709878--3/16/2006--UNIVERSAL_AMERICAN_FINANCIAL

related topics

{regulation, government, change}

{loss, insurance, financial}

{capital, credit, financial}

{debt, indebtedness, cash}

{acquisition, growth, future}

{cost, contract, operation}

{personnel, key, retain}

{tax, income, asset}

{product, liability, claim}

{operation, international, foreign}

{control, financial, internal}

{operation, natural, condition}

{regulation, change, law}

{interest, director, officer}

{property, intellectual, protect}

{system, service, information}

Risks Related To Our Overall Business We have a significant amount of debt outstanding that contains restrictive covenants and we may be unable to service and repay our debt obligations if our subsidiaries cannot pay sufficient dividends or make other cash payments to us. Capital constraints could restrict our ability to support our premium growth. If we are required to maintain higher statutory capital levels for our existing operations or if we are subject to additional capital reserve requirements as we pursue new business opportunities, our cash flows and liquidity may be adversely affected. If state regulators do not approve payments, including dividends and other distributions, by our subsidiaries to us, our business and growth strategy could be materially impaired or we could be required to incur additional indebtedness to fund these strategies. We hold reserves for expected claims, which are estimated, and these estimates involve an extensive degree of judgment; if actual claims exceed reserve estimates, our results could be materially adversely affected. Our financial strength rating is lower than several distributors minimum acceptable rating and could affect our competitiveness and results of operations. Failure to maintain our information systems could adversely affect our business. We may not be able to find suitable acquisition candidates. There is no assurance that we will continue to be successful in managing our growing operations or in integrating acquired companies into our operations. Most of our assets are invested in fixed income securities and are subject to market fluctuations. Compliance with recently enacted laws and regulations is complex and expensive. We are required to comply with laws governing the transmission, security and privacy of health information that require significant compliance costs, and any failure to comply with these laws could result in material criminal and civil penalties. We are subject to extensive government regulation, and any violation of the laws and regulations applicable to us could reduce our revenues and profitability and otherwise adversely affect our operating results. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 made changes to the Medicare program that will materially impact our operations and could reduce our profitability and increase competition for existing and prospective members. We may be unable to provide the new Medicare Part D benefit profitably (See also Risks Related To Our Prescription Drug Plan Business ): We have identified a material weakness in our internal control over financial reporting, and our business and stock price may be adversely affected if we have not adequately addressed the weakness or if we have other material weaknesses or significant deficiencies in our internal control over financial reporting. Restrictions on our ability to market would adversely affect our revenue. We may be responsible for the actions of our independent and career agents. Legal and regulatory investigations and actions are increasingly common in the insurance and managed care business and may result in financial losses and harm our reputation. The occurrence of natural or man-made disasters could adversely affect our financial condition and results of operation. Our business may suffer if we are not able to hire and retain sufficient qualified personnel or if we lose our key personnel. Risks Related To Our Medicare Advantage Business If our government contracts are not renewed or are terminated, our business could be substantially impaired. Because our Medicare Advantage premiums, which generate most of our Medicare Advantage revenues, are fixed by contract, we are unable to increase our Medicare Advantage premiums during the contract term if our corresponding medical benefits expense exceeds our estimates. We derive a substantial portion of our Medicare Advantage revenues and profits from Medicare Advantage operations in Texas, and legislative actions, economic conditions or other factors that adversely affect those operations could materially reduce our revenues and profits. CMS s risk adjustment payment system and budget neutrality factors make our revenue and profitability difficult to predict and could result in material retroactive adjustments to our results of operations. If we are unable to maintain satisfactory relationships with our providers, our profitability could decline and we may be precluded from operating in some markets. We may not have adequate intellectual property rights in our brand names for our health plans, and we may be unable to adequately enforce such rights. We are subject to competition that may limit our ability to increase or maintain membership in the markets we serve. Claims relating to medical malpractice and other litigation could cause us to incur significant expenses. Negative publicity regarding the managed care industry generally or us in particular may harm our business and operating results. Risks Related To Our Insurance Business Our net income may decline if our premium rates are not adequate. Our reserves for future policy benefits and claims may prove to be inadequate, requiring us to increase liabilities and resulting in reduced net income and shareholders equity. The availability of reinsurance on acceptable terms and the financial stability of our reinsurers could impact our ability to manage risk and increase the volume of insurance that we sell. Changes in the exchange rate between the U.S. dollar and the Canadian dollar may impact our results. We may experience future lapsation in our Medicare Supplement business. We may experience higher than expected loss ratios in our Medicare Supplement business. We may not be able to compete successfully if we cannot recruit and retain insurance agents. We may be required to refund or reduce premiums if our premium rates are determined to be too high. We have stopped selling new long term care insurance and the premiums that we charge for the policies that remain in force may not be adequate to cover the claims expenses that we incur. Risks Related To Our Prescription Drug Plan Business We have incurred and may continue to incur significant expenses in connection with implementing our new prescription drug benefits, which may have an adverse effect on our near-term operating results. Recent challenges faced by CMS and our plans information and reporting systems related to implementation of Part D may temporarily disrupt or adversely affect our plans relationships with our members. There are significant risks associated with our participation in the Medicare Part D program.

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709878--3/16/2006--UNIVERSAL_AMERICAN_FINANCIAL_CORP