FINANCIAL STATEMENTS

Group Hospitalization and Medical Services, Inc.

STATEMENTS OF ADMITTED ASSETS, LIABILITIES, RESERVES
AND OTHER FUNDS
(Statutory Basis)
as of December 31, 1997 and 1996

(in thousands) 1997  1996

ADMITTED ASSETS

Cash and short-term investments $ 36,211 $ 34,673

Investments 197,194 201,059

Real estate 51,500 52,800

Total cash and invested assets  284,905 288,532

Premiums receivable 268,649 264,918

Amounts due from subsidiaries 8,678 13,446

Deposits 8,815 6,312

Data processing equipment, net 4,674 5,955

Investment income due and accrued 2,080 2,800

Other assets 5,200 5,200

Total admitted assets $ 583,986 $ 587,163

LIABILITIES, RESERVES AND OTHER FUNDS

Unpaid claims liability $ 114,955 $ 119,287

Unpaid claims adjustment expenses 5,624 6,088

Unearned premiums 158,266 154,610

Advance deposits 4,850 5,519

Cash overdraft 27,997 25,035

Accounts payable and accrued expenses 19,388 17,849

Federal Employee Program advances 6,515 5,293

Provisions for experience rated settlements 12,040 13,975

Amounts due to subsidiaries 9,781 16,423

Rate stabilization funds 12,006 19,352

Pension and post-retirement benefits 9,956 9,069

Other liabilities 52,792 61,785

Total liabilities 434,170 454,285

Reserves and other funds:

Statutory reserves 1,500 1,500

Subordinated surplus note 44,683 60,000

Unassigned funds 103,633 71,378

Total reserves and other funds 149,816 132,878

Total liabilities, reserves and other funds $ 583,986 $ 587,163

Group Hospitalization and Medical Services, Inc.

STATEMENTS OF OPERATIONS, RESERVES AND OTHER FUNDS
(Statutory Basis)
as of December 31, 1997 and 1996

(in thousands) 1997  1996

Underwriting income:

Premiums earned $ 853,274 $ 840,290

Claims incurred 771,042 765,249

Expenses incurred:

Claims adjustment 54,847 55,755

Administrative 45,281 39,442

Marketing 15,048 13,964

Gross expenses incurred 115,176 109,161

Administrative service fees -36,139 -34,753

Net expenses incurred 79,037 74,408

Total underwriting deductions 850,079 839,657

Net underwriting gain 3,195 633

Investment income:

Investment income earned, net 19,977 20,635

Gain on sales of subsidiaries 0 6,832

Realized capital gains (losses), net 774 -340

Investment income, net 20,751 27,127

Other income:

Bad debt recoveries, net 453 1,420

Other income, net 3,602 2,566

Other income, net 4,055 3,986

Net income before federal income taxes 28,001 31,746

Federal income taxes incurred -752 -485

Net income 27,249 31,261

Reserves and other funds:

Beginning of year 132,878 100,456

Change in:

Net unrealized capital gains 4,139 1,493

Headquarters building valuation -1,300 -3,200

Non-admitted assets -489 648

Net unrealized equity gain on subsidiary investments 2,656 2,220

Surplus note payment -15,317 0

End of year $ 149,816 $ 132,878

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