##### 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



|[X] |  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  |  | ---------------------------------------------------------------------------------------



|For the quarterly period ended | March 31, 2003
|------------------------------ | --------------
|                               |               

OR



|[   ] |  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|----- |  |  | ----------------------------------------------------------------------------------------



|For the transition period from |  | to | 
|------------------------------ |  | -- | 
|                               |  |    | 



|Commission file number | 1-6026
|---------------------- | ------
|                       |       

The Midland Company
(Exact name of registrant as specified in its charter)

|                                              |  |                                     
|--------------------------------------------- |  | ------------------------------------
|Ohio                                          |  | 31-0742526                          
|                                              |  |                                     
|(State or other jurisdiction of incorporation |  | (I.R.S. Employer Identification No.)
|or organization)                              |  |                                     

7000 Midland Boulevard, Amelia, Ohio 45102-2607

(Address of principal executive offices)
(Zip Code)

(513) 943-7100

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes ü. No .

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ü. No .

The number of common shares outstanding as of April 17, 2003 was
17,623,592.





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##### 



PART I. FINANCIAL INFORMATION
ITEM 1  FINANCIAL STATEMENTS
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                          |                                                                                   |              |        |         |             |         |          |         |           |         | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------ | ------ | ------- | ----------- | ------- | -------- | ------- | --------- | ------- | 
|                                                          |                                                                                   |              |        |         | (Unaudited) |         |          |         |          
|                                                          |                                                                                   |              |        |         | March 31,   |         | Dec. 31,
|ASSETS                                                    |                                                                                   | 2003         |        | 2002   
|                                                          |                                                                                   |              |        |        
|MARKETABLE SECURITIES AVAILABLE FOR SALE:                 |                                                                                   |              |        |         |             |         |          |        
|                                                          | Fixed income (cost, $563,309 at March 31, 2003 and
$572,768 at December 31, 2002) |              | $      | 591,952 |             |         | $        | 600,920 |          
|                                                          | Equity (cost, $87,547 at March 31, 2003 and
$91,239 at December 31, 2002)         |              |        | 131,061 |             |         |          | 138,838 |          
|                                                          |                                                                                   |              |        |         |             |         |          |        
|                                                          |                                                                                   |              | Total  |         |             | 723,013 |          |         |           | 739,758 | 
|                                                          |                                                                                   |              |        |         |             |         |          |        
|CASH                                                      |                                                                                   |              | 7,579  |         |             |         | 5,975    |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|ACCOUNTS RECEIVABLE  NET                                 |                                                                                   |              | 87,361 |         |             |         | 91,633   |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS |                                                                                   |              | 72,258 |         |             |         | 76,626   |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|PROPERTY, PLANT AND EQUIPMENT  NET                       |                                                                                   |              | 60,468 |         |             |         | 61,510   |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|DEFERRED INSURANCE POLICY ACQUISITION COSTS               |                                                                                   |              | 90,942 |         |             |         | 96,396   |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|OTHER ASSETS                                              |                                                                                   |              | 18,234 |         |             |         | 18,776   |        
|                                                          |                                                                                   |              |        |         |             |         |          |        
|                                                          |                                                                                   | TOTAL ASSETS |        | $       | 1,059,855   |         |          | $       | 1,090,674 |        
|                                                          |                                                                                   |              |        |         |             |         |          |        

See notes to condensed consolidated financial statements.

2



---



##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |         |           | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | --------- | -------- | ------- | ------- | --------- | 
|                                                                 |                                                                                                                                                                                             |                                            |         | (Unaudited) |           |          |         |        
|                                                                 |                                                                                                                                                                                             |                                            |         | March 31,   |           | Dec. 31,
|LIABILITIES & SHAREHOLDERS' EQUITY                               |                                                                                                                                                                                             | 2003                                       |         | 2002       
|                                                                 |                                                                                                                                                                                             |                                            |         |            
|UNEARNED INSURANCE PREMIUMS                                      |                                                                                                                                                                                             | $                                          | 386,690 |             |           | $        | 406,311 |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|INSURANCE LOSS RESERVES                                          |                                                                                                                                                                                             |                                            | 161,405 |             |           |          | 164,717 |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|INSURANCE COMMISSIONS PAYABLE                                    |                                                                                                                                                                                             |                                            | 30,247  |             |           |          | 30,654  |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES |                                                                                                                                                                                             |                                            | 4,103   |             |           |          | 2,977   |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|LONG-TERM DEBT                                                   |                                                                                                                                                                                             |                                            | 46,787  |             |           |          | 47,163  |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|OTHER NOTES PAYABLE:                                             |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|                                                                 | Banks                                                                                                                                                                                       |                                            |         | 25,000      |           |          |         | 39,000  |          
|                                                                 | Commercial paper                                                                                                                                                                            |                                            |         | 4,240       |           |          |         | 4,238   |          
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                             | Total                                      |         |             | 29,240    |          |         |         | 43,238    | 
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|DEFERRED FEDERAL INCOME TAX                                      |                                                                                                                                                                                             |                                            | 34,381  |             |           |          | 35,642  |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|OTHER PAYABLES AND ACCRUALS                                      |                                                                                                                                                                                             |                                            | 50,598  |             |           |          | 51,064  |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|COMMITMENTS AND CONTINGENCIES                                    |                                                                                                                                                                                             |                                            |        |             |           |          |        |        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|SHAREHOLDERS EQUITY:                                            |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|                                                                 | Common stock (issued and outstanding: 17,609 shares
at March 31, 2003 and 17,566 shares at December 31,
2002 after deducting treasury stock of 4,247
shares and 4,290 shares, respectively) |                                            |         | 911         |           |          |         | 911     |          
|                                                                 | Additional paid-in capital                                                                                                                                                                  |                                            |         | 22,838      |           |          |         | 22,516  |          
|                                                                 | Retained earnings                                                                                                                                                                           |                                            |         | 289,039     |           |          |         | 279,826 |          
|                                                                 | Accumulated other comprehensive income                                                                                                                                                      |                                            |         | 45,211      |           |          |         | 47,573  |          
|                                                                 | Treasury stock  at cost                                                                                                                                                                    |                                            |         | (41,353     | )         |          |         | (41,605 | )        
|                                                                 | Unvested restricted stock awards                                                                                                                                                            |                                            |         | (242        | )         |          |         | (313    | )        
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                             | Total                                      |         |             | 316,404   |          |         |         | 308,908   | 
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                             | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |         | $           | 1,059,855 |          |         | $       | 1,090,674 | 
|                                                                 |                                                                                                                                                                                             |                                            |         |             |           |          |         |        

See notes to condensed consolidated financial statements.

3



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##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 Amounts in 000s except per share data

|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |       |         |       |         | 
|---------------------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------------- | ---------- | ------- | ---- | ------- | ----- | ------- | ----- | ------- | 
|                                                                                         |                                             |                                                |                                                                   |            |         | 2003 |         | 2002 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|REVENUES:                                                                                |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         | Insurance:                                  |                                                |                                                                   |            |         |      |         |       |        
|                                                                                         |                                             | Premiums earned                                |                                                                   | $          | 153,278 |      |         | $     | 136,470 |      
|                                                                                         |                                             | Net investment income                          |                                                                   |            | 8,395   |      |         |       | 8,706   |      
|                                                                                         |                                             | Net realized investment gains (losses)         |                                                                   |            | (1,763  | )    |         |       | (301    | )    
|                                                                                         |                                             | Other insurance income                         |                                                                   |            | 1,578   |      |         |       | 1,624   |      
|                                                                                         | Transportation                              |                                                |                                                                   | 5,845      |         |      |         | 5,881 |        
|                                                                                         | Other                                       |                                                |                                                                   | 62         |         |      |         | 152   |        
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                |                                                                   | Total      |         |      | 167,395 |       |         |       | 152,532 | 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|COSTS AND EXPENSES:                                                                      |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         | Insurance:                                  |                                                |                                                                   |            |         |      |         |       |        
|                                                                                         |                                             | Losses and loss adjustment expenses            |                                                                   |            | 78,647  |      |         |       | 69,623  |      
|                                                                                         |                                             | Commissions and other policy acquisition costs |                                                                   |            | 47,805  |      |         |       | 41,922  |      
|                                                                                         |                                             | Operating and administrative expenses          |                                                                   |            | 19,770  |      |         |       | 20,819  |      
|                                                                                         | Transportation operating expenses           |                                                |                                                                   | 5,805      |         |      |         | 6,231 |        
|                                                                                         | Interest expense                            |                                                |                                                                   | 939        |         |      |         | 784   |        
|                                                                                         | Other operating and administrative expenses |                                                |                                                                   | 325        |         |      |         | 236   |        
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                |                                                                   | Total      |         |      | 153,291 |       |         |       | 139,615 | 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|INCOME BEFORE FEDERAL INCOME TAX AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |                                             |                                                | 14,104                                                            |            |         |      | 12,917  |      
|PROVISION FOR FEDERAL INCOME TAX                                                         |                                             |                                                | 4,055                                                             |            |         |      | 3,597   |      
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE                        |                                             |                                                | 10,049                                                            |            |         |      | 9,320   |      
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                      |                                             |                                                |                                                                  |            |         |      | (1,463  | )    
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                |                                                                   | NET INCOME |         | $    | 10,049  |       |         | $     | 7,857   | 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|BASIC EARNINGS PER SHARE OF COMMON STOCK:                                                |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                | Income before cumulative effect of change in accounting principle |            | $       | 0.58 |         |       | $       | 0.54  |        
|                                                                                         |                                             |                                                | Cumulative effect of change in accounting principle               |            |         |     |         |       |         | (0.08 | )      
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                |                                                                   | Total      |         | $    | 0.58    |       |         | $     | 0.46    | 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|DILUTED EARNINGS PER SHARE OF COMMON STOCK:                                              |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                | Income before cumulative effect of change in accounting principle |            | $       | 0.56 |         |       | $       | 0.52  |        
|                                                                                         |                                             |                                                | Cumulative effect of change in accounting principle               |            |         |     |         |       |         | (0.08 | )      
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|                                                                                         |                                             |                                                |                                                                   | Total      |         | $    | 0.56    |       |         | $     | 0.44    | 
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      
|CASH DIVIDENDS PER SHARE OF COMMON STOCK  DECLARED                                      |                                             | $                                              | .04750                                                            |            |         | $    | .04375  |      
|                                                                                         |                                             |                                                |                                                                   |            |         |      |         |      

See notes to condensed consolidated financial statements.

4



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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (Unaudited)
Amounts in 000s

|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |   |        |       | 
|-------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------ | -------------------------- |  | ------ | - | ------- | ----- | ---------- | - | ---------- | ---- | -------- | - | ---------- |  | ----------- | - | ------- | ------ | ---------- | - | -------- | -- |  | - | ------- | ------ | ------ | - |  | - | ------ | ----- | 
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  | Accumulated |   |         |        |            |   | Unvested |    |  |   |         |        |        |   | 
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       | Additional |   |            |      |          |   | Other Com- |  |             |   |         |        | Restricted |   |          |    |  |   | Compre-
|                           |                                                                                |                                                                                                  |                            |  | Common |   | Paid-In |       | Retained   |   | prehensive |      | Treasury |   | Stock      |  |             |   |         |        | hensive   
|                           |                                                                                |                                                                                                  |                            |  | Stock  |   | Capital |       | Earnings   |   | Income     |      | Stock    |   | Awards     |  | Total       |   | Income 
|                           |                                                                                |                                                                                                  |                            |  |       
|BALANCE, DECEMBER 31, 2001 |                                                                                | $                                                                                                | 911                        |  |        | $ | 20,386  |       |            | $ | 264,057    |      |          | $ | 45,875     |  |             | $ | (38,698 | )      |            | $ | (655     | )  |  | $ | 291,876 |        |        |   |  |  
|                           | Comprehensive income:                                                          |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |   |       
|                           |                                                                                | Net income                                                                                       |                            |  |        |   |         |       |            |   |            |      | 7,857    |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        | 7,857  |   |  | $ | 7,857  |      
|                           |                                                                                | Increase in unrealized gain on
marketable securities, net of related
income tax effect of $238   |                            |  |        |   |         |       |            |   |            |      |          |   |            |  | 390         |   |         |        |            |   |          |    |  |   |         |        | 390    |   |  |   | 390    |      
|                           |                                                                                | Other, net of federal income tax of $86                                                          |                            |  |        |   |         |       |            |   |            |      |          |   |            |  | 160         |   |         |        |            |   |          |    |  |   |         |        | 160    |   |  |   | 160    |      
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |  
|                           |                                                                                |                                                                                                  | Total comprehensive income |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |   | $      | 8,407 | 
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |  
|                           | Purchase of treasury stock                                                     |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         | (3,290 | )          |   |          |    |  |   |         | (3,290 | )      |   |  |   |       
|                           | Issuance of treasury stock for options
exercised and employee savings plan     |                                                                                                  |                            |  |        |   |         | 63    |            |   |            |      |          |   |            |  |             |   |         | 290    |            |   |          |    |  |   |         | 353    |        |   |  |   |       
|                           | Cash dividends declared                                                        |                                                                                                  |                            |  |        |   |         |       |            |   |            | (767 | )        |   |            |  |             |   |         |        |            |   |          |    |  |   |         | (767   | )      |   |  |   |       
|                           | Federal income tax benefit related to the
exercise or granting of stock awards |                                                                                                  |                            |  |        |   |         | 1,473 |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         | 1,473  |        |   |  |   |       
|                           | Amortization and cancellation of
unvested restricted stock awards              |                                                                                                  |                            |  |        |   |         | (2    | )          |   |            |      |          |   |            |  |             |   |         | (5     | )          |   |          | 78 |  |   |         | 71     |        |   |  |   |       
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |           
|BALANCE, MARCH 31, 2002    |                                                                                | $                                                                                                | 911                        |  |        | $ | 21,920  |       |            | $ | 271,147    |      |          | $ | 46,425     |  |             | $ | (41,703 | )      |            | $ | (577     | )  |  | $ | 298,123 |        |        |   |  |  
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |           
|BALANCE, DECEMBER 31, 2002 |                                                                                | $                                                                                                | 911                        |  |        | $ | 22,516  |       |            | $ | 279,826    |      |          | $ | 47,573     |  |             | $ | (41,605 | )      |            | $ | (313     | )  |  | $ | 308,908 |        |        |   |  |  
|                           | Comprehensive income:                                                          |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |   |       
|                           |                                                                                | Net income                                                                                       |                            |  |        |   |         |       |            |   |            |      | 10,049   |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        | 10,049 |   |  | $ | 10,049 |      
|                           |                                                                                | Decrease in unrealized gain on
marketable securities, net of related
income tax effect of $1,251 |                            |  |        |   |         |       |            |   |            |      |          |   |            |  | (2,343      | ) |         |        |            |   |          |    |  |   |         |        | (2,343 | ) |  |   | (2,343 | )    
|                           |                                                                                | Other, net of federal income tax of $10                                                          |                            |  |        |   |         |       |            |   |            |      |          |   |            |  | (19         | ) |         |        |            |   |          |    |  |   |         |        | (19    | ) |  |   | (19    | )    
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |  
|                           |                                                                                |                                                                                                  | Total comprehensive income |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |   | $      | 7,687 | 
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          |    |  |   |         |        |        |   |  |  
|                           | Purchase of treasury stock                                                     |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         | (380   | )          |   |          |    |  |   |         | (380   | )      |   |  |   |       
|                           | Issuance of treasury stock for options
exercised and employee savings plan     |                                                                                                  |                            |  |        |   |         | 322   |            |   |            |      |          |   |            |  |             |   |         | 632    |            |   |          |    |  |   |         | 954    |        |   |  |   |       
|                           | Cash dividends declared                                                        |                                                                                                  |                            |  |        |   |         |       |            |   |            | (836 | )        |   |            |  |             |   |         |        |            |   |          |    |  |   |         | (836   | )      |   |  |   |       
|                           | Amortization and cancellation of
unvested restricted stock awards              |                                                                                                  |                            |  |        |   |         |       |            |   |            |      |          |   |            |  |             |   |         |        |            |   |          | 71 |  |   |         | 71     |        |   |  |   |       
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |           
|BALANCE, MARCH 31, 2003    |                                                                                | $                                                                                                | 911                        |  |        | $ | 22,838  |       |            | $ | 289,039    |      |          | $ | 45,211     |  |             | $ | (41,353 | )      |            | $ | (242     | )  |  | $ | 316,404 |        |        |   |  |  
|                           |                                                                                |                                                                                                  |                            |  |        |   |         |       |           

See notes to condensed consolidated financial statements.

5



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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE-MONTHS ENDED MARCH 31, 2003 AND 2002
Amount in 000s

|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |          |        |        |  
|------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------- | ------ | -------- | ------ | ------ | -
|                                      |                                                                                             |                                                                                         |                                                     |          | 2003    |         | 2002  
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      | Net income                                                                                  |                                                                                         | $                                                   | 10,049   |         |         | $      | 7,857    |       
|                                      | Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |                                                                                         |                                                     |          |         |         |        |          |       
|                                      |                                                                                             | Depreciation and amortization                                                           |                                                     |          | 2,144   |         |        |          | 2,087  |       
|                                      |                                                                                             | Cumulative effect of change in accounting for goodwill                                  |                                                     |          |        |         |        |          | 2,251  |       
|                                      |                                                                                             | Net realized investment losses (gains)                                                  |                                                     |          | 862     |         |        |          | (145   | )     
|                                      |                                                                                             | Decrease in unearned insurance premiums                                                 |                                                     |          | (19,621 | )       |        |          | (5,064 | )     
|                                      |                                                                                             | Decrease in deferred insurance policy acquisition costs                                 |                                                     |          | 5,454   |         |        |          | 3,292  |       
|                                      |                                                                                             | Decrease (increase) in reinsurance recoverables and prepaid
reinsurance premiums        |                                                     |          | 4,368   |         |        |          | (6     | )     
|                                      |                                                                                             | Decrease in net accounts receivable                                                     |                                                     |          | 4,272   |         |        |          | 1,699  |       
|                                      |                                                                                             | Decrease in insurance loss reserves                                                     |                                                     |          | (3,312  | )       |        |          | (1,809 | )     
|                                      |                                                                                             | Increase (decrease) in funds held under reinsurance
agreements and reinsurance payables |                                                     |          | 1,126   |         |        |          | (4,065 | )     
|                                      |                                                                                             | Decrease in other accounts payable and accruals                                         |                                                     |          | (565    | )       |        |          | (8,253 | )     
|                                      |                                                                                             | Decrease in other assets                                                                |                                                     |          | 542     |         |        |          | 546    |       
|                                      |                                                                                             | Decrease in insurance commissions payable                                               |                                                     |          | (407    | )       |        |          | (1,633 | )     
|                                      |                                                                                             | Other-net                                                                               |                                                     |          | 1,333   |         |        |          | (455   | )     
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      |                                                                                             |                                                                                         | Net cash provided by (used in) operating activities |          |         | 6,245   |        |          |        | (3,698 | )
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      | Purchase of marketable securities                                                           |                                                                                         |                                                     | (142,072 | )       |         |        | (109,237 | )     
|                                      | Sale of marketable securities                                                               |                                                                                         |                                                     | 79,286   |         |         |        | 70,614   |       
|                                      | Increase in cash equivalent marketable securities                                           |                                                                                         |                                                     | 46,707   |         |         |        | 27,687   |       
|                                      | Maturity of marketable securities                                                           |                                                                                         |                                                     | 27,045   |         |         |        | 10,048   |       
|                                      | Acquisition of property, plant and equipment                                                |                                                                                         |                                                     | (1,079   | )       |         |        | (3,293   | )     
|                                      | Proceeds from sale of property, plant and equipment                                         |                                                                                         |                                                     | 39       |         |         |        | 18       |       
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      |                                                                                             |                                                                                         | Net cash provided by (used in) investing activities |          |         | 9,926   |        |          |        | (4,163 | )
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      | Increase (decrease) in net short-term borrowings                                            |                                                                                         |                                                     | (13,998  | )       |         |        | 6,161    |       
|                                      | Issuance of treasury stock                                                                  |                                                                                         |                                                     | 954      |         |         |        | 353      |       
|                                      | Dividends paid                                                                              |                                                                                         |                                                     | (767     | )       |         |        | (711     | )     
|                                      | Purchase of treasury stock                                                                  |                                                                                         |                                                     | (380     | )       |         |        | (3,290   | )     
|                                      | Repayment of long-term debt                                                                 |                                                                                         |                                                     | (376     | )       |         |        | (363     | )     
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|                                      |                                                                                             |                                                                                         | Net cash provided by (used in) financing activities |          |         | (14,567 | )      |          |        | 2,150  |  
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|NET INCREASE (DECREASE) IN CASH       |                                                                                             |                                                                                         | 1,604                                               |          |         |         | (5,711 | )       
|CASH AT BEGINNING OF PERIOD           |                                                                                             |                                                                                         | 5,975                                               |          |         |         | 11,286 |         
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|CASH AT END OF PERIOD                 |                                                                                             | $                                                                                       | 7,579                                               |          |         | $       | 5,575  |         
|                                      |                                                                                             |                                                                                         |                                                     |          |         |         |        |         
|INTEREST PAID                         |                                                                                             | $                                                                                       | 897                                                 |          |         | $       | 790    |         
|INCOME TAXES PAID                     |                                                                                             | $                                                                                       |                                                    |          |         | $       | 500    |         

See notes to the condensed consolidated financial statements.

6



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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2003

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of The
Midland Company and subsidiaries (Midland) have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete annual financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Financial information as of December 31, 2002 has been derived from the audited
consolidated financial statements of Midland. Revenue and operating results
for the three-month period ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003. For
further information, refer to the audited consolidated financial statements and
footnotes thereto for the year ended December 31, 2002 included in Midlands
Annual Report on Form 10-K.

2. TWO-FOR-ONE STOCK SPLIT

On June 17, 2002, Midland announced a two-for-one stock split effective July
17, 2002 for holders of record on July 8, 2002. Accordingly, data related to
Midlands common stock (number of shares, average shares outstanding, earnings
per share and dividends per share) have been adjusted for the prior period to
reflect the impact of this stock split.

3. EARNINGS PER SHARE

Earnings per share (EPS) of common stock amounts are computed by dividing net
income by the weighted average number of shares outstanding during the period
for basic EPS, plus the dilutive share equivalents for stock options and
restricted stock awards for diluted EPS. Shares used for EPS calculations were
as follows (000s):

|                             |      |  |               |        |                 |  |  |        | 
|---------------------------- | ---- |  | ------------- | ------ | --------------- |  |  | ------ | 
|                             |      |  | For Basic EPS |        | For Diluted EPS
|                             |      |  |               |        |                
|Three months ended March 31: |      |  |               |        |                 |  |  |       
|                             | 2003 |  |               | 17,387 |                 |  |  | 17,829 | 
|                             |      |  |               |        |                 |  |  |       
|                             | 2002 |  |               | 17,275 |                 |  |  | 17,838 | 
|                             |      |  |               |        |                 |  |  |       

4. INCOME TAXES

The federal income tax provisions for the three-month periods ended March 31,
2003 and 2002 are different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (000s):

|                                     |                                                    |                                  |       |      |       |      |       |        |       | 
|------------------------------------ | -------------------------------------------------- | -------------------------------- | ----- | ---- | ----- | ---- | ----- | ------ | ----- | 
|                                     |                                                    |                                  |       | 2003 |       | 2002
|                                     |                                                    |                                  |       |      |       |     
|Federal income tax at statutory rate |                                                    | $                                | 4,937 |      |       | $    | 4,521 |       
|Tax effect of:                       |                                                    |                                  |       |      |       |      |       |       
|                                     | Tax exempt interest and
excludable dividend income |                                  |       | (909 | )     |      |       | (1,010 | )    
|                                     | Other  net                                        |                                  |       | 27   |       |      |       | 86     |      
|                                     |                                                    |                                  |       |      |       |      |       |       
|                                     |                                                    | Provision for federal income tax |       | $    | 4,055 |      |       | $      | 3,597 | 
|                                     |                                                    |                                  |       |      |       |      |       |       

7



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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)

5. SEGMENT DISCLOSURES

Since the Companys annual report for 2002, there have been no changes in
reportable segments or the manner in which Midland determines reportable
segments or measures segment profit or loss. Summarized segment information
for the interim periods for 2003 and 2002 is as follows (000s):

|                     |                         |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |         |  |        |         |           |  |       |        |   |        |      |        |  
|-------------------- | ----------------------- | -------------------- |  | --------------------------------- | --------- | --------------------------------- |  | --------- | ------ | ------ | ------ | --------- | ------ | ------- |  | ------ | ------- | --------- |  | ----- | ------ | - | ------ | ---- | ------ | -
|                     |                         |                      |  | Three Months Ended March 31, 2003 |           | Three Months Ended March 31, 2002
|                     |                         |                      |  |                                   |           |                                  
|                     |                         |                      |  |                                   |           |                                   |  | Revenues- |        |        |        |           |        |         |  |        |         | Revenues- |  |       |        |  
|                     |                         |                      |  | Total                             |           | External                          |  | Pre-Tax   |        | Total  |        | External  |        | Pre-Tax
|                     |                         |                      |  | Assets                            |           | Customers                         |  | Income    |        | Assets |        | Customers |        | Income 
|                     |                         |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |        
|Reportable Segments: |                         |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |         |  |        |         |           |  |       |        |   |        |     
|                     | Insurance:              |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |         |  |        |         |           |  |       |        |   |        |      |       
|                     |                         | Manufactured housing |  |                                   | n/a       |                                   |  | $         | 82,375 |        |        | $         | 15,592 |         |  |        | n/a     |           |  | $     | 80,763 |   |        | $    | 10,134 |  
|                     |                         | Other                |  |                                   | n/a       |                                   |  |           | 72,481 |        |        |           | 1,266  |         |  |        | n/a     |           |  |       | 57,331 |   |        |      | 4,287  |  
|                     |                         | Unallocated          |  | $                                 | 1,011,745 |                                   |  |           |       |        |        |           | (2,077 | )       |  | $      | 987,811 |           |  |       |       |   |        |      | (484   | )
|                     | Transportation          |                      |  | 22,737                            |           |                                   |  | 5,845     |        |        |        | 1         |        |         |  | 24,778 |         |           |  | 5,881 |        |   |        | (386 | )     
|                     | Corporate and all other |                      |  |                                   |           |                                   |  |           |        |        |        | (678      | )      |         |  |        |         |           |  |       |        |   |        | (634 | )     
|                     |                         |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |         |  |        |         |           |  |       |        |   |        |     
|                     |                         |                      |  |                                   |           |                                   |  |           |        | $      | 14,104 |           |        |         |  |        |         |           |  |       |        | $ | 12,917 |     
|                     |                         |                      |  |                                   |           |                                   |  |           |        |        |        |           |        |         |  |        |         |           |  |       |        |   |        |     

Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. For pre-tax income
reported above, insurance investment income is allocated to Manufactured
Housing and Other while realized gains and losses are included in Unallocated.
Certain amounts are not allocated to segments (n/a above) by the Company.

6. STOCK OPTIONS

Midland accounts for stock options under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, no compensation cost has been recognized
for the stock option plans. Had the Company accounted for stock based employee
compensation under the fair value method (SFAS 123), the Companys net income
and earnings per share for the three months ended March 31, 2003 and 2002 would
have been reduced to the pro forma amounts indicated below (amounts in 000s,
except per share data):

|                                                                                                                                    |                       |   |                                     |      |      |   |        |      | 
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ----------------------------------- | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                    |                       |   | For the Three Months Ended March 31
|                                                                                                                                    |                       |   |                                    
|                                                                                                                                    |                       |   | 2003                                |      | 2002
|                                                                                                                                    |                       |   |                                     |      |     
|Net Income as Reported                                                                                                              |                       | $ | 10,049                              |      |      | $ | 7,857  |     
|                                                                                                                                   
|Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects |                       |   | 308                                 |      |      |   | 250    |     
|                                                                                                                                    |                       |   |                                     |      |      |   |        |     
|Pro forma Net Income                                                                                                                |                       | $ | 9,741                               |      |      | $ | 7,607  |     
|                                                                                                                                    |                       |   |                                     |      |      |   |        |     
|Basic Shares                                                                                                                        |                       |   | 17,387                              |      |      |   | 17,275 |     
|Diluted Shares                                                                                                                      |                       |   | 17,829                              |      |      |   | 17,838 |     
|                                                                                                                                   
|Earnings per share:                                                                                                                 |                       |   |                                     |      |      |   |        |     
|                                                                                                                                    | Basic  as reported   |   | $                                   | 0.58 |      |   | $      | 0.46 | 
|                                                                                                                                    | Basic  pro forma     |   |                                     | 0.56 |      |   |        | 0.44 | 
|                                                                                                                                   
|                                                                                                                                    | Diluted  as reported |   | $                                   | 0.56 |      |   | $      | 0.44 | 
|                                                                                                                                    | Diluted  pro forma   |   |                                     | 0.55 |      |   |        | 0.43 | 

8



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##### 



THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)

Compensation expense in the pro-forma disclosure is not indicative of future
amounts as options vest over several years and additional grants are generally
made each year.

7. DERIVATIVE FINANCIAL INSTRUMENTS

Midland adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, on January 1,
2001, which established reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as either assets
or liabilities in the consolidated balance sheet and measurement of those
instruments at fair value. At March 31, 2003, Midlands investment portfolio
included approximately $41.5 million of convertible securities, some of which
contain embedded derivatives. The embedded conversion options are valued
separately, and the change in the market value on the embedded options is
reported in net realized investment gains (losses). For the three-month
periods ended March 31, 2003 and 2002, Midland recorded pre-tax losses on these
securities of $901,000 and $446,000, respectively.

During March 2002, Midland entered into a series of interest rate swap
agreements to convert $30 million of its floating-rate debt to a fixed rate.
The swaps qualify as cash flow hedges and are deemed to be 100% effective and
thus the changes in the fair value of the swap agreement is recorded as a
separate component of shareholders equity and have no income statement impact.
At March 31, 2003, the accumulated derivative loss recorded in Other
Comprehensive Income, net of deferred taxes, amounted to $1,283,000 and, at
March 31, 2002, an accumulated derivative gain of $160,000, net of deferred
taxes, was recorded in Other Comprehensive Income. The swaps mature on
December 1, 2005.

8. CHANGE IN ACCOUNTING PRINCIPLE

On January 1, 2002 Midland adopted SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 changed the accounting for goodwill from an amortization
method to the impairment approach. Upon the adoption of the statement, Midland
ceased amortizing goodwill, including goodwill recorded from past business
combinations. As a result of the impairment test, Midland recorded an
impairment charge of $1,463,000 (net of tax), or $0.08 per share (diluted), in
the quarter ended March 31, 2002. This charge is reported separately in
Midlands income statement as a Cumulative Effect of Change in Accounting
Principle. The fair value of that reporting unit was estimated using the
expected present value of future cash flows. At March 31, 2003 Midlands
remaining goodwill balance, all of which is attributable to the Other Insurance
segment, was $2,145,000.

9. SUBSEQUENT EVENT

During the first two weeks of April 2003, American Modern experienced
catastrophic losses from the storms which swept through the southeastern United
States. Preliminary loss data suggests that the second quarter of 2003 results
could be impacted by losses of approximately $0.15 to $0.18 per share
(after-tax, diluted) from this event.

In May 2003, we have experienced additional catastrophic storm losses across
the central plains and southern United States. We are currently assessing the
potential impact of these losses.

9



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##### 



ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated
financial statements and the related footnotes. This discussion contains
forward-looking statements. Forward-looking statements reflect our current
views about future events, are based on assumptions and are subject to known
and unknown risks and uncertainties. Many important factors could cause actual
results or achievements to differ materially from any future results or
achievements expressed or implied by forward-looking statements.

INTRODUCTION

The discussions of Results of Operations and Liquidity, Capital Resources
and Changes in Financial Condition address our three reportable segments,
which are manufactured housing insurance, all other insurance products and
services and transportation. A summary description of the operations of each
of these segments is included below.

Our specialty insurance operations are conducted through our wholly-owned
subsidiary, American Modern Insurance Group, Inc. (American Modern) which
controls six property and casualty insurance companies, two credit life
insurance companies, three licensed insurance agencies and three service
companies. American Modern is licensed, through its subsidiaries, to write
insurance premiums in all 50 states and the District of Columbia.
Approximately 50% of American Moderns property and casualty and credit life
gross written premium relates to physical damage insurance and related
coverages on manufactured homes, generally written for a term of 12 months with
many coverages similar to homeowners insurance policies. All other insurance
products and services include other specialty insurance products such as
site-built dwelling, motorcycle, watercraft, recreational vehicle, extended
service contract, mortgage fire, collateral protection, credit life, long-haul
truck physical damage, commercial, excess and surplus lines and also includes
the results of our fee producing subsidiaries.

M/G Transport Services, Inc. and MGT Services, Inc. (collectively M/G
Transport) operates a fleet of dry cargo barges for the movement of dry bulk
commodities such as petroleum coke, ores, barite, sugar and other dry cargoes
primarily on the lower Mississippi River and its tributaries.

OVERVIEW OF RECENT TRENDS

Motorcycle and Site-built Dwelling Premium Increase

While manufactured housing insurance remains American Moderns largest single
product, over the most recent 21 months, motorcycle, site-built dwelling and
other specialty insurance products have become more significant to the growth
in premium volume. In the second half of 2000, American Modern acquired the
motorsport book (motorcycle and, to a lesser extent, snowmobile and watercraft)
from GuideOne Insurance Company. As a result of this acquisition, motorcycle
gross written premium contributed significantly to American Moderns overall
growth in 2001 and 2002 and this growth continued in 2003, although at a more
modest rate. Motorcycle gross written premium increased 3.4% to $15.0 million
in the first quarter of 2003 from $14.5 million in the prior years first
quarter. American Moderns future growth in motorcycle premium is expected to
be more consistent with the rate of growth in our total premium volume.

Site-built dwelling gross written premium increased 28.8% from $15.1 million
during the first quarter of 2002 to $19.4 million in the first quarter of 2003.
During the third quarter of 2002, American Modern de-emphasized its standard
homeowner programs in favor of its dwelling fire programs. American Modern is
currently undertaking a careful review of all of its site-built dwelling
programs with the intent of targeting those properties that fall outside the
parameters of the standard homeowners insurance market. As a result of these
actions, American Moderns premium volume from its site-built dwelling product
lines in 2003 is expected to be in a similar range as 2002 volume with an
increase in dwelling programs and a decrease in standard homeowner programs.

10



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##### 



Manufactured Housing Premium

Manufactured homes have historically represented approximately one out of every
five new single family housing starts in the United States. The industry
became over built during the period between 1997 and 1999 as credit became
readily available. New manufactured home sales were slower than historical
averages during 2002 and this trend is continuing in 2003. As a result, during
the past several years American Modern has experienced a decrease in its
manufactured housing insurance premium volume due to a decline in the premium
generated through its point of sale channel of distribution coupled with
American Moderns decision to terminate unprofitable business. During the
first quarter of 2003, the manufactured housing gross written premium increased
3.7% to $73.0 million from $70.3 million in the first quarter of 2002. This
increase was due to the rate increases received during 2002.

Other Insurance Premium

The growth in American Moderns other property and casualty specialty insurance
products has also contributed to American Moderns overall growth in recent
years as well as in 2003. During the first quarter of 2003, gross written
premium from American Moderns other property and casualty insurance products
increased collectively 24.5% to $37.9 million in the first quarter of 2003 from
$30.4 million during the prior years first quarter.

Rate Increases

Over the past 15 months, we have been approved for and are implementing
nationwide rate increases in our manufactured housing products. The majority
of these increases, which have averaged between nine and ten percent, were
approved as of December 31, 2002. We have also received approval for, and are
implementing rate increases in many of our other major product lines. In 2003,
American Modern is filing for single digit rate increases in its manufactured
housing products and for double digit increases in several of its other
products. American Moderns underwriting results in its motorcycle lines are
below plan. Accordingly, we are filing for motorcycle rate increases of
approximately 20% on a countrywide basis in 2003, however, these rate increases
are expected to have minimal impact on earned premium in 2003.

Fire Loss Ratio

American Modern experienced higher than normal levels of losses caused by fire
in its manufactured housing and site-built lines during the second half of 2000
and continuing through most of 2001 and 2002. It is American Moderns
experience that the fire loss ratio increases during economic downturns. In
response to this trend, American Modern began aggressively pursuing rate
increases in its manufactured housing products and site-built programs in 2002
and is continuing to apply for rate increases in 2003. During the first
quarter of 2003, the manufactured housing fire loss ratio decreased to a more
normal level of 18.2% compared to 22.9% in the prior years first quarter.
While still higher than normal, the site-built fire loss ratio improved from
the first quarter of 2003 compared to the first quarter of 2002.

Changing Mix of American Moderns Distribution Channels

Over the past 12-24 months, American Modern has experienced a significant
increase in the percentage of its gross written premium generated through its
agency channel driven by its growth in motorcycle and site-built dwelling
premium and also due to American Moderns successful conversion of agency books
of business to American Modern from other insurance companies. Also during
this time frame, American Moderns premium volume generated by its lender and
point of sale channels decreased as a result of the slowdown in new
manufactured housing sales and the decision to terminate certain unprofitable
books of business.

11



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##### 



Shift Away from Chattel Financing

Manufactured housing sales have traditionally been financed as personal
property through a financing transaction referred to as chattel financing.
Several large chattel lenders over the past 12-24 months have ceased, or
substantially reduced, lending for manufactured housing. As a result,
manufactured housing sales have slowed and there has been a shift to more
traditional mortgage loan financing on manufactured homes. American Modern has
or had relationships with several of the chattel lenders who reduced their
lending or exited this market. This, coupled with American Moderns decision
to terminate certain unprofitable business in the lender channel, has resulted
in a decrease in the amount of premium volume American Modern has generated
through its lender channel.

RESULTS OF OPERATIONS

Insurance

Overview of Premium Volume

The following chart shows American Moderns gross written premium, net written
premium and net earned premium by business segment for the three-month periods
ended March 31, 2003 and 2002 ($000):

|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |      |       | 
|--------------------------------- | -------------------------------------------- | ------- | ---- | --------------------------------- | ----- | ------- | ---- | ------ | ----- | - | ---- | ---- | ----- | 
|                                  |                                              |         |      | Three Months Ended March 31, 2003
|                                  |                                              |         |      |                                  
|                                  |                                              |         |      | Gross                             |       | Net     |      | Net   
|                                  |                                              |         |      | Written                           |       | Written |      | Earned
|Business Segment                  |                                              | Premium |      | Premium                           |       | Premium
|                                  |                                              |         |      |                                   |       |        
|Manufactured Housing              |                                              | $       | 73.0 |                                   |       | $       | 69.7 |        |       | $ | 82.4 |     
|All Other Insurance and Services: |                                              |         |      |                                   |       |         |      |        |       |   |      |     
|                                  | Other Property & Casualty Specialty Products |         |      | 72.3                              |       |         |      | 67.5   |       |   |      | 67.7 |      
|                                  | Life Operations                              |         |      | 2.7                               |       |         |      | 1.3    |       |   |      | 3.2  |      
|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |     
|                                  |                                              | Total   |      | $                                 | 148.0 |         |      | $      | 138.5 |   |      | $    | 153.3 | 
|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |     

|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |      |       | 
|--------------------------------- | -------------------------------------------- | ------- | ---- | --------------------------------- | ----- | ------- | ---- | ------ | ----- | - | ---- | ---- | ----- | 
|                                  |                                              |         |      | Three Months Ended March 31, 2002
|                                  |                                              |         |      |                                  
|                                  |                                              |         |      | Gross                             |       | Net     |      | Net   
|                                  |                                              |         |      | Written                           |       | Written |      | Earned
|Business Segment                  |                                              | Premium |      | Premium                           |       | Premium
|                                  |                                              |         |      |                                   |       |        
|Manufactured Housing              |                                              | $       | 70.3 |                                   |       | $       | 66.7 |        |       | $ | 80.8 |     
|All Other Insurance and Services: |                                              |         |      |                                   |       |         |      |        |       |   |      |     
|                                  | Other Property & Casualty Specialty Products |         |      | 60.0                              |       |         |      | 56.9   |       |   |      | 52.9 |      
|                                  | Life Operations                              |         |      | 14.5                              |       |         |      | 2.9    |       |   |      | 2.8  |      
|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |     
|                                  |                                              | Total   |      | $                                 | 144.8 |         |      | $      | 126.5 |   |      | $    | 136.5 | 
|                                  |                                              |         |      |                                   |       |         |      |        |       |   |      |     

Manufactured Housing

Although the manufactured housing industry continues to be depressed, American
Moderns gross written premium related to this product increased 3.7% in 2003
compared to the first quarter of 2002. This increase was due to rate increases
approved in 2002 which averaged nine to ten percent, partially offset by a
decline in manufactured housing policies in-force. The manufactured housing
combined ratio decreased to 85.9% in the first quarter of 2003 from 93.9% in
the first quarter of 2002. This improvement was due to the impact of rate
increases plus a decline in the manufactured housing fire loss ratio.

Losses and loss adjustment expenses are discussed further for the total
insurance segment. Several other items, such as investment income, are
allocated to product lines, but are more meaningfully discussed in total and
have been included in the sections that follow.

All Other Insurance

Gross written premiums in American Moderns other specialty property and
casualty products (non-manufactured housing products) collectively increased
20.5% in 2003 over the comparable period in 2002. Driving this growth were the
site-built dwelling, collateral protection and the excess and surplus lines
products which collectively increased $10.7 million or 55.9% over 2002 levels.
American Modern received rate increases on several of these product lines in
2002 and will continue to seek rate increases in 2003.

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The decrease in the credit life gross written premium is due to industry
regulatory actions which mandate a monthly pay product rather than an annual
premium. This change affects written premium but is expected to have little
impact on earned premium. Credit life net earned premium increased 14.3% to
$3.2 million in the first quarter of 2003 compared to the prior years first
quarter.

American Moderns other insurance income was basically unchanged at
approximately $1.6 million in 2003 as well as in 2002. Ameritrac® and our
other wholly owned insurance agencies continue to be significant contributors
to American Moderns gross written property and casualty premium.

Insurance Investment Income and Realized Capital Gains

American Moderns net investment income decreased to $8.4 million in the first
quarter of 2003 from $8.7 million in the prior years first quarter. This
decrease is due to lower reinvestment rates relative to American Moderns fixed
income portfolio. The annualized pre-tax investment yield, on a cost basis, of
American Moderns fixed income portfolio was 5.8% in the first quarter of 2003
compared to 6.6% in the comparable prior period.

Our realized investment gains and losses are comprised of three items; embedded
derivatives, other-than-temporary impairments and capital gains and losses from
the sale of securities.

After-tax losses from embedded derivatives which are included in net realized
capital losses amounted to $(0.6) million, $(0.03) per share (diluted), during
the first quarter of 2003 compared to $(0.3) million, $(0.02) per share
(diluted), in the prior years first quarter. These embedded derivatives
relate to the equity conversion features attributable to the convertible
preferred stocks and convertible debentures held in American Moderns
convertible security portfolio. American Moderns investment portfolio does
not currently include any other types of derivative investments.

Also included in net realized capital losses in the first quarter of 2003 were
after-tax losses of $(1.2) million, $(0.07) per share (diluted), resulting from
the write-down (other than temporary impairment) of several lower rated
securities in American Moderns investment portfolio. There were no impairment
losses in the first quarter of 2002.

Excluding the impact of derivative and impairment losses, American Moderns
after-tax net realized capital gains increased to $0.7 million, $0.04 per share
(diluted), in the first quarter of 2003 from $0.1 million, $0.01 per share
(diluted), in the prior years first quarter.

Insurance Losses and Loss Adjustment Expenses (LAE)

American Moderns losses and loss adjustment expenses in the first quarter of
2003 increased 12.9% to $78.6 million from $69.6 million in the prior years
first quarter. This increase is comparable to the increase in net earned
premium. American Moderns property and casualty loss ratio was 51.5% in the
first quarter of 2003 compared to 51.2% in the prior years first quarter. The
manufactured housing and site-built dwelling fire loss ratio decreased in the
first quarter of 2003 compared to the prior years first quarter, however,
losses from American Moderns other specialty property and casualty products
increased to somewhat higher than expected levels. Catastrophe losses
accounted for 2.8 percentage points of this years first quarter combined ratio
compared with 2.5 percentage points in the prior years first quarter.

During the first two weeks of April 2003, American Modern experienced losses
from the storms which swept through the southeastern United States.
Preliminary loss data suggest that the second quarter of 2003 results could be
impacted by losses of approximately $0.15 to $0.18 per share (after-tax,
diluted) from this event.

In May 2003, we have experienced additional catastrophic storm losses across
the central plains and southern United States. We are currently assessing the
potential impact of these losses.

Insurance Commissions, Other Policy Acquisition Costs and Operating and
Administrative Expenses

American Moderns commissions and other policy acquisition costs and operating
and administrative expenses for the first quarter of 2003 increased 7.7% to
$67.6 million from $62.7 million in the prior years first quarter. This
increase is primarily due to the growth in net earned premium offset by
reductions in operating expenses related to system development, processing
costs and miscellaneous other items.

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Property and Casualty Underwriting Results

American Moderns property and casualty operations generated a pre-tax
underwriting income of $7.6 million during the first quarter of 2003 compared
to $4.9 million in the first quarter of 2002. For the first quarter of 2003,
American Moderns combined ratio (ratio of losses and expenses as a percent of
earned premium) for its property and casualty business was 94.9% compared to
96.4% in the first quarter of 2002.

TRANSPORT

M/G Transport, Midlands transportation subsidiary, reported revenues for the
first quarter of 2003 of $5.8 million compared to $5.9 million in the prior
year's first quarter. Pre-tax operating profit was near break-even in the current quarter
as compared to a loss of $(0.4) million in the prior years first quarter.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Consolidated Operations

We have certain obligations and commitments to make future payments under
contracts. As of March 31, 2003, the aggregate obligations (excluding the $7.5
million of future commitments relating to barge acquisitions as discussed
below) on a consolidated basis were (amounts in 000s):

|                                               |       |   |        |        |        |   |                        |        |       |   |         |        |  |   |       |       | 
|---------------------------------------------- | ----- | - | ------ | ------ | ------ | - | ---------------------- | ------ | ----- | - | ------- | ------ |  | - | ----- | ----- | 
|                                               |       |   |        |        |        |   | Payments Due by Period
|                                               |       |   |        |        |        |   |                       
|                                               |       |   |        |        |        |   | Less than              |        | 2-5   |   | After 5
|                                               |       |   | Total  |        | 1 Year |   | Years                  |        | Years
|                                               |       |   |        |        |        |   |                        |        |      
|Long-term debt                                 |       | $ | 46,787 |        |        | $ | 1,346                  |        |       | $ | 45,441  |        |  | $ |      |      
|Other notes payable                            |       |   | 29,240 |        |        |   | 29,240                 |        |       |   |        |        |  |   |      |      
|Annual commitments under
non-cancelable leases |       |   | 7,951  |        |        |   | 1,158                  |        |       |   | 3,349   |        |  |   | 3,444 |      
|                                               |       |   |        |        |        |   |                        |        |       |   |         |        |  |   |       |      
|                                               | Total |   | $      | 83,978 |        |   | $                      | 31,744 |       |   | $       | 48,790 |  |   | $     | 3,444 | 
|                                               |       |   |        |        |        |   |                        |        |       |   |         |        |  |   |       |      

Other than the annual commitments under non-cancelable leases noted above,
there are no other material off-balance sheet obligations or guarantees.

Expenditures for acquisition of property plant and equipment amounted to $1.1
million for the three months ended March 31, 2003 and $3.3 million for the
three months ended March 31, 2002. The amounts expended for the development
costs capitalized in connection with the development of modernLINK®, our
proprietary information systems and web enablement initiative, amounted to $0.7
million for the first three months of 2003. The initiative is being designed,
developed and implemented in periodic phases to ensure its cost effectiveness
and functionality. The budget for this project calls for future expenditures
of $6.0 to $7.0 million annually over the next 2 to 3 years. However, actual
costs may be more or less than what we estimate. The cost of the development
and implementation is expected to be funded out of operating cash flow. This
system is in development and its effectiveness has not been proven. Further,
significant changes to the technology interface between American Modern and its
distribution channel participants and policyholders, while unlikely, could
significantly disrupt or alter its distribution channel relationships. If the
new information systems are ultimately deemed ineffective, it could result in
an impairment charge to our capitalized costs.

On June 17, 2002, we announced a two-for-one stock split effective July 17,
2002. Accordingly, data related to our common stock has been adjusted to
reflect the impact of this stock split.

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On January 25, 2001 our Board of Directors approved an increase in the number
of shares authorized under our share repurchase program from 1,000,000 shares
to 2,000,000 shares on a post split basis. Ten thousand shares were
repurchased in the open market under our share repurchase program during the
first three months of 2003 and a total of 586,000 shares remain authorized for
repurchase under terms of this authority. There were additional stock
repurchase transactions consummated in connection with our associate stock
incentive programs during the first three months of 2003. On April 25, 2002,
our Board of Directors approved a two-year extension to the share repurchase
program that will run through the date of the Boards second quarterly meeting
in 2004. The resolution does not require us to repurchase our shares, but
rather gives management discretion to make purchases based on market conditions
and our capital requirements.

We paid dividends to our shareholders of $0.8 million during the first three
months of 2003, and $0.7 million during the first three months of 2002.

We expect that cash and other liquid investments, coupled with future operating
cash flows and our short-term borrowing capacity, will be readily available to
meet our operating cash requirements for the next 12 months.

Holding Company Operations

Midland and American Modern are holding companies which rely primarily on
dividends and management fees from subsidiaries to assist in servicing debt,
paying operating expenses and paying dividends to the respective shareholders.
The payment of dividends to these holding companies from American Moderns
insurance subsidiaries is restricted by state regulatory agencies. Such
restrictions, however, have not had, and are not expected to have, a
significant impact on our, or American Moderns, liquidity or our and American
Moderns ability to meet our respective long or short-term operating, financing
or capital obligations.

Midland has a commercial paper program under which qualified purchasers may
invest in the short-term unsecured notes of Midland. As of March 31, 2003, we
had $4.2 million of commercial paper debt outstanding, $3.6 million of which
represented notes held either directly or indirectly by our executive officers
and directors. The effective annual yield paid to all participants in this
program was 1.3% as of March 31, 2003, a rate that is considered to be
competitive with the market rates offered for similar instruments. As of March
31, 2003, Midland also had $75.0 million of conventional short-term credit
lines available at costs not exceeding prime borrowing rates, of which $25.0
million was outstanding. These lines of credit contain minimal covenants and
are typically drawn and repaid over periods ranging from two weeks to three
months. Additional short-term borrowing lines are available at the discretion
of various lending institutions with comparable rates and terms. These
short-term borrowings decreased $14.0 million from $39.0 million since December
31, 2002. Proceeds derived from the reduction in marketable securities and
accounts receivables were used to reduce these short-term borrowings. We also
have a mortgage obligation related to the financing of our corporate
headquarters building. As of March 31, 2003, the outstanding balance of this
mortgage was $16.3 million. This mortgage obligation includes normal and
customary debt covenants for instruments of this type. Monthly principal and
interest payments are required until maturity in December 2005. The effective
interest rate on this obligation is 6.8%.

Insurance

American Modern generates cash inflows primarily from insurance premium,
investment income, proceeds from the sale of marketable securities and
maturities of debt security investments. The principal cash outflows for the
insurance operations relate to the payment of claims, commissions, premium
taxes, operating expenses, capital expenditures, income taxes, dividends and
inter-company borrowings to us and the purchase of marketable securities. In
each of the periods presented, funds generated from the insurance operating
activities were used primarily to purchase investment grade marketable
securities, accounting for the majority of the cash used in investing
activities.

The market value of American Moderns investment portfolio decreased 0.9% from
December 31, 2002, to $737.8 million at March 31, 2003. This decrease was due
to typical higher cash requirements in the first quarter coupled with a $(3.3)
million decrease in the unrealized appreciation in the market value of
securities held. The decrease in the unrealized appreciation was due to a $0.5
million increase in unrealized appreciation related to the fixed income
portfolio offset by a $(3.8) million decrease in the unrealized appreciation
related to the equity portfolio. American Moderns largest equity holding, 2.3
million shares of U.S. Bancorp, decreased to $44.3 million as of March 31, 2003
from $49.5 million as of December 31, 2002.

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The average duration of American Moderns debt security investment portfolio as
of March 31, 2003 was 3.9 years which management believes provides adequate
asset/liability matching.

American Modern has a $60.0 million long-term credit facility available on a
revolving basis at various rates. As of March 31, 2003, there was $30.0
million outstanding under these facilities.

During the first quarter of 2002, American Modern entered into an interest rate
swap agreement with a consortium of three banks. Under the terms of this
agreement, the floating interest rate related to $30.0 million outstanding
under American Moderns long-term credit facility has been effectively fixed at
5.6% until December 1, 2005, the maturity date. The fair value of this
agreement as of March 31, 2003 was $(2.0) million and is included in other
payables and accruals.

Accounts receivable is primarily comprised of premium due from both
policyholders and agents. In the case of receivables due directly from
policyholders, policies are cancelable in the event of non-payment and thus
offer minimal credit exposure. Approximately 72% of American Moderns accounts
receivables relate to premium due directly from policyholders as of March 31,
2003. In the case of receivables due from agents, American Modern has extended
payment terms that are customary and normal in the insurance industry.
Management monitors its credit exposure with its agents and related
concentrations on a regular basis. However, as collectibility of such
receivables is dependent upon the financial stability of the agent, American
Modern cannot assure collections in full. Where management believes
appropriate, American Modern has provided a reserve for such exposures. Since
December 31, 2002, American Moderns accounts receivable has increased $1.5
million to $81.2 million as of March 31, 2003 due to the continued growth in
insurance premiums written. American Moderns receivable balance from its
largest customer, Conseco Agency, Inc., decreased from $11.1 million as of
December 31, 2002 to $9.9 million as of March 31, 2003. Conseco Agency filed
for Chapter 11 bankruptcy on January 31, 2003, following the Chapter 11 filing
of its parent company on December 18, 2002. Conseco Agency and the assets of
Conseco Finance Company were part of an auction that was completed in March
2003. The final sale has not been consummated. Conseco Agency continues to
generate insurance premiums from policy renewals in the first quarter of 2003,
American Modern continues to do business as usual with respect to these
insurance premiums. The Conseco Agency receivable is current at March 31, 2003
and we anticipate collecting this receivable in its entirety. If American
Modern were unable to collect the amounts due to it from Conseco, our financial
condition and results would be negatively impacted.

Reinsurance recoverables and prepaid reinsurance premium decreased to $72.3
million at March 31, 2003 from $76.6 million at December 31, 2002. Of the
$72.3 million, $5.4 million was currently due from reinsurers for claims paid
and for which a contractual obligation to collect from a reinsurer exists.
This decrease was primarily due to a $4.5 million decrease in ceded unearned
premium. This fluctuation was due to the decrease in ceded unearned premium
related to American Moderns life operations which resulted from the transition
to a monthly pay premium compared to a single pay premium.

The decrease in deferred insurance policy acquisition costs since December 31,
2002 is due to net earned premium exceeding net written premium plus a reduced
commission rate being paid on a certain piece of property and casualty
business.

The decrease in unearned insurance premiums since December 31, 2002 is also due
to property and casualty net earned premium exceeding net written premium
coupled with a reduction in the unearned premium related to life operations due
to the transition to a monthly pay premium.

Cash flow from the insurance operations is expected to remain sufficiently
positive to meet American Moderns future operating requirements and to provide
for reasonable dividends to Midland.

Transportation

M/G Transport generates its cash inflows primarily from affreightment revenue.
Its primary outflows of cash relate to the payment of barge charter costs, debt
service obligations, operating expenses, income taxes, dividends to Midland and
the acquisition of capital equipment. Like the insurance operations, cash flow
from the transportation subsidiaries is expected to remain sufficiently
positive to meet future operating requirements.

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The transportation subsidiaries entered into a seven-year lease in 2000 and a
fifteen-year lease in 1999 for transportation equipment. Aggregate rental
payments under these two operating leases over the next twelve years will
approximate $7.3 million. No other barges were leased or purchased during the
first three months of 2003. M/G Transport has committed to acquire or lease 30
new barges, which are scheduled for delivery during the second quarter of 2003
at an approximate total cost of $7.5 million. This acquisition and any future
acquisitions would likely be financed through a combination of internally
generated funds, external borrowings or lease transactions. As of March 31,
2003, the transportation subsidiaries had $0.5 million of collateralized
equipment obligations outstanding.

OTHER MATTERS

Comprehensive Income

The differences between our net income and comprehensive income is the net
after-tax change in unrealized gains on marketable securities and the after-tax
change in the fair value of the interest rate swap agreement. For the three-
month periods ended March 31, 2003 and 2002, such changes increased or
(decreased), net of related income tax effects, by the following amounts
(amounts in 000s):

|            |                                        |       |   |                              |        |      |   |     |     | 
|----------- | -------------------------------------- | ----- | - | ---------------------------- | ------ | ---- | - | --- | --- | 
|            |                                        |       |   | Three Months Ended March 31,
|            |                                        |       |   |                             
|            |                                        |       |   | 2003                         |        | 2002
|            |                                        |       |   |                              |        |      |   |     |     | 
|Changes in: |                                        |       |   |                              |        |      |   |    
|            | Net unrealized capital gains           |       | $ | (2,343                       | )      |      | $ | 390 |    
|            | Fair value of interest rate swap hedge |       |   | (19                          | )      |      |   | 160 |    
|            |                                        |       |   |                              |        |      |   |    
|            |                                        | Total |   | $                            | (2,362 | )    |   | $   | 550 | 
|            |                                        |       |   |                              |        |      |   |    

For the three months ended March 31, 2003, net unrealized gains in equity
securities decreased net of income tax effects by $2.6 million and increased by
$0.3 million (net of tax) for fixed income securities. For the three months
ended March 31, 2002, net unrealized gains (net of tax) increased $4.8 million
for equity securities and decreased by $4.4 million for fixed income
securities.

Changes in net unrealized gains on marketable securities result from both
market conditions and realized gains recognized in a reporting period. Changes
in the fair value of the interest rate swap agreement are predicated
on the current interest rate environment relative to the fixed rate of the swap
agreement.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that affect the
reported amounts of assets, revenues and expenses and related disclosures of
contingent assets and liabilities. We regularly evaluate our critical
accounting policies, assumptions and estimates, including those related to
insurance revenue and expense recognition, loss reserves, reinsurance levels
and valuation and impairment of intangible assets such as goodwill. We base
our estimates on historical experience and on various assumptions that we
believe to be reasonable under the circumstances. This process forms the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

We believe the following critical accounting policies require significant
judgments and estimates in the preparation of our consolidated financial
statements.

Insurance Revenue and Expense Recognition

Premium for physical damage and other property and casualty related coverages,
net of premium ceded to reinsurers, are recognized as income on a pro-rata
basis over the lives of the policies. Credit accident and health and credit
life premiums are recognized as income over the lives of the policies in
proportion to the amount of insurance protection provided. American Modern
generally does not consider anticipated investment income in determining
premium deficiencies (if any) on short-term contracts. Policy acquisition
costs, primarily commission expenses and premium taxes, are capitalized and
expensed over the terms of the related policies on the same basis as the
related premium are earned. Selling and administrative expenses that are not
primarily related to premium written are expensed as incurred.

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Reserves for Insurance Losses

American Moderns reserve for insurance losses is based on past experience of
settling known claims as well as estimating those not yet reported. While
management believes the amounts are fairly stated, the ultimate liability, once
fully developed, may be more than or less than that provided. Management and
its actuaries, both internal and external, regularly review these liabilities
and adjustments are made as necessary in the current period. Management does
not foresee any significant change in the manner in which it records its
reserve for insurance losses.

Reinsurance Risks

By reinsuring certain levels and types of insurable risk with other insurance
companies, American Modern limits its exposure to losses to that portion of the
insurable risk it retains. However, if the reinsurer fails to honor its
obligations, American Modern could suffer additional losses as the reinsurance
contracts do not relieve American Modern of its obligations to policyholders.
American Modern regularly evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies. In addition,
American Modern may require reinsurers to establish trust funds and maintain
letters of credit to further minimize American Moderns exposure. We do not
believe there is any significant concentration of credit risk arising from any
single reinsurer. We expect that American Moderns reinsurers will satisfy
their obligations. As of March 31, 2003, American Modern was owed $5.4 million
from reinsurers for claims that have been paid and for which a contractual
obligation to collect from a reinsurer exists.

Asset Impairment

American Modern invests in various securities including U.S. Government
securities, corporate debt securities, and corporate stocks. Investment
securities in general are exposed to various risks such as interest rate,
credit, and overall market volatility. Due to the level of risk associated
with these securities, it is reasonably possible that changes in the value of
investment securities will occur in the near term and that such changes could
be material. Our management team meets at regular intervals and continually
monitor investments and other assets that have fair values that are less than
carrying amounts for other-than-temporary impairment. Factors such as the
amount and timing of declines in fair values, the significance of the declines,
the length of time of the declines, duration of fixed-maturity securities,
interest payment defaults, nature of the issuers operations, financial
condition and industry factors, amount others, are considered when determining
investment impairment. Invested assets and property and equipment are
monitored for impairment, such as significant decreases in market value of
assets, changes in legal factors or in the business climate, an accumulation of
costs in excess of the amount originally expected to acquire or construct an
asset, or other such factors indicating that the carrying amount may not be
recoverable.

Stock Options

Midland accounts for compensation expense under the intrinsic value based
method under the provisions of Accounting Principles Board Opinion 25. As
such, no compensation cost has been recognized for the stock option plans.
Midland is currently assessing the voluntary change to the fair value based
approach of accounting for stock based employee compensation for 2003, but has
yet to make a final determination.

Defined Benefit Pension Plans

Midland maintains defined benefit pension plans for a limited number of active
participants. The defined benefit pension plans are not open to employees
hired after March 31, 2000. The pension expense is calculated based upon a
number of actuarial assumptions, including an expected long-term rate of return
and a discount rate. In determining our expected long-term rate of return and
our discount rate, we evaluate input from our actuaries, asset allocations and
long-term bond yields. If other assumptions were used, the amount recorded as
pension expense would be different from our current estimate.

Intangible Assets (Goodwill)

As required by SFAS No. 142, we ceased amortizing goodwill effective January 1,
2002. Based on the impairment test required by SFAS No. 142 in the quarter
ended March 31, 2002, a non-recurring charge of $1.5 million after-tax was
taken against income and is reported as cumulative effect of change in
accounting principle in the income statement. Prior to January 1, 2002,
goodwill was amortized on a straight-line basis over a 10-year period. As of
March 31, 2003, our remaining goodwill balance was $2.1 million and is included
in other assets.

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Special Purpose Vehicles or Off Balance Sheet Business Arrangements

We do not utilize any special purpose financing vehicles or have any
undisclosed off-balance sheet arrangements. Similarly, we hold no fair value
contracts for which a lack of marketplace quotations would necessitate the use
of fair value techniques.

Impact of Inflation

We do not consider the impact of the change in prices due to inflation to be
material in the analysis of our overall operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Market risk is the risk that we will incur investment losses due to adverse
changes in market rates and prices. Our market risk exposures are substantially
related to American Moderns investment portfolio and changes in interest rates
and equity prices. Each risk is defined in more detail as follows.

Interest rate risk is the risk that American Modern will incur economic losses
due to adverse changes in interest rates. The risk arises from many of
American Moderns investment activities, as American Modern invests substantial
funds in interest-sensitive assets. American Modern manages the interest rate
risk inherent in its investment assets relative to the interest rate risk
inherent in its liabilities. One of the measures American Modern uses to
quantify this exposure is duration. By definition, duration is a measure of
the sensitivity of the fair value of a fixed income portfolio to changes in
interest rates. Based upon the 3.9 year duration of American Moderns fixed
income portfolio as of March 31, 2003, management estimates that a 100 basis
point increase in interest rates would decrease the market value of its $609.2
million debt security portfolio by 3.9%, or $23.8 million.

Equity price risk is the risk that American Modern will incur economic losses
due to adverse changes in a particular stock or stock index. American Moderns
equity exposure consists primarily of declines in the value of its equity
security holdings. As of March 31, 2003, American Modern had $128.6 million in
equity holdings, including $44.3 million of U.S. Bancorp common stock. A 10%
decrease in the market value of U.S. Bancorps common stock would decrease the
fair value of its equity portfolio by approximately $4.4 million. As of March
31, 2003, the remainder of American Moderns portfolio of equity securities had
a beta coefficient (a measure of stock price volatility) of 1.09. This means
that, in general, if the S&P 500 Index decreases by 10%, management estimates
that the fair value of the remaining equity portfolio will decrease by 10.9%.

The active management of market risk is integral to American Moderns
operations. American Modern has investment guidelines that define the overall
framework for managing market and other investment risks, including the
accountabilities and controls over these activities.

ITEM 4. CONTROLS AND PROCEDURES

As of a date within 90 days of the date of this report (the Evaluation Date),
we carried out an evaluation, under the supervision and with the participation
of our management, including our President and Chief Executive Officer and our
Executive Vice President and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon this evaluation, our President and Chief Executive
Officer and our Executive Vice President and Chief Financial Officer concluded
that, as of the Evaluation Date, our disclosure controls and procedures were
adequate to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms.

Additionally, our President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer determined, as of the evaluation date,
that there were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
date of their evaluation.

19



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##### 



INDEPENDENT ACCOUNTANTS REPORT

The Midland Company:

We have reviewed the accompanying condensed consolidated balance sheet of The
Midland Company and subsidiaries as of March 31, 2003, and the related
condensed consolidated statements of income, changes in shareholders equity
and cash flows for the three-month periods ended March 31, 2003 and 2002.
These financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of The
Midland Company and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, changes in shareholders equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 6, 2003, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2002 is
fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.

Deloitte & Touche LLP
Cincinnati, Ohio

May 12, 2003

20



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##### 



PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
MARCH 31, 2003



|Item 1. |  | Legal Proceedings                                                                                             
|------- |  | --------------------------------------------------------------------------------------------------------------
|       
|        |  | None                                                                                                          
|       
|Item 2. |  | Changes in Securities and Use
of Proceeds                                                                     
|       
|        |  | None                                                                                                          
|       
|Item 3. |  | Defaults Upon Senior
Securities                                                                               
|       
|        |  | None                                                                                                          
|       
|Item 4. |  | Submission of Matters to a Vote
of Security Holders                                                           
|       
|        |  | At the Companys 2002 Annual Meeting of Shareholders held on April 10,
2003, the following actions were taken:



| | a) |  | The following persons were elected as members of the
Board of Directors to serve until the year of the 2006 Annual
Meeting and until their successors are chosen and qualified:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |           |            |          |  |             |           |           |  |  |   |        |  |  |   | 
|----------------------- |  | --------- | ---------- | -------- |  | ----------- | --------- | --------- |  |  | - | ------ |  |  | - | 
|                        |  |           |            |          |  | Votes       |           |           |  |  |   | Broker
|Name                    |  | Votes For |            | Withheld |  | Abstentions |           | Non-Votes
|                        |  |           |            |          |  |             |           |          
|Michael J. Conaton      |  |           | 16,354,551 |          |  |             | 208,523   |           |  |  | 0 |        |  |  | 0 | 
|Jerry A. Grundhofer     |  |           | 16,468,802 |          |  |             | 94,272    |           |  |  | 0 |        |  |  | 0 | 
|Joseph P. Hayden III    |  |           | 15,606,692 |          |  |             | 956,382   |           |  |  | 0 |        |  |  | 0 | 
|William J. Keating, Jr. |  |           | 15,065,170 |          |  |             | 1,497,904 |           |  |  | 0 |        |  |  | 0 | 
|John R. LaBar           |  |           | 16,354,351 |          |  |             | 208,732   |           |  |  | 0 |        |  |  | 0 | 
|Richard M. Norman       |  |           | 16,468,802 |          |  |             | 94,272    |           |  |  | 0 |        |  |  | 0 | 



| | b) |  | A proposal by the Board of Directors to ratify the
appointment of the firm of Deloitte & Touche LLP, as Midlands
independent auditors to conduct the annual audit of the financial
statements of Midland for the year ending December 31, 2003, was
approved by the Shareholders. The Shareholders cast 16,517,272
votes in favor of this proposal and 37,291 votes against it.
There were 8,511 abstentions and no broker non-votes.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 5. |  | Other Information               
|------- |  | --------------------------------
|       
|        |  | None                            
|       
|Item 6. |  | Exhibits and Reports on
Form 8-K



| | a) |  | Exhibit 15  Letter re: Unaudited Interim Financial Information                                                  
| | -- |  | -----------------------------------------------------------------------------------------------------------------
|
| |    |  | Exhibit 99.1  Certification of Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
| |    |  | Exhibit 99.2  Certification of Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
| | b) |  | Reports on Form 8-K  None                                                                                       

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| | THE MIDLAND COMPANY
| | -------------------



|Date
May 12,
2003 | /s/John I. Von
Lehman
John I. Von Lehman, Executive Vice President,
Chief Financial Officer and Secretary
|----------------- | ---------------------------------------------------------------------------------------------------------

21



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##### 



Certification of Principal
Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, John W. Hayden, the principal executive officer of The Midland Company,
certify that:

1.     I have reviewed this quarterly report on Form 10-Q of The Midland
Company;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

22



---



##### 





| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Date:
May 12,
2003 | 
|------------------ | 



| | /s/John W.
Hayden          
| | ---------------------------
| | Principal Executive Officer

23



---



##### 



Certification of Principal
Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, John I. Von Lehman, the principal financial officer of The Midland
Company, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of The Midland
Company;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and

24



---



##### 





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Date: May 12,
2003 |                            
|------------------ | ---------------------------
|                   | /s/ John I. Von
Lehman     
|                   | Principal Financial Officer

25