PacifiCare Health Systems Purchase of Pacific Life's Group Health Insurance BusinessConference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, welcome and thank you for standing by. At this time, all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections, you may disconnect that this time.

I will now turn the meeting over to Mr. Dan Yarbrough, Director of Investor Relations at PacifiCare. Sir, you may begin.

DAN YARBROUGH, DIRECTOR, IR, PACIFICARE HEALTH SYSTEMS, INC.: Thank you. Good afternoon, everyone. Thank you for joining us today to discuss PacifiCare Health Systems' announced transaction with Pacific Life. During this call statements, including those made by Howard Phanstiel and Greg Scott, that are not historical facts are forward-looking statements within the meaning of federal securities laws, and may involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited to, the Company's ability to execute growth strategies; the perceived benefits of this purchase, as well as the acquisition of American Medical Security Group or AMS; the ability to diversify PacifiCare's business; the expectations about the timing and receipt

of regulatory and other approvals; statements regarding plans, objectives and expectations with respect to future operations, products and services; and PacifiCare's future performance in 2005. These risks and uncertainties include, but are not limited to, the ability to implement certain growth or diversification strategies; our ability to consummate the AMS or the Pacific Life transactions within the expected timeframes, and to integrate them successfully into PacifiCare's operations; risks that such integration may be more difficult or costly than expected; that revenue following the transactions and other actual results associated with them could differ from the perceived benefits; member retention may be less than anticipated; required regulatory approval for the transactions may not be obtained on a timely basis or may be subject to certain conditions; as well as other items contained in documents filed by PacifiCare with the Securities and Exchange Commission.

PacifiCare Health Systems and American Medical Security Group and their respective officers and directors may be deemed to be participants in the solicitation of proxies from shareholders of American Medical Security Group, Inc. with respect to the transaction contemplated by the merger agreement between PacifiCare and American Medical Security Group. Information regarding the Company's officers and directors is included in their respective definitive proxy statements for their 2004 annual meeting of shareholders filed with the Securities and Exchange Commission in April 2004. These documents are available free of charge at the Securities and Exchange Commission website at www.SEC.gov, from PacifiCare at PacifiCare.com and from AMS at EAMS.com. Investors and security holders may obtain more detailed information about who may be deemed participants in the solicitation of proxies by reading the AMS proxy statement. Furthermore, investors and security holders of American Medical Security Group are urged to read American Medical Security Group's proxy statement regarding the proposed merger, in that it contains important information about the merger and the transactions contemplated by the merger agreement.

Now, I would like to turn the call over to PacifiCare's Chairman and CEO, Howie Phanstiel.

HOWARD PHANSTIEL, CHAIRMAN & CEO, PACIFICARE HEALTH SYSTEMS, INC.: Thanks, Dan, for that complete introduction. Good afternoon, everyone. Earlier this afternoon, we announced that PacifiCare Health Systems and Pacific Life have signed a definitive agreement whereby PacifiCare will purchase Pacific Life's group health insurance business. With me on the call this afternoon are Greg Scott, PacifiCare's CFO, who will provide some details about the structure of the transaction in a moment, and Brad Bolus, the President of our Health Plan Division, who will answer questions about our marketing strategies for the transaction.

We expect this purchase to add up to 140,000 new small- and large-group PPO members, which equates to a commercial membership increase of about 6 percent, based on our reported September 30, 2004 membership, and is in addition to a commercial number increase of more than 13 percent related to our recently announced acquisition of American Medical Security Group or AMS.

The purchase of Pacific Life's group health business is a logical follow-on to the AMS acquisition, and will serve to leverage the expanded small-group capabilities we will obtain from AMS. Obviously, the timing of this transaction, following so closely on the heels of the AMS acquisition, suggests that we have contemplated their joint integration for some time. And, while each acquisition stands alone with respect to its own financial merits, their combination with PacifiCare's existing individual and small-group business, which has recently experienced rapid organic growth in its own right, now in my opinion puts us on the map in the individual and small-group marketplace.

As the health-care industry continues to focus on more affordable consumer-directed health plans such as HSAs, we continue to think that this is where we will have the best opportunities for commercial growth in the coming years. The Pacific Life transaction expands both the size and scale of our geographic presence, as the membership is spread over 30 states. But more than 55 percent of Pacific …