying values of $5,851,619 and $6,467,700, respectively, held by various
states as security for the policyholders of American Pioneer and American
Progressive within such states.

The details of net investment income for the three years ended December 31,
1995 are as follows:




1993 1994 1995
---------- ---------- ----------

Investment Income:
Fixed maturities....................... $6,875,033 $7,920,429 $8,389,695
Short-term investment.................. 706,783 633,052 531,572
Equity securities...................... 67,104 -- --
Property tax liens..................... 617,902 832,038 58,920
Policy loans........................... 258,917 340,711 363,390
Mortgage loans......................... 69,208 99,946 102,293
---------- ---------- ----------
Gross investment income.................. 8,594,947 9,826,176 9,445,870
Interest credited to policyholder
account balances....................... 5,363,472 5,916,936 6,089,860
Investment expenses...................... 620,011 587,387 500,590
---------- ---------- ----------
Net investment income.................... $2,611,464 $3,321,853 $2,855,420
========== ========== ==========



There was one fixed maturity with a carrying value of $243,750 that was
non-income producing as of December 31, 1995.

Gross realized gains and gross realized losses included in the consolidated
statements of operations for the three years ended December 31, 1995 are as
follows:

F-14







1993 1994 1995
----------- ----------- -----------

Realized gains:
Fixed maturities, available for sale .... $ 2,131,676 $ 384,517 $ 1,070,230
Fixed maturities, held to maturity ...... -- -- 6,921
Equity securities ....................... 14,611 -- --
----------- ----------- -----------
Total realized gains ...................... 2,146,287 384,517 1,077,151
----------- ----------- -----------

Realized losses:
Fixed maturities, available for sale .... (1,352,296) (273,967) (385,223)
Fixed maturities, held to maturity ...... -- (62,500) (3,060)
Equity securities ....................... (73,465) -- (15,000)
Real estate ............................. (44,997) (6,482) --
----------- ----------- -----------
Total realized losses ..................... (1,470,758) (342,949) (403,283)
----------- ----------- -----------

Net realized gains ........................ $ 675,529 $ 41,568 $ 673,868
=========== =========== ===========



During the years ended December 31, 1993 and 1995, the Company wrote down
the value of certain fixed maturity securities by $200,000 and $194,955,
respectively, which was included in realized gains on investments.

The components of the change in unrealized gains and losses included in the
consolidated statements of stockholders' equity for the three years ended
December 31, 1995 are as follows:




1993 1994 1995
----------- ----------- -----------

Change in unrealized gains (losses):
Fixed maturities ...................... $ 5,671 $(4,508,521) $ 5,963,167
Equity securities ..................... 145,721 (27,631) (3,205)
Implementation of Statement No. 115 ... -- 494,541 155,723
Adjustment relating to deferred
policy acquisition costs ............ -- 403,414 (613,710)
----------- ----------- -----------

Change in net unrealized gains
(losses) before income tax ............ 151,392 (3,638,197) 5,501,975
Income tax expense ...................... -- -- 705,578
----------- ----------- -----------
Change in unrealized losses ............. $ 151,392 $(3,638,197) $ 4,796,397
=========== =========== ===========



Gross unrealized gains and gross unrealized losses of equity securities as
of December 31, 1994 and 1995 are as follows:

1994 1995
-------- --------
Gross unrealized gains ............ $ -- $ --
Gross unrealized losses ........... (27,631) $(30,836)
-------- ---------
Net unrealized losses ............. $(27,631) $(30,836)
========= ========

5. INCOME TAXES:

The Company and its non-life subsidiaries file a consolidated federal
income tax return. The life insurance subsidiaries file separate federal income
tax returns.

F-15






The Company's federal income tax expense consisted of:

Year Ended December 31,
---------------------------
1993 1994 1995
------- ------ ------
Current.................................. $72,168 9,974 $9,032
Deferred................................. -- -- --
------- ----- ------
Total tax expense........................ $72,168 $9.974 $9,032
======= ====== ======



The deferred tax benefits for 1993 and 1995 were $391,073 and $1,642,819,
which amounts were charged directly to the present value of future profits since
the benefits were derived from the recognition of acquired tax loss
carryforwards of American Pioneer that previously were included in the valuation
allowance.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 1994 and 1995 are as
follows:

Deferred tax assets: 1994 1995
----------- -----------
Reserves for future policy benefits....... $ 2,856,019 $ 2,695,120
Investment valuation differences.......... 250,444 138,899
Net operating loss carryforwards.......... 4,335,372 4,893,375
Deferred revenues......................... 209,850 217,020
AMT credit carryforward................... 78,244 95,760
Unrealized losses on investments.......... 1,165,094 --
Other..................................... 381,788 --
----------- -----------
Total gross deferred tax assets......... 9,276,811 8,040,174
Less valuation allowance................ (4,287,788) (1,134,555)
----------- -----------
Net deferred tax assets................. 4,989,023 6,905,619
----------- -----------

Deferred tax liabilities:
Deferred policy acquisition costs......... (3,969,839) (4,800,279)
Unrealized gains on investments........... -- (705,578)
Present value of future profits........... (628,111) --
Other..................................... -- (71,448)
----------- -----------
Total gross deferred tax liabilities.... (4,597,950) (5,577,305)
----------- -----------
Net deferred tax asset.................. $ 391,073 $ 1,328,314
=========== ===========

At December 31, 1994 and 1995, the Company has established valuation
allowances of $4,287,788 and $1,134,555, respectively, with respect to its
deferred tax assets. Based on the Company's future expectation of adjusted
taxable income and through its ability to change its investment strategy and use
of prudent and feasible tax planning strategies, management believes it is more
likely than not that the Company will fully realize the net deferred tax assets.
As a result of these available strategies, management reduced the valuation
allowance with a portion charged directly to present value of future profits.
However, because of uncertainties inherent in estimating future taxable income,
management concluded that a valuation allowance of $1,134,555 with respect to
the deferred tax asset is appropriate. At December 31, 1994 the Company had
established a valuation allowance of $1,165,094 with respect to the deferred tax
asset attributed to unrealized investment losses which was realized through
stockholders' equity in 1995.

A reconciliation of the "expected" tax expense at 34% with the Company's
actual tax expense applicable to operating income before taxes reported in the
Consolidated Statements of Operations is as follows:

F-16








Year Ended December 31,
--------------------------------------------
1993 1994 1995
--------- --------- ---------


"Expected" tax expense................... $ 552,507 $ 760,828 $ 901,294
Change in the beginning of the
year balance of the valuation
allowance for deferred tax assets
allocated to income tax expense........ 20,990 (811,915) (903,878)
Utilization of tax loss carryforwards.... (505,180) -- --
Tax exempt interest income............... (1,399) (1,415) (1,415)
Other.................................... 5,250 62,476 13,031
--------- --------- --------
Actual tax expense....................... $ 72,168 $ 9,974 $ 9,032
========= ========= ========


As of December 31, 1995, the Company (exclusive of American Progressive and
American Pioneer) has net operating tax loss carryforwards of approximately
$5,900,000 which expire in the years 1996 to 2009.

As of December 31, 1995, American Progressive has net operating tax loss
carryforwards of approximately $6,400,000 which expire in the years 2002 to
2007.

As of December 31, 1995, American Pioneer has net operating tax loss
carryforwards of approximately $1,800,000 which expire in the years 1997 to 2004
and capital tax loss carryforwards of approximately $300,000, which expire in
1997. As a result of the change in ownership of American Pioneer in May, 1993,
use of all these loss carryforwards are subject to annual limitations of
approximately $390,000.

6. STOCKHOLDERS' EQUITY:

Preferred Stock

The Company has 2,000,000 authorized shares of preferred stock to be issued
in series with 510,000 issued and outstanding at December 31, 1993 and 400
shares issued and outstanding at December 31, 1994 and 1995, respectively.

Series A Preferred Stock

On May 17, 1991, the Company issued 510,000 shares of Series A cumulative,
redeemable, convertible preferred stock ("Series A preferred stock") to Midland
National Life Insurance Company in connection with the acquisition of American
Progressive (see note 3). The Series A preferred stock had an initial
liquidating preference of $5,263,714 (which included accrued dividends of
$163,714 for the period January 1 to May 17, 1991), with dividends payable
quarterly at 8.5% per year on a cumulative basis since January 1, 1991.
Dividends were not required to be paid in cash and any unpaid dividend
accumulated as part of the Series A preferred stock liquidating preference.
During the two years ended December 31, 1993, $486,784 and $529,497,
respectively, of dividends accumulated and were added to the outstanding balance
of Series A preferred stock. At December 31, 1993, the Series A preferred stock
had a liquidating preference of $6,563,796. Prior to March, 1994, such preferred
stock was redeemable by the company at any time at its liquidating preference,
plus any accumulated dividends and preferred stock with liquidating preference
of up to $1,500,000 was convertible at any time into common stock at $1.00 per
share, subject to anti-dilution adjustments. These redemption and conversion
features would have been reinstated if the Series A Preferred Stock had not been
redeemed by February 28, 1995. In addition, two-thirds of such preferred stock
outstanding at the end of five years from its issuance on May 17, 1991 (or
earlier upon the occurrence of defined events) was convertible into an amount of
common stock equal to two-thirds of the common stock outstanding immediately
after the conversion. The Series A preferred stock was non-voting.

In March, 1994 Midland granted the Company the right, exercisable at any
time prior to March 1, 1995, to redeem the preferred stock in exchange for
$4,000,000 in cash and a $1,000,000 five year debenture, convertible to

F-17






either 666,667 shares of common stock (if the preferred stock was redeemed prior
to August 1, 1994) or 750,000 shares of common stock (if the preferred stock was
redeemed on or after August 1, 1994, but prior to March 1, 1995). The
liquidation preference of the Series A preferred stock as of December 30, 1994
was $7,139,757, and such stock was redeemed on that date for an aggregate
redemption price of $5,618,062 (the "Redemption Price"), paid by a cash payment
of $4,000,000 and the issuance of a convertible debenture with a fair value of
$1,618,062 and a face amount of $1,000,000 (the "Debenture"). The Debenture was
called for redemption on February 12, 1995, at which time $106,496 of principal
was paid in cash and the balance of the principal was converted into 671,807
shares of Common Stock.

Series B Preferred Stock

As of December 30, 1994, the Company sold 400 shares of Series B
Convertible Preferred Stock, with a par value of $10,000 per share, to
Wand/Universal Investments L.P. ("Wand") for $4 million pursuant to a stock
subscription agreement entered into on August 12, 1994, under which Wand agreed
to purchase, at the Company's option, either 400 or 500 shares of Series B
Preferred Stock for a total purchase price of $4 million or $5 million,
respectively. Pursuant to the Stock Subscription Agreement, the Company paid
Wand $225,000 for its services and expenses incurred in structuring the Wand
Transaction and in due diligence related thereto. The proceeds of the sale were
used to redeem all of the Series A Preferred Stock discussed above.

The Series B Preferred Stock is convertible into Common Stock at $2.25 per
share (subject to adjustment) and is entitled to dividends as if already
converted, only when and if dividends are declared on the Common Stock. The
holder of the Series B Preferred Stock may not require the Company to redeem it
unless the Company engages in certain defined transactions. The Company has the
right to require a conversion if it raises additional equity from the public on
pricing terms that meet certain criteria.

Pursuant to the stock subscription agreement, Wand, the Company and certain
shareholders of the Company, including BALP, entered into a shareholders'
agreement contemporaneously with the issuance of the Series B Preferred Stock to
Wand. Under the shareholders' agreement, the holder of the Series B Preferred
Stock agreed to vote such shares, and the Common Stock issued upon their
conversion, for the nominees of BALP for election as directors of the Company
and, after the conversion of the Series B Preferred Stock to Common Stock, all
parties agreed to vote their shares for the election of one director designated
by Wand. The shareholders' agreement also contained "stand still," "tag along"
and registration rights provisions. The stand still provision will prohibit Wand
from acquiring more than an additional 5% of the Company's outstanding Common
Stock without the Company's consent, as long as BALP and certain partners in
BALP continue to hold at least certain percentages of the Company's Common
Stock, on an outstanding and fully diluted basis. The tag along will prohibit
BALP and certain of its partners from making private sales of their shares of
Common Stock unless Wand is given the opportunity to sell a proportionate part
of its holding on the same terms.

The Company and Wand Partners L.P., an affiliate of Wand, have also entered
into a financial advisory agreement, under which such Wand affiliate is to
render advisory services to the Company and is to be paid a fee of $100,000 per
year for such services as long as Wand owns 500,000 shares of Common Stock, or
its common stock equivalent, reduced by any directors' fee paid to the director
designated by Wand.

In connection with the determination by the New York Superintendent of
Insurance (the "Superintendent") that Wand is not controlling shareholder of
Company, within the meaning of the New York Insurance Law (see "Regulation"),
certain commitments were made to the Superintendent. These commitments included
a commitment by Wand, Wand's general partner and Wand's general partner's
shareholders that, as long as Wand owns 10% or more of the voting power of
Universal's outstanding stock, Wand will not acquire any additional shares of
Universal, except by exercise of its conversion rights, and will not attempt to
obtain or exercise control of Universal, without the consent of the Department.
Universal, American Progressive, BALP, BALP's general partner and certain
limited partners, and the shareholders of BALP's general partner also entered
into commitments, including commitments that as long as Wand owns 10% or more of
the voting power of Universal's outstanding shares, the size of Universal's
Board would not be

F-18






reduced below ten directors and that no transaction between Universal or
American Progressive, on the one hand, and Wand or its partners of controlling
parties, or on the other hand, would be entered without the approval of the
Superintendent, except for the shareholders agreement and the financial advisory
agreement referred to herein.

Common Stock

The par value of common stock is $.01 per share with 20,000,000 shares
authorized for issuance. The shares issued and outstanding at December 31, 1994
and 1995 were 6,176,290 and 6,957,532, respectively. During the years ended
December 31, 1993, 1994 and 1995, the Company issued 653,410, 930,017 and
781,242 shares, respectively, of its common stock.

Common Stock Warrants

The Company had 689,871 and 679,621 common stock warrants issued and
outstanding at December 31, 1994 and 1995, respectively, which are registered
under the Securities Exchange Act of 1934. During the years ended December 31,
1994 and 1995, 32,439 and 10,250 warrants, respectively, were converted into
common shares at $1.00. At December 31, 1995, the Company had 2,015,760 warrants
outstanding which are not registered under the Securities Exchange Act of 1934.
The warrants have no par value, have an exercise price to purchase common stock
on a one to one basis at $1.00 and expire on December 31, 1999.

Incentive Stock Option Plan

In 1983, the Company adopted an incentive stock option plan which, as
amended, reserves 1,000,000 shares of common stock. Since its adoption, 121,500
shares have been exercised, leaving 878,500 shares reserved as of December 31,
1995. Stock options totaling 415,000 and 196,000 expire five years and ten
years, respectively, after the date granted or upon the earlier termination of
employment. Options are exercisable one year after grant, and at December 31,
1995, 546,000 options are exercisable. Additional information with respect to
the Company's stock option plan is as follows:

Shares Under
Options Exercise
Outstanding Price
----------- --------------
Balance, December 31, 1993 551,000
Options granted in 1994 159,000 $2.50 - $3.33
Options exercised in 1994 (63,000) $0.50 - $0.80
Options terminated in 1994 (39,500) $0.80 - $3.25
-------

Balance, December 31, 1994 607,500
Options granted in 1995 65,000 $2.25 - $2.48
Options exercised in 1995 (34,500) $0.50 - $0.80
Options terminated in 1995 (27,000) $0.80 - $3.12
-------

Balance, December 31, 1995 611,000 $0.50 - $3.33
=======

Stock Option Plan for Directors

At the 1992 Annual Shareholders' Meeting, the Universal Holding Corp.
non-employee Directors Plan ("Stock Option Plan for Directors") was approved.
This stock option plan for Directors reserves 75,000 shares of common stock and
options shall be granted on June 30 of each year to each eligible Director, then
in office, at the rate of 1,000 options for each additional year of service
completed since the last grant. Options are exercisable one year after grant.

F-19





Options Exercise
Outstanding Price
----------- -------
Balance, December 31, 1993 14,000
Options granted in 1994 6,000 $3.12
Options exercised in 1994 (5,000) $0.56 - $1.38
-------

Balance, December 31, 1994 15,000
Options granted in 1995 6,000 $3.12
------

Balance, December 31, 1995 21,000 $0.56 - $3.12
======

Other Stock Options

On December 15, 1995, the Board of Directors approved a plan under which up
to 200,000 options may be granted to agents of the Company's subsidiaries
(subject to insurance law restrictions) and to other persons as to whom the
Board of Directors believes the grant of such options will serve the best
interests of the Corporation, provided that no options may be granted under this
plan to officers, directors or employees of the Company or of any subsidiary,
while they are serving as such. On December 15, 1995, the Board of Directors
granted options to three individuals, two of whom are members of the Company's
law firm and the other of whom is a consultant to the Company, to purchase a
total of 40,000 shares of the Company's common stock, at a price of $2.50 per
share, which was the quoted market price for the such shares at the time of the
grant. Such options will expire 10 years from the date of the grant.

7. STATUTORY CAPITAL AND SURPLUS REQUIREMENTS AND DIVIDEND RESTRICTIONS

American Progressive and American Pioneer are required to meet minimum
statutory capital requirements imposed by the Insurance Departments of the
states in which they are licensed in order to operate as an insurance company
without restrictions. The minimum statutory capital and surplus requirements of
American Progressive and American Pioneer for the maintenance of authority to do
business at December 31, 1995 was $2,500,000 and $1,561,917, respectively. As of
December 31, 1995, the statutory capital and surplus amounts of American
Progressive and American Pioneer were $8,731,953 and $13,196,681, respectively.
Their statutory gain (loss) for the year ended December 31, 1995 were $(262,049)
and $1,694,711, respectively. The insurance companies have calculated their
risk- based capital ("RBC") requirements and, as of December 31, 1995, both
American Progressive and American Pioneer's ratios of total adjusted capital to
RBC are sufficiently in excess of the authorized control levels. Dividend
payments from American Progressive to the Company would require regulatory
approval which, in all likelihood, would not be obtained until American
Progressive generated enough statutory profits to offset its entire negative
unassigned surplus, which was approximately $9,025,000 at December 31, 1995.
American Pioneer may pay a dividend or make a distribution without the prior
written approval of the Florida Insurance Department when (a) the dividend is
equal to or less than the greater of (1) 10% of the insurer's surplus as to
policyholders derived from net operating profits on its business and net
realized capital gains ("policyholder surplus from operations"); or (2) the
insurer's entire net operating profits and realized net capital gains derived
during the immediately preceding calendar year but not more than its
policyholder surplus from operations; (b) the insurer will have surplus as to
policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend or distribution is made; and (c)
the insurer has filed notice with the department at least 10 business days prior
to the dividend payment or distribution. American Pioneer paid American
Progressive $1,000,000 and $500,000 in dividends during 1994 and 1995,
respectively. No dividends or distributions were made by American Progressive
during 1994 and 1995.

8. REINSURANCE

Life insurance risks which exceed the Company's retention or underwriting
limits are reinsured under yearly-renewable term insurance treaties to
unaffiliated insurers. Under yearly-renewable term treaties, the reinsuring
company receives premiums at an agreed upon rate and holds the required reserves
for its share of the risk on a yearly-renewable

F-20






term basis. A contingent liability exists with respect to reinsurance which may
become a liability of the Company in the unlikely event that the reinsurers
should be unable to meet the obligations which they assumed. The Company
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk to minimize its exposure to significant losses from reinsurer
insolvencies. At December 31, 1995, reinsurance receivables with a total
carrying value of $7,886,768 were associated with two reinsurers, which
reinsurer was rated A+ by A.M. Best.

A summary of reinsurance activity for the three years ended December 31,
1995 is presented below:





As of December 31,
--------------------------------------------------------
Life insurance in force 1993 1994 1995
(amounts in thousands) ----------- ----------- -----------

Gross amount............................. $ 1,658,976 $ 1,760,000 $ 1,955,809
Ceded to other companies................. (741,990) (754,124) (944,697)
Assumed from other companies............. 30,525 28,943 27,294
----------- ----------- -----------
Net amount............................... $ 947,511 $ 1,034,819 $ 1,038,406
=========== =========== ===========
Percentage of assumed to net............. 3% 3% 3%
=========== =========== ============


Year Ended December 31,
--------------------------------------------------------
Premiums 1993 1994 1995
----------- ----------- -----------
Life insurance......................... $ 4,635,002 $12,925,886 $17,231,562
Accident and health.................... 19,859,736 27,235,036 28,290,413
----------- ----------- -----------
Total gross premiums................. 24,494,738 40,160,922 45,521,975
----------- ----------- -----------
Ceded to other companies
Life insurance......................... (2,380,682) (3,323,496) (10,703,350)
Accident and health.................... (1,594,191) (10,568,826) (7,497,083)
------------ ------------ -----------
Total ceded premiums................. (3,974,873) (13,892,322) (18,200,433)
------------ ------------ ------------

Assumed from other companies
Life insurance......................... 429,359 402,875 386,254
Accident and health.................... 186,980 13,161,107 8,479,756
---------- ----------- ------------
Total assumed premium................. 616,339 13,563,982 8,866,010
---------- ----------- ------------
Net amount
Life insurance......................... 2,683,679 10,005,265 6,914,466
Accident and health.................... 18,452,525 29,827,317 29,273,086
----------- ----------- ------------
Total net premium.................... $21,136,204 $39,832,582 $36,187,552
=========== =========== ============
Percentage of assumed to net
Life insurance......................... 16% 4% 6%
Accident and health.................... 1% 44% 29%
----------- ----------- ------------
Total assumed to total net............. 3% 34% 25%
=========== =========== ============


9. SHORT-TERM DEBT

On September 30, 1994, the Company entered into an agreement with its
commercial bank, under which it borrowed $800,000 on a one year term loan, which
was extended by the Company for a second year. The borrowing under the agreement
was utilized to pay off the $400,000 borrowed under a prior $500,000 line of
credit with the same bank and as working capital for Universal and operating
expenses for WorldNet. The loan is secured by the pledge of 100% of the
outstanding common stock of Quincy, a subsidiary engaged in the insurance
brokerage business, the receivables of Quincy and WorldNet and 9.9% of the
outstanding common stock of American Progressive. As of December 31, 1995,
$800,000 was outstanding on this loan agreement. The loan bears interest at 2.0%
over prime.

F-21




The following table sets forth summary information with respect to short-term
borrowings of the Company for the three years ended December 31, 1995:




As of December 31, Year Ended December 31,
----------------------------- ----------------------------------------------
Weighted
Maximum Average(a) Average
Amount Interest Amount Amount Interest Interest
Outstanding Rate Outstanding Outstanding Rate (b) Expense
----------- ------- ----------- ----------- -------- -------


1993 $400,000 7.00% $400,000 $182,917 7.98% $14,593
======== ====== ======== ======== ====== =======
1994 $800,000 10.50% $800,000 $533,333 7.25% $38,650
======== ====== ======== ======== ====== =======
1995 $800,000 10.50% $800,000 $800,000 10.94% $87,539
======== ====== ======== ======== ===== =======



(a) The average amounts of short term borrowings outstanding were computed
by determining the arithmetic average of the months' end short term borrowings.

(b) The weighted average interest rates were determined by dividing
interest expense related to short term borrowings by the average amounts
outstanding of such borrowings.

10. COMMITMENTS:

The Company is obligated on a lease for its executive and administrative
offices in Brewster, New York, which expires on October 31, 2001 with an earlier
termination on October 31, 1997 at the sole option of the Company and carries a
base annual rent of $150,000. In addition, the Company leases a marketing office
in Elmhurst, New York which expires in August 1997 and carries an approximate
base rent of $26,460. The Company is obligated on a month to month lease for its
WorldNet operations in Bay Harbor Island in Miami, Florida and carries an
approximate monthly base rent of $11,500. The Company is obligated on a lease
for its American Pioneer operations in Orlando, Florida, which expires in
January, 2002 and carries an annual base rent of approximately $220,406. In
addition, WorldNet leased a satellite office in Waterloo, Canada, which expires
September 30, 1996 and carries an approximate base rent of $37,809.

Rent expense for the three years ended December 31, 1993, 1994 and 1995 was
$725,368, $852,124 and $721,848, respectively. The minimum rental commitments,
subject to escalation clauses, at December 31, 1995 under non-cancelable
operating leases are as follows:




Elmhurst, Orlando,
Brewster New York Florida Canada Total
-------- --------- -------- -------- --------


1996 $150,000 $26,460 $ 226,323 $28,357 $ 431,140
1997 125,000 17,640 232,779 -- 375,419
1998 -- -- 238,389 -- 238,389
1999 -- -- 245,613 -- 245,613
2000 -- -- 252,145 -- 252,145
2001 -- -- 257,755 -- 257,755
2002 -- -- 21,518 -- 21,518
--------- ------- ---------- ------- ----------
Totals $275,000 $44,100 $1,474,522 $28,357 $1,821,979
========= ======= ========== ======= ==========


11. UNIVERSAL HOLDING CORP. 401(K) SAVINGS PLAN:

Effective April 1, 1992, the Company adopted the Universal Holding Corp.
401(k) Savings Plan ("Savings Plan"). The Savings Plan is a voluntary
contributory plan under which employees may elect to defer compensation for

F-22






federal income tax purposes under Section 401(k) of the Internal Revenue Code of
1986. The employee is entitled to participate in the Savings Plan by
contributing through payroll deductions up to 20% of the employee's
compensation. The Company may match the employee's contribution up to 1% of the
employee's compensation which contribution will be made with Company common
stock. As of December 31, 1995, 107,500 shares of the Company's common stock
were held by the Savings Plan.

The participating employee is not taxed on these contributions until they
are distributed. Moreover, the employer's contributions vest at the rate of 25%
per plan year. Amounts credited to employee's accounts under the Savings Plan
are invested by the employer-appointed investment committee. Generally, a
participating employee is entitled to distributions from the Savings Plan upon
termination of employment, retirement, death or disability. Savings Plan
participants who qualify for distributions may receive a single lump sum, have
the assets transferred to another qualified plan or individual retirement
account, or receive a series of specified installment payments. Total matching
contributions by the Company under the Savings Plan were $28,049, $51,048 and
$42,325, in 1993, 1994 and 1995, respectively.

12. FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK:

For the three years ended December 31, 1995, the Company held unrated or
less-than-investment grade corporate debt securities with carrying and estimated
fair values as follows:




1993 1994 1995
---------- ----------- ----------

Carrying value $7,937,902 $4,446,205 $5,092,566
========== ========== ==========
Estimated fair value $8,046,988 $4,314,977 $5,092,566
========== ========== ==========
Percentage of total assets 5.2% 2.7% 2.8%
========== ========== ==========


The holdings of less-than-investment grade securities are widely
diversified and the investment in any one such security is currently less than
$1,000,000, which is approximately 0.6% of total assets.

13. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

a. Fixed maturities held to maturity and available for sale: For
those securities held to maturity and available for sale, fair
value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using
quoted market prices for similar securities.

b. Equity securities: For equity securities carried at fair value,
fair value equals quoted market price.

c. Cash and cash equivalents: For short-term investments, the
carrying amount is a reasonable estimate of fair value.

d. Investment contract liabilities: For annuity and universal life
type contracts, cash surrender value is a reasonable estimate of
fair value due to the deposit nature of the account.

e. Short term debt and notes payable: For short-term borrowings and
notes payable, the carrying value is a reasonable estimate of
fair value due to their short-term nature.

F-23





f. Accounts receivable and uncollected premiums: Accounts receivable
and uncollected premiums are primarily insurance contract related
receivables which are determined based upon the underlying
insurance liabilities and added reinsurance amounts.

The estimated fair values of the Company's financial instruments as of
December 31, 1994 and 1995 are as follows:

1994
-----------------------------------
Carrying
Amount Fair Value
----------- -------------
Financial assets:
Fixed maturities:
Held to maturity.................. $38,354,572 $33,356,135
Available for sale............ 63,845,179 63,845,179
Equity securities................. 33,502 33,502
Policy loans (a).................. 5,510,141
Property tax liens (b)............ 175,675
Mortgage loans (c)................ 1,147,409
Cash and cash equivalents......... 16,420,763 16,420,763

Financial liabilities:
Investment contract liabilities... 108,777,009 98,033,821
Short-term debt................... 800,000 800,000
Notes payable..................... 1,987,760 1,987,760

1995
-----------------------------------
Carrying
Amount Fair Value
----------- -------------
Financial assets:
Fixed maturities:

Available for sale............ $116,428,921 $116,428,921
Equity securities................. 15,297 15,297
Policy loans (a).................. 5,622,136
Property tax liens (b)............ 178,908
Mortgage loans (c)................ 1,067,605
Cash and cash equivalents......... 12,289,801 12,289,801

Financial liabilities:
Investment contract liabilities... 118,608,836 108,636,182
Short-term debt................... 800,000 800,000
Notes payable.............. 369,698 369,698

(a) It is not practicable to estimate the fair value of policy loans as
they have no stated maturity and their rates are set at a fixed spread to
related policy liability rates. Policy loans are carried at the aggregate unpaid
principal balances in the consolidated balance sheets, and earn interest at
rates between 6% to 8%. Individual policy liabilities, in all cases, equal or
exceed outstanding policy loan balances.

(b) Property tax liens are carried at cost. The determination of fair value
for these invested assets is not practical because there is no active trading
market for such invested assets. Individual liens in all cases are first
priority liens with collateral in excess of 300% of the carrying value of the
lien.

F-24






(c) Mortgage loans are carried at the aggregate unpaid balances and the
fair market value was not determined as the amount involved was considered to be
immaterial.

14. CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The quarterly results of operations for the two years ended December 31,
1995 are presented below:




1994
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 31, December 31,
------------ ------------ ------------ ------------


Total revenue ........................................ $ 10,913,553 $ 11,513,046 $ 11,848,905 $ 13,757,411
Total benefits, claims & other expenses .............. 10,251,906 11,059,987 11,315,397 13,167,894
------------ ------------ ------------ ------------
Operating income before income taxes ................. 661,647 453,059 533,508 589,517
Federal income tax expense ........................... -- -- -- 9,974
------------ ------------ ------------ ------------
Net income ........................................... 661,647 453,059 553,508 579,543
Dividends on Series A preferred stock ................ (139,481) (142,445) (145,472) (148,563)
Discount on the redemption of
Series A preferred stock ......................... -- -- -- 1,521,695
------------ ------------ ------------ ------------
Net income applicable to common shareholders ......... $ 522,166 $ 310,614 $ 388,036 $ 1,952,675
============ ============ ============ ============
Net income per common share .......................... $ 0.07 $ 0.03 $0.05 $ 0.22
============ ============ ============ ============

1995
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 31, December 31,
------------ ------------ ------------ ------------
Total revenue ....................................... $ 10,855,535 $ 11,137,194 $ 11,110,792 $ 10,618,200
Total benefits, claims & other expenses ............. 10,263,104 10,079,413 10,625,283 10,103,057
------------ ------------ ------------ ------------
Operating income before income taxes ................ 592,431 1,057,781 485,509 515,143
Federal income tax expense (benefit) ................ 201,426 359,646 165,073 (717,113)
------------ ------------ ------------ ------------
Net income applicable to common shareholders ........ $ 391,005 $ 698,135 $ 320,436 $ 1,232,256
============ ============ ============ ============
Net income per common share ......................... $ 0.03 $ 0.07 $0.03 $ 0.12
============ ============ ============ ============


The interim financial data for 1995 vary from amounts previously reported
by the Company on Form 10-Q's due to a change in the application of FASB
Statement No. 109, "Accounting for Income Taxes". The restatement did not affect
the amount of operating income before income taxes in any quarter and had no
impact on the annual financial statements.

F-25








Schedule II -- Condensed Financial Information of Registrant

UNIVERSAL HOLDING CORP.
(Parent Company)
CONDENSED BALANCE SHEETS
December 31, 1994 and 1995

1994 1995
----------- -----------
ASSETS

Cash and cash equivalents ......................... $ 8,532 $ 19,963
Investments in subsidiaries at equity ............. 14,886,407 25,133,107
Due from subsidiary ............................... 2,577,428 259,974
Other assets ...................................... 493,928 71,046
----------- -----------
Total assets ............................. 17,966,295 25,484,090
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Short-term debt ................................... 800,000 800,000
Notes payable ..................................... 1,618,062 --
Due to subsidiary ................................. -- 587,530
Amounts payable and other liabilities ............. 227,641 64,270
----------- -----------
Total liabilities ........................ 2,645,703 1,451,800
----------- -----------
Total stockholders' equity ........................ 15,320,592 24,032,290
----------- -----------
Total liabilities and stockholders' equity $17,966,295 $25,484,090
=========== ===========







See notes to consolidated financial statements.


Schedule Continued

F-26






Schedule II - continued

UNIVERSAL HOLDING CORP.
(Parent Company)
CONDENSED STATEMENTS OF OPERATIONS
For the Three Years Ended December 31, 1995




1993 1994 1995
----------- ---------- ---------


REVENUES:
Net investment income............................. $ 2,558 $ 991 $ 165
---------- ---------- ----------
Total revenues.................................... 2,558 991 165

EXPENSES:
Selling, general and administrative expenses...... 124,765 367,027 640,632
---------- ---------- ----------
Total expenses........................... 124,765 367,027 640,632
---------- ---------- ----------
Operating loss before provision for federal
income taxes and equity income.................. (122,207) (366,036) (640,467)
Federal income taxes.................... . . . . -- -- --
---------- ---------- ----------
Net loss before equity income..................... (122,207) (366,036) (640,467)
Equity in undistributed income.................... 1,675,059 2,593,791 3,282,289
---------- ---------- ----------
Net income........................................ $1,552,852 $2,227,755 $2,641,822
========== ========== ==========




See notes to consolidated financial statements.

Schedule Continued

F-27






Schedule II - continued

UNIVERSAL HOLDING CORP.
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1995



1993 1994 1995
------------- ----------- ------------


Cash flows from operating activities:
Net income .................................................................. $ 1,552,852 $ 2,227,757 $ 2,641,822
Adjustments to reconcile net income to
net cash used by operating activities:
Amortization and depreciation, net ........................................ 9,672 8,293 4,147
Increase in investment in subsidiaries .................................... (1,654,888) (2,593,893) (5,476,975)
Change in amounts due to/from subsidiaries ................................ (505,718) (1,863,217) 2,904,984
Change in other assets and liabilities .................................... (148,770) (254,157) 200,050
----------- ----------- -----------
Net cash (used by) provided from operating activities .......................... (746,852) (2,475,217) 274,028
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ................................ 770,477 1,972,254 1,355,465
Proceeds from issuance of Series B preferred stock ........................ -- 4,000,000 --
Redemption of the Series A preferred stock ................................ -- (4,000,000) --
Redemption of note payable ................................................ -- -- (1,618,062)
Change in short-term debt ................................................. 68,000 400,000 --
----------- ----------- -----------
Net cash provided from (used by) financing activities ......................... 838,477 2,372,254 (262,597)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .......................... 91,625 (102,963) 11,431
Cash and cash equivalents:
At beginning of year .......................................................... 19,870 111,495 8,532
----------- ----------- -----------
At end of year ................................................................ $ 111,495 $ 8,532 $ 19,963
=========== =========== ===========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest ................................................................. $ 14,593 $ 38,650 $ 96,289
=========== =========== ===========
Income taxes ............................................................. $ -- $ -- $ --
============= =========== ===========



Supplemental schedule of non-cash investing and financing activities:

On December 30, 1994, the Company redeemed the Series A preferred stock at
a discount for part cash and issuance of a debenture (see Note 6).

Liquidation preference $ 7,139,757
Cash paid (4,000,000)
Fair value of debenture issued (1,618,062)
-----------
Amount credited to retained earnings $ 1,521,695
===========

See notes to consolidated financial statements

F-28






Schedule III -- Supplementary Insurance Information

UNIVERSAL HOLDING CORP. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION




1993 1994 1995
------------ ------------ ------------


Deferred policy acquisition costs .... $ 11,104,667 $ 14,485,850 $ 16,610,280
============ ============ ============
Policyholder account balances ........ $105,090,827 $108,777,009 $118,608,836
============ ============ ============
Policy and contract claims ........... $ 9,446,904 $ 9,533,289 $ 9,374,815
============ ============ ============
Premiums and policyholder fees earned $ 21,526,142 $ 40,324,480 $ 36,810,937
============ ============ ============
Net investment income ................ $ 2,611,464 $ 3,321,853 $ 2,855,420
============ ============ ============
Claims and other benefits and
change in future policy benefits .... $ 13,172,366 $ 24,050,188 $ 22,367,066
============ ============ ============
Increase in deferred acquisition costs $ 1,383,272 $ 2,977,769 $ 3,363,353
============ ============ ============
Other operating expenses ............. $ 13,872,897 $ 24,486,049 $ 23,199,741
============ ============ ============





F-29


EXHIBIT INDEX

Exhibit No.
- - -----------
3(a) Restated Certificate of Incorporation, consisting of:

(I) Restated Certificate of Incorporation filed
October 4, 1993, is hereby incorporated by
reference to Exhibit 3(a)(3) to Form 10-Q
dated November 11, 1994.

(ii) Certificate of Correction of Restated
Certificate of Incorporation, dated December
13, 1993, is hereby incorporated by
reference to Exhibit 3(a)(2) to Form 10-K
dated March 28, 1994.

(iii) Certificate of Amendment to Restated
Certificate of Incorporation relating to
Series B Preferred Stock, is hereby
incorporated by reference to Exhibit
3.2(III) to Form 8-K dated January 18, 1995.

3(b) By-Laws, as amended, are hereby incorporated by reference to Exhibit
3(b) to Form 10-K for 1989.

4(a) Form of Warrant Certificate:

(I) for Warrants registered under the Exchange
Act of 1934, as amended, is hereby
incorporated by reference to Exhibit 4 to
Current Report on Form 8-K dated July 24,
1992; and

(ii) for Warrants not so registered under the
Exchange Act of 1934, is hereby incorporated
by reference to Exhibit 4.2 to Form S-1
filed March 30, 1990, as amended by the
Warrant Exchange Agreement dated July 15,
1992, filed as Exhibit 28(I) to Current
Report on Form 8-K dated July 24, 1992.

10(a) Agreement dated March 7, 1994 among Registrant and Midland with Exhibit A
is hereby incorporated by reference to Exhibit 10(d)(1) to Form 10-K for
1993.

10(b) Stock Subscription Agreement as of August 12, 1994, between Registrant and
Wand/Universal L.P., as amended by Agreement dated November 23, 1994 is
incorporated by reference to Exhibit 10(e) to Current Report on Form 8-K
dated August 12, 1994 and Exhibit 10.4(1) to Current Report on Form 8-K
dated January 18, 1995.

10(c) Financial Advisory Agreement as of September 1, 1994 between Registrant
and Wand Partners L.P. is incorporated by reference to Exhibit 10(f) to
Current Report on Form 8-K dated August 12, 1994.

10(d) Shareholder Agreement among the Registrant, Wand/Universal Investments
L.P., Barasch Associates Limited Partners and Others, dated December 30,
1994 is incorporated by reference to Exhibit 10(d) to Form 10-K for 1994.

10(e) Special Commitments to the Superintendent of Insurance of the State of New
York, dated January 6, 1995, signed by:

(I) the Registrant, American Progressive, BALP and NMRB Corp. and

(ii) WAND, Wand (Universal) Inc., David S. Callard and Bruce W.
Schnitzer

are incorporated by reference to Exhibit 10(e) to Form 10-K for 1994.

10(f) Loan Agreement between Registrant and Country Bank, dated September 30,
1994, incorporated by reference to Exhibit 10(e) of Form 10-Q dated
November 11, 1994.

22 List of Subsidiaries:

Name Place of Incorporation
---------------------------------- ----------------------
American Progressive Life & Health
Insurance Company of New York New York
American Pioneer Life Insurance Co. Florida
Quincy Coverage Corporation New York
WorldNet Services Corporation Florida
WorldNet Services Corporation Ontario, Canada