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Ceres Group, Inc.                 Correspondence

October 27, 2005

VIA FACSIMILE (202-772-9217) AND VIA EDGAR (CORRESP)

United States Securities and Exchange Commission

Mail Stop 6010

Washington, D.C. 20549

    Attn:

    Ibolya Ignat, Staff Accountant

Division of Corporation Finance

    Re:

    Ceres Group, Inc.

Form 10-K for Fiscal Year Ended December 31, 2004

Filed March 18, 2005

File No. 000-08483

Dear Ms. Ignat:

We are in receipt of your comment letter to our August 9, 2005 response, dated October 17, 2005,
regarding the Commission’s limited review of Ceres’ Form 10-K for the year ended December 31, 2004.
Our responses to your additional comments follow and are numbered to correspond to the numbered
paragraphs in your letter.

Form 10-K for the fiscal year ended December 31, 2004

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
page 22

Critical Accounting Policies, page 22

Liabilities for Other Policy Claims and Benefits Payable, page 22

    1.

    Refer to your response to comment one. Please revise your proposed disclosure related to
your “Long-Term Care Disabled Life Reserves” to include some sensitivity analysis related to
the key factor that affect the reserves.

RESPONSE TO 1:

The following is proposed additional disclosure we would include at the end of the first paragraph
of the revised disclosure under “MD&A — Critical Accounting Policies — Liabilities for Other
Policy Claims and Benefits Payable — Long-Term Care Disabled Life Reserves”:

Securities & Exchange Commission

October 27, 2005

Page 2

    “A hypothetical 1% annual increase in the assumed termination rate in the continuance tables
would result in an approximately 2% increase in the case reserve, or $500,000 at December
31, 2004.”

    2.

    Refer to your response to comment two. Please revise your proposed discussion of what
resulted in the material deficiencies/redundancies to more specifically address the key
assumptions that changed that caused such changes. Include the loss years that affected these
changes in estimates. Further explain to us why a trend that became evident when the backlog
was processed does not represent an error given that the trend should have been known at the
time of the financial statements.

RESPONSE TO 2:

The following is proposed revised disclosure to replace the penultimate paragraph of the revised
disclosure under “MD&A — Critical Accounting Policies — Liabilities for Other Policy Claims and
Benefits Payable — Adequacy of Liability for Other Policy Claims and Benefits Payable”:

“As discussed above, liability estimates are developed using actuarial principles and
assumptions that consider a variety of issues. Changes in the completion and trend factors
can have a significant effect on these liability estimates. For example, in the Medical
segment, the deficiency in the 2001 reserves (which emerged in 2002) was due to a higher
ultimate claim trend (including severity and frequency) compared to the historical claim
trends that were utilized in the establishment of the December 31, 2001 reserves. Although
we were aware of the number of claims that existed in a significant claim inventory backlog
at the time of the establishment of the 2001 year-end reserves, and had reflected that in
our estimated liabilities at that time, the claims (once paid out in the first half of 2002)
reflected a higher than expected trend, including severity and frequency. This ultimate
claim trend with the benefit of hindsight with payment of the underlying claims was
significantly higher than historical claim trends that were used to establish the reserves.
The redundancy in the 2002 reserves (which emerged in 2003) was due to the moderation of the
claim trend over 2001 levels. The redundancy in the 2003 reserves (which emerged in 2004)
reflects the successful cancellation of unprofitable business in 2002 and the subsequent
improvement in actual claims experience, as well as the improving claim trend.”

As we stated in our proposed disclosure in our August 9, 2005 letter under “MD&A — Critical
Accounting Policies — Liabilities for Other Policy Claims and Benefits Payable,” we develop “best
estimate reserves” for our lines of business. The December 31, 2001 major medical reserves were
developed using actuarial principles and assumptions that considered, among other things,
historical claim payment patterns, claim inventory levels, network reimbursement changes,
historical utilization trends, current levels of authorized inpatient days, other medical cost
inflation factors, in force levels, benefit design changes, seasonality, demographic mix change and
expected costs to settle unpaid claims. Appropriately, we used historical claim trends known at
the time of the preparation of the December 31, 2001 financial statements to establish the
reserves. However, with the benefit of hindsight, the actual claim trend, including

Securities & Exchange Commission

October 27, 2005

Page 3

severity and frequency and the subsequent reporting of 2001 incurred claims (IBNR), was
significantly higher than the historical claim trends. The higher than expected claim trend that
caused the reserve deficiency at December 31, 2001 was not an error because it was reasonable for
us to rely on the historical claim trends and the higher trend was not known at the time of the
establishment of the reserves and reporting of the 2001 financial statements. The higher claim
trend was only visible with the benefit of hindsight with payment of the underlying claims and
could not be predicted at the time of the establishment of the reserves.

Liquidity and Capital Resources, page 34

    3.

    Refer to your response to comment four. In your response, you cite two main factors for the
changes in your other policy claims and benefits payable balance. Please tell us where you
disclose these factors in your filing. If this discussion is not present, please explain to
us why such a discussion is not merited to better understand the changes that have taken place
in your reserve balances.

RESPONSE TO 3:

In our response to comment four, we cite two main factors for the changes in our other policy
claims and benefits payable balance — namely, (1) our declining block of major medical business in
force and (2) the decline of our outstanding claim inventory. In several places in our MD&A, we
specifically mention or discuss our declining block of major medical business. For example:

    •

    Page 26 — Last full paragraph in “Overview and Outlook for 2005” — we stated that
“[p]remiums in the Medical segment decreased approximately 19.1% in 2004 due to the decline
in major medical certificates in force . . . .”

    •

    Page 28 — Both paragraphs under “Net Premiums — Medical” — we stated that “[t]he
decrease in medical premiums was primarily the result of a 20.7% decrease in major medical
certificates in force from 84,167 at December 21, 2003 to 66,724 at December 31, 2004 due
to higher lapsation rates.”

    •

    Page 29 — “Benefits, Claims, Losses and Settlement Expenses — Medical” — we stated
that “[t]he decrease was primarily the result of a smaller volume of business in force due
to the reduction in medical business as a result of higher than anticipated lapse rates.”

    •

    Page 29 — “Benefits, Claims, Losses and Settlement Expenses — Medical” — we stated
that “[t]he improvement in the loss ratio was due primarily to favorable run-off of prior
year claim reserves.”

However, we would propose the following additional disclosure in “Liquidity and Capital Resources”
in order to further link the decrease in net cash provided by operating activities to the
significant reduction in our major medical claims reserves at December 31, 2004 to our declining
block of major medical business in force and the decline in our claim inventory. We would change
the second bullet point on page 34 as follows:

“a significant reduction in our major medical claims reserves as of December 31, 2004
due to our declining block of major medical business in force and the decline in our
claim inventory;”

Securities & Exchange Commission

October 27, 2005

Page 4

We believe that we have addressed all of your additional comments. If you have any additional
questions, please feel free to contact me at 440-878-2941.

Very truly yours,

CERES GROUP, INC.

    By:

    David I. Vickers

    Its:

    Executive Vice President, Chief Financial Officer and Treasurer

    cc:

    Thomas J. Kilian, Chief Executive Officer and President

    Kathleen L. Mesel, Executive Vice President, General Counsel & Secretary