##### 



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 |  | September 30, 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 November 1, 2003 was
17,641,529.





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##### 



PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                          |                                                                                       |              |        |         |             |         |          |         |           |         | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------ | ------ | ------- | ----------- | ------- | -------- | ------- | --------- | ------- | 
|                                                          |                                                                                       |              |        |         | (Unaudited) |         |          |         |          
|                                                          |                                                                                       |              |        |         | Sept. 30,   |         | Dec. 31,
|ASSETS                                                    |                                                                                       | 2003         |        | 2002   
|                                                          |                                                                                       |              |        |        
|MARKETABLE SECURITIES AVAILABLE FOR SALE:                 |                                                                                       |              |        |         |             |         |          |        
|                                                          | Fixed income (cost, $608,998 at September 30, 2003 and
$572,768 at December 31, 2002) |              | $      | 639,034 |             |         | $        | 600,920 |          
|                                                          | Equity (cost, $87,740 at September 30, 2003 and $91,239
at December 31, 2002)         |              |        | 153,633 |             |         |          | 138,838 |          
|                                                          |                                                                                       |              |        |         |             |         |          |        
|                                                          |                                                                                       |              | Total  |         |             | 792,667 |          |         |           | 739,758 | 
|                                                          |                                                                                       |              |        |         |             |         |          |        
|CASH                                                      |                                                                                       |              | 6,308  |         |             |         | 5,975    |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|ACCOUNTS RECEIVABLE  NET                                 |                                                                                       |              | 94,372 |         |             |         | 91,633   |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS |                                                                                       |              | 74,258 |         |             |         | 76,626   |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|PROPERTY, PLANT AND EQUIPMENT  NET                       |                                                                                       |              | 69,410 |         |             |         | 61,510   |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|DEFERRED INSURANCE POLICY ACQUISITION COSTS               |                                                                                       |              | 93,936 |         |             |         | 96,396   |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|OTHER ASSETS                                              |                                                                                       |              | 18,445 |         |             |         | 18,776   |        
|                                                          |                                                                                       |              |        |         |             |         |          |        
|                                                          |                                                                                       | TOTAL ASSETS |        | $       | 1,149,396   |         |          | $       | 1,090,674 |        
|                                                          |                                                                                       |              |        |         |             |         |          |        

See notes to condensed consolidated financial statements.

2



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##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000s

|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |         |           | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | --------- | -------- | ------- | ------- | --------- | 
|                                                                 |                                                                                                                                                                                                 |                                            |         | (Unaudited) |           |          |         |        
|                                                                 |                                                                                                                                                                                                 |                                            |         | Sept. 30,   |           | Dec. 31,
|LIABILITIES & SHAREHOLDERS' EQUITY                               |                                                                                                                                                                                                 | 2003                                       |         | 2002       
|                                                                 |                                                                                                                                                                                                 |                                            |         |            
|UNEARNED INSURANCE PREMIUMS                                      |                                                                                                                                                                                                 | $                                          | 405,838 |             |           | $        | 406,311 |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|INSURANCE LOSS RESERVES                                          |                                                                                                                                                                                                 |                                            | 198,159 |             |           |          | 164,717 |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|INSURANCE COMMISSIONS PAYABLE                                    |                                                                                                                                                                                                 |                                            | 31,598  |             |           |          | 30,654  |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES |                                                                                                                                                                                                 |                                            | 6,095   |             |           |          | 2,977   |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|LONG-TERM DEBT                                                   |                                                                                                                                                                                                 |                                            | 55,447  |             |           |          | 47,163  |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|OTHER NOTES PAYABLE:                                             |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|                                                                 | Banks                                                                                                                                                                                           |                                            |         | 19,000      |           |          |         | 39,000  |          
|                                                                 | Commercial paper                                                                                                                                                                                |                                            |         | 3,267       |           |          |         | 4,238   |          
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                                 | Total                                      |         |             | 22,267    |          |         |         | 43,238    | 
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|DEFERRED FEDERAL INCOME TAX                                      |                                                                                                                                                                                                 |                                            | 42,775  |             |           |          | 35,642  |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|OTHER PAYABLES AND ACCRUALS                                      |                                                                                                                                                                                                 |                                            | 53,280  |             |           |          | 51,064  |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|COMMITMENTS AND CONTINGENCIES                                    |                                                                                                                                                                                                 |                                            |        |             |           |          |        |        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|SHAREHOLDERS EQUITY:                                            |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|                                                                 | Common stock (issued and outstanding: 17,626 shares at
September 30, 2003 and 17,566 shares at December 31,
2002 after deducting treasury stock of 4,230 shares and
4,290 shares, respectively) |                                            |         | 911         |           |          |         | 911     |          
|                                                                 | Additional paid-in capital                                                                                                                                                                      |                                            |         | 23,200      |           |          |         | 22,516  |          
|                                                                 | Retained earnings                                                                                                                                                                               |                                            |         | 290,636     |           |          |         | 279,826 |          
|                                                                 | Accumulated other comprehensive income                                                                                                                                                          |                                            |         | 60,798      |           |          |         | 47,573  |          
|                                                                 | Treasury stock  at cost                                                                                                                                                                        |                                            |         | (41,512     | )         |          |         | (41,605 | )        
|                                                                 | Unvested restricted stock awards                                                                                                                                                                |                                            |         | (96         | )         |          |         | (313    | )        
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                                 | Total                                      |         |             | 333,937   |          |         |         | 308,908   | 
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        
|                                                                 |                                                                                                                                                                                                 | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |         | $           | 1,149,396 |          |         | $       | 1,090,674 | 
|                                                                 |                                                                                                                                                                                                 |                                            |         |             |           |          |         |        

See notes to condensed consolidated financial statements.

3



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##### 



THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amounts in 000s (except per share information)

|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |         |  
|----------------------------------------------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ---------------------------------------------- | ----------------- | ---- | ------------------------- | ------- | -------------------------- | ----- | ------- | ------- | ----- | ---- | ------- | ------- | ----- | ----- | ------- | ------- | -
|                                                                                                |                                   |                                                     |                                                |                   |      | Nine-Mos. Ended Sept. 30, |         | Three-Mos. Ended Sept. 30,
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                           
|                                                                                                |                                   |                                                     |                                                |                   |      | 2003                      |         | 2002                       |       | 2003    |         | 2002 
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |      
|REVENUES:                                                                                       |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |      
|                                                                                                | Insurance:                        |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |      
|                                                                                                |                                   |                                                     | Premiums earned                                |                   | $    | 474,770                   |         |                            | $     | 425,794 |         |       | $    | 164,290 |         |       | $     | 148,417 |        
|                                                                                                |                                   |                                                     | Net investment income                          |                   |      | 24,634                    |         |                            |       | 26,114  |         |       |      | 8,195   |         |       |       | 8,706   |        
|                                                                                                |                                   |                                                     | Net realized investment gains (losses)         |                   |      | 2,240                     |         |                            |       | (6,968  | )       |       |      | 1,190   |         |       |       | (5,607  | )      
|                                                                                                |                                   |                                                     | Other insurance income                         |                   |      | 10,565                    |         |                            |       | 9,799   |         |       |      | 3,568   |         |       |       | 3,460   |        
|                                                                                                | Transportation                    |                                                     |                                                | 19,736            |      |                           |         | 16,815                     |       |         |         | 6,915 |      |         |         | 5,404 |      
|                                                                                                | Other                             |                                                     |                                                | 207               |      |                           |         | 437                        |       |         |         | 64    |      |         |         | 96    |      
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|                                                                                                |                                   |                                                     |                                                | Total             |      |                           | 532,152 |                            |       |         | 471,991 |       |      |         | 184,222 |       |       |         | 160,476 |  
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|COSTS AND EXPENSES:                                                                             |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |      
|                                                                                                | Insurance:                        |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |      
|                                                                                                |                                   |                                                     | Losses and loss adjustment expenses            |                   |      | 297,222                   |         |                            |       | 250,686 |         |       |      | 105,139 |         |       |       | 98,473  |        
|                                                                                                |                                   |                                                     | Commissions and other policy acquisition costs |                   |      | 133,676                   |         |                            |       | 124,049 |         |       |      | 44,953  |         |       |       | 41,704  |        
|                                                                                                |                                   |                                                     | Operating and administrative expenses          |                   |      | 63,335                    |         |                            |       | 62,655  |         |       |      | 21,612  |         |       |       | 19,685  |        
|                                                                                                | Transportation operating expenses |                                                     |                                                | 18,756            |      |                           |         | 16,666                     |       |         |         | 6,339 |      |         |         | 5,118 |      
|                                                                                                | Interest expense                  |                                                     |                                                | 2,782             |      |                           |         | 2,703                      |       |         |         | 961   |      |         |         | 850   |      
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|                                                                                                |                                   |                                                     |                                                | Total             |      |                           | 515,771 |                            |       |         | 456,759 |       |      |         | 179,004 |       |       |         | 165,830 |  
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|INCOME (LOSS) BEFORE FEDERAL INCOME TAX
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE |                                   |                                                     | 16,381                                         |                   |      |                           | 15,232  |                            |       |         | 5,218   |       |      |         | (5,354  | )    
|PROVISION (CREDIT) FOR FEDERAL INCOME TAX                                                       |                                   |                                                     | 3,060                                          |                   |      |                           | 2,625   |                            |       |         | 929     |       |      |         | (2,739  | )    
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE                        |                                   |                                                     | 13,321                                         |                   |      |                           | 12,607  |                            |       |         | 4,289   |       |      |         | (2,615  | )    
|CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE  NET                                       |                                   |                                                     |                                               |                   |      |                           | (1,463  | )                          |       |         |        |       |      |         |        |      
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|                                                                                                |                                   |                                                     |                                                | NET INCOME (LOSS) |      | $                         | 13,321  |                            |       | $       | 11,144  |       |      | $       | 4,289   |       |       | $       | (2,615  | )
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|BASIC EARNINGS (LOSSES) PER SHARE
OF COMMON STOCK:                                              |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |      
|                                                                                                |                                   | Income before change in accounting principle        |                                                | $                 | 0.77 |                           |         | $                          | 0.72  |         |         | $     | 0.25 |         |         | $     | (0.15 | )      
|                                                                                                |                                   | Cumulative effect of change in accounting principle |                                                |                   |     |                           |         |                            | (0.08 | )       |         |       |     |         |         |       |      |        
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|                                                                                                |                                   |                                                     |                                                | Total             |      | $                         | 0.77    |                            |       | $       | 0.64    |       |      | $       | 0.25    |       |       | $       | (0.15   | )
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|DILUTED EARNINGS (LOSSES) PER SHARE
OF COMMON STOCK:                                            |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |      
|                                                                                                |                                   | Income before change in accounting principle        |                                                | $                 | 0.74 |                           |         | $                          | 0.70  |         |         | $     | 0.23 |         |         | $     | (0.15 | )      
|                                                                                                |                                   | Cumulative effect of change in accounting principle |                                                |                   |     |                           |         |                            | (0.08 | )       |         |       |     |         |         |       |      |        
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|                                                                                                |                                   |                                                     |                                                | Total             |      | $                         | 0.74    |                            |       | $       | 0.62    |       |      | $       | 0.23    |       |       | $       | (0.15   | )
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        
|CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK                                               |                                   | $                                                   | .14250                                         |                   |      | $                         | .13125  |                            |       | $       | 0.04750 |       |      | $       | 0.04375 |      
|                                                                                                |                                   |                                                     |                                                |                   |      |                           |         |                            |       |         |         |       |      |         |         |       |       |         |        

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 (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
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                                                                                                 |                                      |  |        |        |         |   |            |         |            |   | 11,144   |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        | 11,144 |   |  | $      | 11,144 |       
|                                      |                                                                                          |                                                    | Decrease
          in unrealized gain on marketable securities, net of related income tax
          effect of $2,253 |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        | (4,366      | )       |        |   |            |      |          |  |   |         |         |        | (4,366 | ) |  |        | (4,366 | )     
|                                      |                                                                                          | Other,
          net of federal income tax of $654 |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            | (1,215 | )           |         |        |   |            |      |          |  |   |         |         | (1,215 | )      |   |  | (1,215 | )     
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   |  |        |        |        | 
|                                      |                                                                                          |                                                    |                                                                                                                      | Total
          comprehensive income |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   |  |        | $      | 5,563  | 
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   | 
|                                      | Purchase
          of treasury stock                                                     |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         | (3,593 | ) |            |      |          |  |   |         | (3,593  | )      |        |   |  |       
|                                      | Issuance
          of treasury stock for options exercised and employee savings plan     |                                                    |                                                                                                                      |                                      |  |        |        | 484     |   |            |         |            |   |          |        |            |        |             |         | 853    |   |            |      |          |  |   |         | 1,337   |        |        |   |  |       
|                                      | Cash
          dividends declared                                                        |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         | (2,304     | ) |          |        |            |        |             |         |        |   |            |      |          |  |   |         | (2,304  | )      |        |   |  |       
|                                      | Federal
          income tax benefit related to the exercise or granting of stock awards |                                                    |                                                                                                                      |                                      |  |        |        | 1,561   |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         | 1,561   |        |        |   |  |       
|                                      | Amortization
          and cancellation of unvested restricted stock awards              |                                                    |                                                                                                                      |                                      |  |        |        | (26     | ) |            |         |            |   |          |        |            |        |             |         | (27    | ) |            |      | 249      |  |   |         | 196     |        |        |   |  |       
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |        
|BALANCE,
          SEPTEMBER 30, 2002 |                                                                                          | $                                                  | 911                                                                                                                  |                                      |  | $      | 22,405 |         |   | $          | 272,897 |            |   | $        | 40,294 |            |        | $           | (41,465 | )      |   | $          | (406 | )        |  | $ | 294,636 |         |        |        |   | 
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |        
|BALANCE,
          DECEMBER 31, 2002  |                                                                                          | $                                                  | 911                                                                                                                  |                                      |  | $      | 22,516 |         |   | $          | 279,826 |            |   | $        | 47,573 |            |        | $           | (41,605 | )      |   | $          | (313 | )        |  | $ | 308,908 |         |        |        |   | 
|                                      | Comprehensive
          income:                                                          |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   |  |       
|                                      |                                                                                          |                                                    | Net
          income                                                                                                 |                                      |  |        |        |         |   |            |         |            |   | 13,321   |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        | 13,321 |   |  | $      | 13,321 |       
|                                      |                                                                                          |                                                    | Increase
          in unrealized gain on marketable securities, net of related income tax
          effect of $7,070 |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        | 13,108      |         |        |   |            |      |          |  |   |         |         |        | 13,108 |   |  |        | 13,108 |       
|                                      |                                                                                          | Other,
          net of federal income tax of $63  |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            | 117    |             |         |        |   |            |      |          |  |   |         |         | 117    |        |   |  | 117    |       
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   |  |        |        |        | 
|                                      |                                                                                          |                                                    |                                                                                                                      | Total
          comprehensive income |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   |  |        | $      | 26,546 | 
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         |         |        |        |   | 
|                                      | Purchase
          of treasury stock                                                     |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         |            |   |          |        |            |        |             |         | (944   | ) |            |      |          |  |   |         | (944    | )      |        |   |  |       
|                                      | Issuance
          of treasury stock for options exercised and employee savings plan     |                                                    |                                                                                                                      |                                      |  |        |        | 563     |   |            |         |            |   |          |        |            |        |             |         | 1,039  |   |            |      |          |  |   |         | 1,602   |        |        |   |  |       
|                                      | Cash
          dividends declared                                                        |                                                    |                                                                                                                      |                                      |  |        |        |         |   |            |         | (2,511     | ) |          |        |            |        |             |         |        |   |            |      |          |  |   |         | (2,511  | )      |        |   |  |       
|                                      | Federal
          income tax benefit related to the exercise or granting of stock awards |                                                    |                                                                                                                      |                                      |  |        |        | 123     |   |            |         |            |   |          |        |            |        |             |         |        |   |            |      |          |  |   |         | 123     |        |        |   |  |       
|                                      | Amortization
          and cancellation of unvested restricted stock awards              |                                                    |                                                                                                                      |                                      |  |        |        | (2      | ) |            |         |            |   |          |        |            |        |             |         | (2     | ) |            |      | 217      |  |   |         | 213     |        |        |   |  |       
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |        
|BALANCE,
          SEPTEMBER 30, 2003 |                                                                                          | $                                                  | 911                                                                                                                  |                                      |  | $      | 23,200 |         |   | $          | 290,636 |            |   | $        | 60,798 |            |        | $           | (41,512 | )      |   | $          | (96  | )        |  | $ | 333,937 |         |        |        |   | 
|                                      |                                                                                          |                                                    |                                                                                                                      |                                      |  |        |        |        

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 NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amount in 000s

|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |          |         |         |  
|------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | -------- | ------ | ------- | ------ | -------- | ------- | ------- | -
|                                      |                                                                                   |                                                                                  |                                           |          | 2003   |         | 2002  
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |       
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      | Net income                                                                        |                                                                                  | $                                         | 13,321   |        |         | $      | 11,144   |        
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                                  |                                           |          |        |         |        |          |        
|                                      |                                                                                   | Depreciation and amortization                                                    |                                           |          | 6,739  |         |        |          | 6,013   |        
|                                      |                                                                                   | Cumulative effect of change in accounting for goodwill                           |                                           |          |       |         |        |          | 2,251   |        
|                                      |                                                                                   | Net realized investment losses (gains)                                           |                                           |          | (2,063 | )       |        |          | 6,386   |        
|                                      |                                                                                   | Increase in insurance loss reserves                                              |                                           |          | 33,442 |         |        |          | 11,404  |        
|                                      |                                                                                   | Increase in funds held under reinsurance
agreements and reinsurance payables     |                                           |          | 3,118  |         |        |          | 44      |        
|                                      |                                                                                   | Increase in net accounts receivable                                              |                                           |          | (2,739 | )       |        |          | (13,029 | )      
|                                      |                                                                                   | Decrease (increase) in deferred insurance policy acquisition costs               |                                           |          | 2,460  |         |        |          | (1,476  | )      
|                                      |                                                                                   | Increase (decrease) in other accounts payable and accruals                       |                                           |          | 2,449  |         |        |          | (10,918 | )      
|                                      |                                                                                   | Decrease (increase) in reinsurance recoverables and
prepaid reinsurance premiums |                                           |          | 2,368  |         |        |          | (6,360  | )      
|                                      |                                                                                   | Increase in insurance commissions payable                                        |                                           |          | 944    |         |        |          | 3,294   |        
|                                      |                                                                                   | Increase (decrease) in unearned insurance premiums                               |                                           |          | (473   | )       |        |          | 26,294  |        
|                                      |                                                                                   | Decrease (increase) in other assets                                              |                                           |          | (404   | )       |        |          | 744     |        
|                                      |                                                                                   | Other-net                                                                        |                                           |          | 2,776  |         |        |          | 912     |        
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      |                                                                                   |                                                                                  | Net cash provided by operating activities |          |        | 61,938  |        |          |         | 36,703  |  
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      | Purchase of marketable securities                                                 |                                                                                  |                                           | (382,606 | )      |         |        | (209,125 | )      
|                                      | Sale of marketable securities                                                     |                                                                                  |                                           | 232,632  |        |         |        | 130,363  |        
|                                      | Maturity of marketable securities                                                 |                                                                                  |                                           | 76,860   |        |         |        | 42,963   |        
|                                      | Decrease in cash equivalent marketable securities                                 |                                                                                  |                                           | 39,662   |        |         |        | 10,721   |        
|                                      | Acquisition of property, plant and equipment                                      |                                                                                  |                                           | (12,049  | )      |         |        | (8,497   | )      
|                                      | Proceeds from sale of property, plant and equipment                               |                                                                                  |                                           | 280      |        |         |        | 159      |        
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      |                                                                                   |                                                                                  | Net cash used in investing activities     |          |        | (45,221 | )      |          |         | (33,416 | )
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      | Decrease in net short-term borrowings                                             |                                                                                  |                                           | (20,971  | )      |         |        | (1,195   | )      
|                                      | Issuance of long term debt                                                        |                                                                                  |                                           | 7,497    |        |         |        |         |        
|                                      | Dividends paid                                                                    |                                                                                  |                                           | (2,441   | )      |         |        | (2,245   | )      
|                                      | Issuance of treasury stock                                                        |                                                                                  |                                           | 1,602    |        |         |        | 1,337    |        
|                                      | Repayment of long-term debt                                                       |                                                                                  |                                           | (1,127   | )      |         |        | (1,086   | )      
|                                      | Purchase of treasury stock                                                        |                                                                                  |                                           | (944     | )      |         |        | (3,593   | )      
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|                                      |                                                                                   |                                                                                  | Net cash used in financing activities     |          |        | (16,384 | )      |          |         | (6,782  | )
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|NET INCREASE (DECREASE) IN CASH       |                                                                                   |                                                                                  | 333                                       |          |        |         | (3,495 | )       
|CASH AT BEGINNING OF PERIOD           |                                                                                   |                                                                                  | 5,975                                     |          |        |         | 11,286 |         
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|CASH AT END OF PERIOD                 |                                                                                   | $                                                                                | 6,308                                     |          |        | $       | 7,791  |         
|                                      |                                                                                   |                                                                                  |                                           |          |        |         |        |         
|INTEREST PAID                         |                                                                                   | $                                                                                | 2,542                                     |          |        | $       | 2,778  |         
|INCOME TAXES PAID                     |                                                                                   | $                                                                                | 1,500                                     |          |        | $       | 6,000  |         

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)

SEPTEMBER 30, 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 the Company. Revenue and operating
results for the nine and three-month periods ended September 30, 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.

Certain reclassifications have been made to the 2002 amounts to conform to 2003
classifications.

2. 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
|                                 |      |  |               |        |                
|Nine months ended September 30:  |      |  |               |        |                 |  |  |       
|                                 | 2003 |  |               | 17,411 |                 |  |  | 17,919 | 
|                                 |      |  |               |        |                 |  |  |       
|                                 | 2002 |  |               | 17,312 |                 |  |  | 17,868 | 
|                                 |      |  |               |        |                 |  |  |       
|Three months ended September 30: |      |  |               |        |                 |  |  |       
|                                 | 2003 |  |               | 17,420 |                 |  |  | 17,913 | 
|                                 |      |  |               |        |                 |  |  |       
|                                 | 2002 |  |               | 17,341 |                 |  |  | 17,341 | 
|                                 |      |  |               |        |                 |  |  |       

Potential diluted common shares of 576 were not included in computing diluted
per share amounts for the three months ended September 30, 2002 because the
effects were anti-dilutive.

7



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##### 



3. INCOME TAXES

The federal income tax provisions for the three and nine-month periods ended
September 30, 2003 and 2002 are different from amounts derived by applying the
statutory tax rates to income before federal income tax as follows (000s):

|                                                                                                                                         |                                                   |                                           |  |                           |  |                            |       |        |       |   |       |        |       |      |  |  |  |   |       |      |     |   |        |      |        |  
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- |  | ------------------------- |  | -------------------------- | ----- | ------ | ----- | - | ----- | ------ | ----- | ---- |  |  |  | - | ----- | ---- | --- | - | ------ | ---- | ------ | -
|                                                                                                                                         |                                                   |                                           |  | Nine-Mos. Ended Sept. 30, |  | Three-Mos. Ended Sept. 30,
|                                                                                                                                         |                                                   |                                           |  |                           |  |                           
|                                                                                                                                         |                                                   |                                           |  | 2003                      |  | 2002                       |       |        |       |   |       | 2003   |       | 2002
|                                                                                                                                         |                                                   |                                           |  |                           |  |                            |       |        |       |   |       |        |       |     
|Federal income tax at statutory rate (including
a tax credit of $787 in 2002 on the
cumulative effect of change in accounting
principle) |                                                   |                                           |  |                           |  | $                          | 5,733 |        |       | $ | 4,544 |        |       |      |  |  |  | $ | 1,826 |      |     | $ | (1,873 | )   
|Add (deduct) the tax effect of:                                                                                                          |                                                   |                                           |  |                           |  |                            |       |        |       |   |       |        |       |      |  |  |  |   |       |      |     |   |        |     
|                                                                                                                                         | Tax exempt interest and
excludable dividend icome |                                           |  |                           |  |                            |       | (2,773 | )     |   |       | (2,965 | )     |      |  |  |  |   |       | (939 | )   |   |        | (954 | )     
|                                                                                                                                         | Other  net                                       |                                           |  |                           |  |                            |       | 100    |       |   |       | 259    |       |      |  |  |  |   |       | 42   |     |   |        | 88   |       
|                                                                                                                                         |                                                   |                                           |  |                           |  |                            |       |        |       |   |       |        |       |      |  |  |  |   |       |      |     |   |        |     
|                                                                                                                                         |                                                   | Provision (credit) for federal income tax |  |                           |  |                            |       | $      | 3,060 |   |       | $      | 1,838 |      |  |  |  |   |       | $    | 929 |   |        | $    | (2,739 | )
|                                                                                                                                         |                                                   |                                           |  |                           |  |                            |       |        |       |   |       |        |       |      |  |  |  |   |       |      |     |   |        |     

4. SEGMENT DISCLOSURES

Since Midland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):

|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |       |      |        |  
|-------------------- | ----------------------- | -------------------- |  | -------------------------------- | --------- | --------------------------------- |  | --------- | ------- | --------- | ------ | --------- | -------- | ------- |  | ------ |  |  |  | ----- | ------ | - | ----- | ---- | ------ | -
|                     |                         |                      |  | Nine Months Ended Sept. 30, 2003 |           | Three Months Ended Sept. 30, 2003
|                     |                         |                      |  |                                  |           |                                  
|                     |                         |                      |  |                                  |           |                                   |  | Revenues- |         | Pre-Tax   |        | Revenues- |          | Pre-Tax
|                     |                         |                      |  | Total                            |           | External                          |  | Income    |         |           |        |           | External |         |  | Income
|                     |                         |                      |  | Assets                           |           | Customers                         |  | (Loss)    |         | Customers |        | (Loss)   
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |          
|Reportable Segments: |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |       |     
|                     | Insurance:              |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |       |      |       
|                     |                         | Manufactured housing |  |                                  | n/a       |                                   |  | $         | 245,038 |           |        | $         | 21,156   |         |  |        |  |  |  | $     | 81,263 |   |       | $    | 6,535  |  
|                     |                         | Other                |  |                                  | n/a       |                                   |  |           | 240,297 |           |        |           | (6,418   | )       |  |        |  |  |  |       | 86,595 |   |       |      | (2,418 | )
|                     |                         | Unallocated          |  | $                                | 1,091,933 |                                   |  |           |        |           |        |           | 2,235    |         |  |        |  |  |  |       |       |   |       |      | 833    |  
|                     | Transportation          |                      |  | 32,866                           |           |                                   |  | 19,736    |         |           |        | 771       |          |         |  |        |  |  |  | 6,915 |        |   |       | 455  |       
|                     | Corporate and all other |                      |  |                                 |           |                                   |  |          |         |           |        | (1,363    | )        |         |  |        |  |  |  |      |        |   |       | (187 | )     
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |       |     
|                     |                         |                      |  |                                  |           |                                   |  |           |         | $         | 16,381 |           |          |         |  |        |  |  |  |       |        | $ | 5,218 |     
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |       |     

|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |        |      |        |  
|-------------------- | ----------------------- | -------------------- |  | -------------------------------- | --------- | --------------------------------- |  | --------- | ------- | --------- | ------ | --------- | -------- | ------- |  | ------ |  |  |  | ----- | ------ | - | ------ | ---- | ------ | -
|                     |                         |                      |  | Nine Months Ended Sept. 30, 2002 |           | Three Months Ended Sept. 30, 2002
|                     |                         |                      |  |                                  |           |                                  
|                     |                         |                      |  |                                  |           |                                   |  | Revenues- |         | Pre-Tax   |        | Revenues- |          | Pre-Tax
|                     |                         |                      |  | Total                            |           | External                          |  | Income    |         |           |        |           | External |         |  | Income
|                     |                         |                      |  | Assets                           |           | Customers                         |  | (Loss)    |         | Customers |        | (Loss)   
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |          
|Reportable Segments: |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |        |     
|                     | Insurance:              |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |        |      |       
|                     |                         | Manufactured housing |  |                                  | n/a       |                                   |  | $         | 244,016 |           |        | $         | 13,689   |         |  |        |  |  |  | $     | 81,953 |   |        | $    | (179   | )
|                     |                         | Other                |  |                                  | n/a       |                                   |  |           | 191,577 |           |        |           | 4,585    |         |  |        |  |  |  |       | 69,924 |   |        |      | (4,383 | )
|                     |                         | Unallocated          |  | $                                | 1,034,653 |                                   |  |           |        |           |        |           | (1,029   | )       |  |        |  |  |  |       |       |   |        |      | (351   | )
|                     | Transportation          |                      |  | 22,585                           |           |                                   |  | 16,815    |         |           |        | 8         |          |         |  |        |  |  |  | 5,404 |        |   |        | 219  |       
|                     | Corporate and all other |                      |  |                                 |           |                                   |  |          |         |           |        | (2,021    | )        |         |  |        |  |  |  |      |        |   |        | (660 | )     
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |        |      |        |  
|                     |                         |                      |  |                                  |           |                                   |  |           |         | $         | 15,232 |           |          |         |  |        |  |  |  |       |        | $ | (5,354 | )   
|                     |                         |                      |  |                                  |           |                                   |  |           |         |           |        |           |          |         |  |        |  |  |  |       |        |   |        |      |        |  

Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. Certain amounts are
not allocated to segments (n/a above) by the Company.

8



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##### 



5. 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 and nine-months ended September 30, 2003
and 2002 would have been reduced to the pro forma amounts indicated below
(amounts in 000s, except per share data):

|                                                                                                                                    |                       |  |                             |                              |  |   |        |      |      |   |        |      |  |  |      |  |      |   |        |      |  |   |        |        |  
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------- |  | --------------------------- | ---------------------------- |  | - | ------ | ---- | ---- | - | ------ | ---- |  |  | ---- |  | ---- | - | ------ | ---- |  | - | ------ | ------ | -
|                                                                                                                                    |                       |  | Nine Months Ended Sept. 30, | Three Months Ended Sept. 30,
|                                                                                                                                    |                       |  |                             |                             
|                                                                                                                                    |                       |  |                             |                              |  |   | 2003   |      | 2002 |   |        |      |  |  | 2003 |  | 2002
|                                                                                                                                    |                       |  |                             |                              |  |   |        |      |      |   |        |      |  |  |      |  |     
|Net Income (Loss) as Reported                                                                                                       |                       |  |                             |                              |  | $ | 13,321 |      |      | $ | 11,144 |      |  |  |      |  |      | $ | 4,289  |      |  | $ | (2,615 | )     
|Deduct: Total stock-based employee
compensation determined under fair
value based method for all awards,
net of related tax effects |                       |  |                             |                              |  |   | 705    |      |      |   | 550    |      |  |  |      |  |      |   | 197    |      |  |   | 150    |       
|                                                                                                                                    |                       |  |                             |                              |  |   |        |      |      |   |        |      |  |  |      |  |      |   |        |      |  |   |        |       
|Pro forma Net Income (Loss)                                                                                                         |                       |  |                             |                              |  | $ | 12,616 |      |      | $ | 10,594 |      |  |  |      |  |      | $ | 4,092  |      |  | $ | (2,765 | )     
|                                                                                                                                    |                       |  |                             |                              |  |   |        |      |      |   |        |      |  |  |      |  |      |   |        |      |  |   |        |       
|Basic Shares                                                                                                                        |                       |  |                             |                              |  |   | 17,411 |      |      |   | 17,312 |      |  |  |      |  |      |   | 17,420 |      |  |   | 17,341 |       
|Diluted Shares                                                                                                                      |                       |  |                             |                              |  |   | 17,919 |      |      |   | 17,868 |      |  |  |      |  |      |   | 17,913 |      |  |   | 17,341 |       
|Earnings per share:                                                                                                                 |                       |  |                             |                              |  |   |        |      |      |   |        |      |  |  |      |  |      |   |        |      |  |   |        |       
|                                                                                                                                    | Basic  as reported   |  |                             |                              |  |   | $      | 0.77 |      |   | $      | 0.64 |  |  |      |  |      |   | $      | 0.25 |  |   |        | ($0.15 | )
|                                                                                                                                    | Basic  pro forma     |  |                             |                              |  |   |        | 0.73 |      |   |        | 0.61 |  |  |      |  |      |   |        | 0.23 |  |   |        | (0.16  | )
|                                                                                                                                    | Diluted  as reported |  |                             |                              |  |   | $      | 0.74 |      |   | $      | 0.62 |  |  |      |  |      |   | $      | 0.23 |  |   |        | ($0.15 | )
|                                                                                                                                    | Diluted  pro forma   |  |                             |                              |  |   |        | 0.70 |      |   |        | 0.59 |  |  |      |  |      |   |        | 0.23 |  |   |        | (0.16  | )

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.

6. 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 September 30, 2003, Midlands investment
portfolio included approximately $46.2 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 and nine
months periods ended September 30, 2003, Midland recorded pre-tax gains on
these securities of $467,000 and $177,000, respectively. For the three and
nine month periods ended September 30, 2002, Midland recorded pre-tax losses on
these securities of $860,000 and $582,000, 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 agreements are recorded as a
separate component of shareholders equity and have no income statement impact.
At September 30, 2003 and 2002, the accumulated derivative income (loss)
recorded in Other Comprehensive Income, net of deferred taxes, amounted to
$117,000 and $(1,215,000), respectively. The swaps mature on December 1, 2005.

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7. 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 statement of operations 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. There have been no
additional impairment charges incurred since March 31, 2002. At September 30,
2003, Midlands remaining goodwill balance, all of which is attributable to the
Other Insurance segment, was $2,145,000.

8. NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in
April 2003 and SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, in May 2003. The adoption of
SFAS Nos. 149 and 150 did not have a material impact on Midlands consolidated
financial position or results of operations.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities. This interpretation
requires variable interest entities to be consolidated by the primary
beneficiary which represents the enterprise that will absorb the majority of
the variable interest entities expected losses if they occur, receive a
majority of the variable interest entities residual returns if they occur, or
both. Midland has a synthetic lease arrangement for certain transportation
equipment in which Midland was deemed to be the primary beneficiary as the
registrant maintains the majority of the variable interests in this leased
asset. In the third quarter of 2003, the company consolidated this operating
lease asset by recording the leased asset and corresponding liability of $1.9
million.

9. SUBSEQUENT EVENT

During the first three weeks of October 2003, American Modern has experienced
some level of losses from wildfires in California. We are currently assessing
the potential impact of these losses.

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

Certain statements made in this report are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These statements include, but are not limited to certain discussions
relating to future revenue, underwriting income, premium volume, investment
income and other investment results, business strategies, profitability,
liquidity, capital adequacy, anticipated capital expenditures and business
relationships, as well as any other statements concerning the year 2003 and
beyond. In some cases you can identify forward-looking statements by such
terms as may, will, could, would, expect, plan, intend,
anticipate, believe, estimate, project, predict, potential and
similar expressions or the negative versions of such expressions. The
forward-looking statements involve risks and uncertainties that may cause
results to differ materially from those anticipated in those statements.
Factors that might cause results to differ from those anticipated include,
without limitation, adverse weather conditions, changes in underwriting results
affected by adverse economic conditions, fluctuations in the investment
markets,
changes in the retail marketplace, changes in the laws or regulations affecting
the operations of the company or its subsidiaries, changes in the business
tactics or strategies of the company, its subsidiaries or its current or
anticipated business partners, acquisitions or divestitures, changes in market
forces, litigation and the other risk factors that have been identified in the
companys filings with the SEC, any one of which might materially affect the
operations of the company or its subsidiaries. Any forward-looking statements
speak only as of the date made. We undertake no obligation to update any
forward-looking statements to reflect events or circumstances arising after the
date on which they are made.

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

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.
Management believes that the underwriting results of the motorcycle product
have been less than expected, due partly to product positioning, inadequate
rate levels and higher than expected losses. As a result, rate increases of
20-25% were sought in 2003 and more stringent underwriting was applied to the
motorcycle product.

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These rate increases have now been approved and are in the process of being
implemented in the marketplace. The increased rates will have little impact on
our underwriting results in 2003, but will begin to positively influence our
underwriting results in 2004.

Motorcycle gross written premium in the third quarter and first nine months of
2003 was only moderately ahead of 2002 levels.

In the third quarter of 2003, motorcycle gross written premium increased 4.4%
to $14.9 million from $14.2 million in the third quarter of 2002. Net earned
premium related to the motorcycle product increased 16.8% to $15.5 million in
the third quarter of 2003 from $13.3 million in the prior years third quarter.
We originally projected a loss of approximately $0.21 per share (after-tax)
related to the motorcycle product, reflecting the seasonality that is expected
with this line business, as the peak usage occurs in the summer months. Our
actual loss on the motorcycle line for the third quarter was approximately
$0.28 per share (after-tax), up from $0.17 per share (after-tax) for the third
quarter of 2002.

On a year-to-date basis, motorcycle gross premium written increased 2.5% to
$52.1 million in the first nine months of 2003 from $50.9 million in the nine
months of 2002. Net earned premium increased 28.8% to $44.4 million in the
nine months of 2003 from $34.5 million in the prior years first nine months.
From a profitability perspective, the net loss on the motorcycle product for
the first nine months of 2003 totaled $0.45 per share (after-tax), up from
$0.17 per share (after-tax) in the first nine months of 2002.

Site-Built Dwelling

During the third quarter of 2002, American Modern de-emphasized its standard
homeowner programs in favor of its dwelling fire programs which have more
restrictive coverages. American Modern undertook a careful review of all of
its site-built dwelling programs with the intent of targeting those properties
that fell outside the parameters of the standard homeowners insurance market.
As a result of these actions, American Modern is achieving positive growth from
its dwelling fire programs while experiencing the intended decrease in
homeowner programs. More specifically, dwelling fire gross written premium
increased 56.8% to $21.2 million in the third quarter of 2003 from $13.5
million in the third quarter of 2002. On a year-to-date basis, the dwelling
fire product increased 76.6% to $57.6 million in the first nine months of 2003
compared to $32.6 million in the prior years first nine months. Conversely,
no homeowner premium was written in the third quarter of 2003 as compared to
gross written premium of $11.2 million in this product in the prior years
third quarter. On a year-to-date basis, homeowner gross written premium
decreased 87.4% to $3.4 million from $26.8 million in the prior years first
nine months.

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 shipments in 2003 are expected to be approximately 10%
below 2002 levels. 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. American Modern
was approved for rate increases in 2002 and 2003. As a result of these rate
increases, the manufacturing housing gross written premium increased 7.8% to
$88.6 million in the third quarter of 2003 from $82.2 million in the third
quarter of 2002. On a year-to-date basis, gross written premium related to the
manufacturing housing product increased 6.9% to $246.8 million in the first
nine months of 2003 from $230.8 million in the first nine months of 2002.

Other Products

Other products include watercraft, snowmobile, recreational vehicle, physical
damage on long-haul trucks, extended service contracts, collateral protection,
mortgage fire and excess and surplus lines. 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 third quarter of 2003, gross written premium from American Moderns other
property and casualty insurance products increased collectively 50.3% to $59.6
million in the third quarter of 2003 from $39.6 million during the prior years
third quarter. On a year-to-date basis, gross written premium from other
property and casualty insurance products collectively increased 36.2% to $150.6
million in the first nine months of 2003 from $110.5 million in the first nine
months of 2002. The watercraft, mortgage fire, recreational vehicle and the
excess and surplus lines products are primarily driving this growth. In the
third quarter of 2003, these products

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collectively increased 145.0% to $37.3
million from $15.2 million in the third quarter of 2002. On a year-to-date
basis, the aforementioned four products collectively increased 84.1% to $90.0
million from $48.9 million in the 2002 nine-month period.

Rate Increases

We have been approved for and are implementing nationwide rate increases in our
manufactured housing products. These rate increases have averaged
approximately three percent during 2003 and were approximately nine to ten
percent in the prior year. We have also received approval for, and are
implementing double digit rate increases in many of our other major product
lines. As previously mentioned, rate increases of approximately 20% to 25%
have been approved related to the motorcycle product, 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 2003 and these rate increases have now been approved. Beginning in the
second quarter of 2003 and continuing into the third quarter of 2003, the
manufactured housing and site-built fire loss ratios have decreased to normal
levels.

Changing Mix of American Moderns Distribution Channels

Over the past 15-27 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.

Shift Away from Chattel Financing

Manufactured housing sales have traditionally been financed as personal
property through a financing transaction referred to as chattel financing.
Over the last several years, several large chattel lenders 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.

OVERVIEW OF PROPERTY AND CASUALTY UNDERWRITING RESULTS

For the third quarter, American Moderns property and casualty combined ratio
(losses and expenses as a percent of earned premium) was 104.7 percent,
compared with 107.3 percent a year ago. Catastrophe losses during the third
quarter of 2003 had a 4.9 point impact on the combined ratio, compared with a
3.0 point impact a year ago.

Our third quarter results were lower due to two primary reasons: weather
related catastrophes and above normal losses in our motorcycle line.

Pre-tax weather related catastrophe losses in the current third quarter were
$7.9 million, $0.29 per share diluted, as compared to $4.4 million, $0.16 per
share diluted, in the prior years third quarter. A normal level of
catastrophe losses in a third quarter would be approximately $5.9 million on a
pre-tax basis. Hurricane Isabel was the single largest contributor to our
catastrophe losses in the current quarter. Net after-tax losses from Hurricane
Isabel were $2.3 million, or $0.13 per share diluted. The losses from Isabel
were substantially reduced by our normal catastrophe reinsurance program plus a
special one time second event cover which provided significant protection
during the event of a second major catastrophe in 2003. While a similar second
event coverage will not be available for the remainder of 2003, the normal
catastrophe reinsurance program will continue to be in place.

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American Modern experienced higher than expected losses from its motorcycle
product during the third quarter of 2003. The actual loss from the motorcycle
product for the third quarter was approximately $0.28 per share (after -tax),
up from $0.17 per share (after-tax) for the third quarter of 2002.

Reclassification of Policy Service Fees

American Modern charges a service fee to those policyholders who elect to pay
their insurance premium in installments. Historically, American Modern treated
these fees as a recovery of processing costs and accounted for the fees as an
offset to the related operating expense. American Modern has reclassified these
fees as revenues for reporting purposes. This change has no impact on net
income, however, the change will
add 1.3 percentage points to the year-to-date and quarterly combined ratio of
the property and casualty operations. On a pre-tax basis, these fees amounted
to $2.1 million and $1.9 million in the third quarter of 2003 and 2002,
respectively, and $6.0 million and $5.1 million in the first nine months of
2003 and 2002, respectively. All prior period data have been reclassified to
conform to the current method of presenting these policy service fees.

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 and nine-month
periods ended September 30, 2003 and 2002 ($000):

|                                  |                                              |         |       |                    |       |                    |       |         |       |         |       |         |       |        |       |       |       |   |       |       |       |   |       |       |       | 
|--------------------------------- | -------------------------------------------- | ------- | ----- | ------------------ | ----- | ------------------ | ----- | ------- | ----- | ------- | ----- | ------- | ----- | ------ | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                  |                                              |         |       | Nine Months Ended  |       | Nine Months Ended 
|                                  |                                              |         |       | September 30, 2003 |       | September 30, 2002
|                                  |                                              |         |       |                    |       |                   
|                                  |                                              |         |       | Gross              |       | Net                |       | Net     |       | Gross   |       | Net     |       | Net   
|                                  |                                              |         |       | Written            |       | Written            |       | Earned  |       | Written |       | Written |       | Earned
|Business Segment                  |                                              | Premium |       | Premium            |       | Premium            |       | Premium |       | Premium |       | Premium
|                                  |                                              |         |       |                    |       |                    |       |         |       |         |       |        
|Manufactured Housing              |                                              | $       | 246.8 |                    |       | $                  | 232.9 |         |       | $       | 245.0 |         |       | $      | 230.8 |       |       | $ | 220.8 |       |       | $ | 244.0 |      
|All Other Insurance and Services: |                                              |         |       |                    |       |                    |       |         |       |         |       |         |       |        |       |       |       |   |       |       |       |   |       |      
|                                  | Other Property & Casualty
Specialty Products |         |       | 263.6              |       |                    |       | 243.4   |       |         |       | 219.7   |       |        |       | 220.7 |       |   |       | 211.0 |       |   |       | 173.1 |      
|                                  | Life Operations                              |         |       | 10.2               |       |                    |       | 8.9     |       |         |       | 10.1    |       |        |       | 40.8  |       |   |       | 9.5   |       |   |       | 8.7   |      
|                                  |                                              |         |       |                    |       |                    |       |         |       |         |       |         |       |        |       |       |       |   |       |       |       |   |       |      
|                                  |                                              | Total   |       | $                  | 520.6 |                    |       | $       | 485.2 |         |       | $       | 474.8 |        |       | $     | 492.3 |   |       | $     | 441.3 |   |       | $     | 425.8 | 
|                                  |                                              |         |       |                    |       |                    |       |         |       |         |       |         |       |        |       |       |       |   |       |       |       |   |       |      

|                                  |                                              |         |      |                    |       |                    |      |         |       |         |      |         |       |        |      |      |       |   |      |      |       |   |      |      |       | 
|--------------------------------- | -------------------------------------------- | ------- | ---- | ------------------ | ----- | ------------------ | ---- | ------- | ----- | ------- | ---- | ------- | ----- | ------ | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | 
|                                  |                                              |         |      | Three Months Ended |       | Three Months Ended
|                                  |                                              |         |      | September 30, 2003 |       | September 30, 2002
|                                  |                                              |         |      |                    |       |                   
|                                  |                                              |         |      | Gross              |       | Net                |      | Net     |       | Gross   |      | Net     |       | Net   
|                                  |                                              |         |      | Written            |       | Written            |      | Earned  |       | Written |      | Written |       | Earned
|Business Segment                  |                                              | Premium |      | Premium            |       | Premium            |      | Premium |       | Premium |      | Premium
|                                  |                                              |         |      |                    |       |                    |      |         |       |         |      |        
|Manufactured Housing              |                                              | $       | 88.6 |                    |       | $                  | 83.4 |         |       | $       | 81.3 |         |       | $      | 82.2 |      |       | $ | 79.1 |      |       | $ | 82.0 |     
|All Other Insurance and Services: |                                              |         |      |                    |       |                    |      |         |       |         |      |         |       |        |      |      |       |   |      |      |       |   |      |     
|                                  | Other Property & Casualty
Specialty Products |         |      | 95.7               |       |                    |      | 85.1    |       |         |      | 79.4    |       |        |      | 78.6 |       |   |      | 75.1 |       |   |      | 63.3 |      
|                                  | Life Operations                              |         |      | 4.7                |       |                    |      | 5.8     |       |         |      | 3.6     |       |        |      | 11.3 |       |   |      | 3.7  |       |   |      | 3.1  |      
|                                  |                                              |         |      |                    |       |                    |      |         |       |         |      |         |       |        |      |      |       |   |      |      |       |   |      |     
|                                  |                                              | Total   |      | $                  | 189.0 |                    |      | $       | 174.3 |         |      | $       | 164.3 |        |      | $    | 172.1 |   |      | $    | 157.9 |   |      | $    | 148.4 | 
|                                  |                                              |         |      |                    |       |                    |      |         |       |         |      |         |       |        |      |      |       |   |      |      |       |   |      |     

Manufactured Housing

Although the manufactured housing industry continues to be depressed, American
Moderns gross written premium related to this product increased 7.8% and 6.9%
in the third quarter and nine months, of 2003 compared to the comparable
periods in 2002. These increases are primarily the result of rate increases
approved in 2002, which were partially offset by a decline in in-force
policies.

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.

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All Other Insurance

Gross written premiums in American Moderns other specialty property and
casualty products (non-manufactured housing products) collectively increased
21.8% in the third quarter of 2003 compared to the prior years third quarter.
On a year-to-date basis, American Moderns other specialty property and
casualty products collectively increased 19.4% compared to the first nine
months of 2002. The primary drivers of this growth in the third quarter and
first nine months of 2003 were the watercraft, mortgage fire, recreational
vehicle and excess and surplus lines products.

The decrease in the credit life gross written premium is due to industry
regulatory actions which mandate a monthly pay product on real estate secured
loans rather than a single premium. This change affects gross written premium,
which decreased 58.7% and 75.0% during the third quarter and first nine months
of 2003, respectively. The change is expected to have little impact on net
earned premium. During the third quarter and first nine months of 2003, credit
life net earned premium actually increased 15.5% and 15.3%, respectively. A
large percentage of our credit life business is ultimately ceded back to an
insurance affiliate of the producing agent.

Other insurance income increased $0.1 million and $0.8 million in the third
quarter and first nine months, respectively, of 2003 compared to the comparable
periods in 2002. These increases were due to the increases in fee income
related to property and casualty installment premium payments.

Insurance Investment Income and Realized Capital Gains

American Moderns net investment income decreased $0.5 million to $8.2 million
in the third quarter of 2003 from $8.7 million in the third quarter of 2002.
On a year-to-date basis, net investment income decreased $1.5 million to $24.6
million in the first nine months of 2003 from $26.1 million in the first nine
months of 2002. These decreases are 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 5.5% in
the first nine months of 2003 compared to 6.5% during the first nine months of
2002.

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 income from embedded derivatives which are included (on a pre-tax
basis) in net realized capital gains (losses) amounted to $0.3 million, $0.02
per share (diluted), during the third quarter of 2003 compared to a loss of
$(0.6) million, $(0.03) per share (diluted), in the prior years third quarter.
On year-to-date basis, after-tax income from embedded derivatives was $0.1
million, $0.01 per share (diluted), during the first nine months of 2003
compared to a loss of $(0.4) million, $(0.02) per share (diluted) during the
comparable period in 2002.

Also included in net realized capital gains (losses) in the first nine months 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 third quarter of 2003. There were after-tax impairment losses of
$(2.4) million, $(0.13) per share (diluted), in the third quarter and first
nine months of 2002.

Excluding the impact of derivative and impairment losses, American Moderns
after-tax net realized capital gains increased to $0.5 million, $0.03 per share
(diluted), in the third quarter of 2003 from a loss of $(0.7) million, $(0.04)
per share (diluted), in the third quarter of 2002. On a year-to-date basis,
after-tax realized capital gains increased to $2.6 million, $0.14 per share
(diluted), from a loss of $(1.8) million, $(0.10) per share (diluted), in the
first nine months of 2002.

Insurance Losses and Loss Adjustment Expenses (LAE)

American Moderns losses and loss adjustment expenses in the third quarter of
2003 increased 6.8% to $105.1 million from $98.5 million in the prior years
third quarter. This increase was due to significant increases in catastrophe
losses coupled with premium growth and increased losses from the motorcycle
product. Catastrophe losses on a pre-tax basis increased $3.5 million in the
third quarter of 2003 to $7.9 million from $4.4 million in the third quarter of
2002. These losses were primarily from Hurricane Isabel, which struck the
United States in September, 2003. Pre-tax losses from the motorcycle product
increased to $17.3 million in the third quarter of 2003 from $13.3 million in
the year ago third quarter.

15



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On a year-to-date basis, American Moderns losses and loss adjustment expenses
increased 18.6% from $250.7 million in 2002 to $297.2 million in 2003. This
increase was driven by premium growth plus significant increases in catastrophe
losses, motorcycle losses and losses associated with the commercial lines
product which American Modern exited in 2001. Catastrophe losses on a pre-tax
basis increased $15.8 million from $15.8 million in the first nine months of
2002 to $31.6 million in the current period. These catastrophe losses added
6.8 percentage points to the combined ratio compared to 3.8 percentage points
in the year ago period. A normal level of catastrophe losses for the first
nine months would be approximately $26.4 million on a pre-tax basis.

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 increased 8.4% to $66.6 million in the third
quarter of 2003 from $61.4 million in the year ago third quarter.

On a year-to-date basis, commissions and other policy acquisition costs and
operating and administrative expenses increased 5.5% to $197.0 million in the
first nine months of 2003 from $186.7 million in the comparable year ago
period.

These increases in both the three and nine-month periods were primarily due to
the increase in net earned premium offset by a decrease in the commission rate,
and, in legal, incentive and system development costs.

TRANSPORT

M/G Transport, Midlands transportation subsidiary, reported revenues for the
third quarter of 2003 of $6.9 million compared to $5.4 million in the third
quarter of 2002. Pre-tax income increased to $0.5 million in the third quarter
of 2003 from $0.2 million in the prior years third quarter.

M/G Transports year-to-date revenues increased to $19.7 million in the first
nine months of 2003 from $16.8 million in the year ago first nine months.
Pre-tax income improved to a profit of $0.8 million in the nine months of 2003
compared to a break-even situation in the prior years first nine months.

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

Consolidated Operations

We have certain obligations and commitments to make future payments under
contracts. As of September 30, 2003, the aggregate obligations on a
consolidated basis were (amounts in 000s):

Payments Due by PeriodLess than
    
    2-5
    
    After 5Total
    
    1 Year
    
    Years
    
    YearsLong-term debt
    
    $
    55,447
    
    
    $
    1,623
    
    
    $
    53,824
    
    
    $
    Other notes payable
    
    
    22,267
    
    
    
    22,267
    
    
    
    
    
    
    
    Annual commitments under
non-cancelable leases
    
    
    6,538
    
    
    
    627
    
    
    
    2,738
    
    
    
    3,173Total
    
    $
    84,252
    
    
    $
    24,517
    
    
    $
    56,562
    
    
    $
    3,173


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

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 nine 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 nine 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.

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We paid dividends to our shareholders of $2.4 million during the first nine
months of 2003, and $2.3 million during the first nine 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 September 30, 2003,
we had $3.3 million of commercial paper debt outstanding, $2.6 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 1.1% as of September 30, 2003, a rate that is considered to be
competitive with the market rates offered for similar instruments. As of
September 30, 2003, Midland also had $75.0 million of conventional short-term
credit lines available at costs not exceeding prime borrowing rates, of which
$19.0 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 $20.0 million from $39.0 million since December
31, 2002. Proceeds derived from the reduction in marketable securities 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
September 30, 2003, the outstanding balance of this mortgage was $15.9 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%.

On October 21, 2003 Midland filed a universal shelf registration statement
with the Securities and Exchange Commission. A shelf registration, or delayed
offering, of securities allows companies to register securities under the
Securities Act of 1933 for future sale, thereby avoiding potential
time-consuming delays inherent in the registration process. Under this
process, companies are permitted to register securities in advance of their
expected sale date and put them on the shelf for future use. This
registration statement will allow the company to offer from time to time up to
$150 million in various types of securities, including debt, preferred stock
and common stock.

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 Midlands consolidated investment portfolio (comprised
primarily of the investment holdings of American Modern) increased 7.2% from
$739.8 million at December 31, 2002, to $792.7 million at September 30, 2003.
This increase was due to positive cash flow from operations in the nine months
of 2003 plus a $20.2 million increase in the unrealized appreciation in the
market value of securities held. The increase in the unrealized appreciation
was due to a $1.9 million increase in unrealized appreciation related to the
fixed income portfolio plus a $18.3 million increase in the unrealized
appreciation related to the equity portfolio. Midlands largest equity
holding, 2.5 million shares of U.S. Bancorp, increased to $59.0 million as of
September 30, 2003 from $52.2 million as of December 31, 2002.

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Securities with unrealized gains and losses by category (equity and debt) and
by time frame are summarized in the chart below:

Unrealized Gain (Loss) as of September 30, 2003

|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |     | 
|---------------------------------------------------------------------- | ------------------ | - | ----------- | ------ | ----- | - | --------- | ------- |  |  | --- | --- | 
|                                                                       |                    |   | Unrealized  |        | Fair  |   | # of     
|                                                                       |                    |   | Gain (Loss) |        | Value |   | Positions
|                                                                       |                    |   |             |        |       |   |          
|Fixed Income Securities                                                |                    |   |             |        |       |   |           |         |  |  |     |    
|Total Held In A Gain Position                                          |                    | $ | 31,280      |        |       | $ | 567,210   |         |  |  | 643 |    
|Held In A Loss Position For Less Than 3 Months                         |                    |   | (440        | )      |       |   | 21,835    |         |  |  | 22  |    
|Held In A Loss Position For More Than 3 Months
And Less Than 9 Months  |                    |   | (519        | )      |       |   | 39,929    |         |  |  | 37  |    
|Held In A Loss Position For More Than 9 Months
And Less Than 18 Months |                    |   | (12         | )      |       |   | 1,258     |         |  |  | 3   |    
|Held In A Loss Position For More Than 18 Months                        |                    |   | (273        | )      |       |   | 2,018     |         |  |  | 7   |    
|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |    
|                                                                       | Fixed Income Total |   | $           | 30,036 |       |   | $         | 632,250 |  |  |     | 712 | 
|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |    
|Equity Securities                                                      |                    |   |             |        |       |   |           |         |  |  |     |    
|Total Held In A Gain Position                                          |                    | $ | 69,253      |        |       | $ | 133,481   |         |  |  | 165 |    
|Held In A Loss Position For Less Than 3 Months                         |                    |   | (1,221      | )      |       |   | 2,890     |         |  |  | 22  |    
|Held In A Loss Position For More Than 3 Months
And Less Than 9 Months  |                    |   | (295        | )      |       |   | 3,706     |         |  |  | 15  |    
|Held In A Loss Position For More Than 9 Months
And Less Than 18 Months |                    |   | (1,324      | )      |       |   | 9,712     |         |  |  | 35  |    
|Held In A Loss Position For More Than 18 Months                        |                    |   | (521        | )      |       |   | 3,132     |         |  |  | 9   |    
|                                                                       | Equity Total       |   | $           | 65,892 |       |   | $         | 152,921 |  |  |     | 246 | 
|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |    
|Total Per Above                                                        |                    | $ | 95,928      |        |       | $ | 785,171   |         |  |  | 958 |    
|Accrued Interest and Dividends                                         |                    |   |             |        |       |   | 7,496     |         |  |  |     |    
|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |    
|Total Per Balance Sheet                                                |                    | $ | 95,928      |        |       | $ | 792,667   |         |  |  |     |    
|                                                                       |                    |   |             |        |       |   |           |         |  |  |     |    

Based on the above valuations and the application of our other-than-temporary
impairment policy criteria, which is more fully discussed in the Critical
Accounting Policies section below, we believe the declines in fair value are
temporary at September 30, 2003.
However, the facts and circumstances related to these securities may change in
future periods, which would result in other-than-temporary impairment in
future periods.

The average duration of American Moderns debt security investment portfolio as
of September 30, 2003 was 4.0 years which management believes provides adequate
asset/liability matching.

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 $1.8 million for the first nine months of
2003. The initiative is being designed, developed and implemented in periodic
phases to ensure its cost effectiveness and functionality. This project may
involve future cash expenditures of $7.0 million to $10.0 million annually over
the next two to three years, with additional spending thereafter to expand
system compatibility and functionality. A portion of such expenditures will be
capitalized and amortized over the useful life. 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.
Significant changes to the technology interface between American Modern and its
distribution channel participants and

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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.

American Modern has a $60.0 million long-term credit facility available on a
revolving basis at various rates. As of September 30, 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 September 30, 2003 was $(1.8) 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 78% of American Moderns accounts
receivables relate to premium due directly from policyholders as of September
30, 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 $4.8
million to $84.4 million as of September 30, 2003 due to the continued growth
in insurance premiums written. American Moderns receivable balance from its
largest customer, GreenTree (formerly Conseco Agency, Inc.), decreased from
$11.1 million as of December 31, 2002 to $7.5 million as of September 30, 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 and certain liabilities including those to American
Modern of Conseco Finance Company were part of an auction that was completed in
March 2003. GreenTree continued to generate insurance premiums from policy
renewals in the nine months of 2003 and American Modern continues to do
business as usual with respect to these insurance premiums. The GreenTree
receivable is current at September 30, 2003 and we anticipate collecting this
receivable in its entirety. If American Modern were unable to collect the
amounts due from GreenTree, our financial condition and results would be
negatively impacted.

Reinsurance recoverables and prepaid reinsurance premium decreased to $74.3
million at September 30, 2003 from $76.6 million at December 31, 2002. Of the
$74.3 million, $8.4 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 $9.5 million decrease in ceded unearned
premium. This fluctuation was due to a $15.2 million decrease in ceded
unearned premium related to American Moderns life operations which resulted
from the transition to a monthly pay premium from a single pay premium and was
offset by a $5.7 million increase in ceded unearned premium related to American
Moderns property and casualty operations. As previously discussed, a large
percentage of the life business is ultimately ceded back to an insurance
affiliate of the producing agent.

The increase in property, plant and equipment  net was due to the acquisition
of 30 new barges by M/G Transport at a cost of $7.5 million plus M/G
Transports recording of certain transportation equipment valued at $1.9
million which had previously been accounted for as a synthetic operating lease
agreement.

The increase in insurance loss reserves since December 31, 2002 is attributable
to the increase in gross written premium plus the catastrophe losses caused by
Hurricane Isabel, which struck the East Coast of the United States in
September, 2003.

The $7.1 million increase in deferred federal income tax since December 31,
2002 is due to the increase in the unrealized gain on marketable securities.

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.

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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.

The transportation subsidiaries entered into a fifteen-year lease in 1999 for
transportation equipment. Aggregate rental payments under this operating lease
over the next eleven years will approximate $6.3 million. M/G Transport
acquired 30 new barges during the second and third quarters of 2003 at a total
cost of $7.5 million. These acquisitions were financed with $7.5 million in
conventional long-term debt. M/G Transport has certain transportation
equipment that was financed through a synthetic lease arrangement. This
equipment was recorded in the third quarter of 2003 at a value of $1.9 million
with a corresponding $1.9 million recorded as a liability. As of September 30,
2003, the transportation subsidiaries had $9.6 million of collateralized
equipment obligations outstanding.

OTHER MATTERS

Comprehensive Income

The only 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
and nine-month periods ended September 30, 2003 and 2002, such changes
increased or (decreased), net of related income tax effects, by the following
amounts (amounts in 000s):

|                                       |       |      |                   |        |                    |      |        |        |   |   |        |        |   |   |        |        |  
|-------------------------------------- | ----- | ---- | ----------------- | ------ | ------------------ | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                       |       |      | Nine Months Ended |        | Three Months Ended
|                                       |       |      | September 30,     |        | September 30,     
|                                       |       |      |                   |        |                   
|Changes in:                            |       | 2003 |                   | 2002   |                    | 2003 |        | 2002  
|                                       |       |      |                   |        |                    |      |        |       
|Net unrealized capital gains           |       | $    | 13,108            |        |                    | $    | (4,366 | )      |   | $ | (3,512 | )      |   | $ | (5,854 | )     
|Fair value of interest rate swap hedge |       |      | 117               |        |                    |      | (1,215 | )      |   |   | 203    |        |   |   | (823   | )     
|                                       |       |      |                   |        |                    |      |        |        |   |   |        |        |   |   |        |       
|                                       | Total |      | $                 | 13,225 |                    |      | $      | (5,581 | ) |   | $      | (3,309 | ) |   | $      | (6,677 | )
|                                       |       |      |                   |        |                    |      |        |        |   |   |        |        |   |   |        |       

For the nine months ended September 30, 2003 and 2002, net unrealized gains
(net of income tax effects) in equity securities increased (decreased) by $11.9
million and $(15.1) million, respectively. For fixed income securities, the
net unrealized gains increased by $1.2 million and $10.9 million, respectively,
for the same time periods.

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.

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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 premiums are earned. Selling and administrative expenses that are not
primarily related to premium written are expensed as incurred.

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 September 30, 2003, American Modern was owed $8.4
million from reinsurers for claims that have been paid and for which a
contractual obligation to collect from a reinsurer exists.

Other Than Temporary 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.

In order to evaluate for other-than-temporary impairment, we conduct quarterly
comprehensive reviews of individual portfolio holdings that have a market value
less than their respective carrying costs. As part of our review for
other-than-temporary impairment, we track the respective cost and market values
for all individual portfolio holdings with an unrealized loss. For securities
where the market value is less than
80% of cost, we more closely monitor for signs of other-than- temporary
impairment. We, with the assistance of our external professional money
managers, apply both quantitative and qualitative criteria in our evaluation,
including facts specific to each individual investment such as, but not limited
to, the length of time the fair value has been below the cost, the extent of
the decline, our intent to sell or hold the security, the expectation for each
individual securitys performance, the credit worthiness and related liquidity
of the issuer and the issuers business sector.

The evaluation for other-than-temporary impairment requires a significant
amount of judgement. As such, there are a number of risks and uncertainties
inherent in the process of monitoring impairments and determining if a decline
is other-than-temporary. These risks and uncertainties include the risks that:

1.     The economic outlook is worse than anticipated and has a greater adverse
impact on a particular issuer than anticipated.

2.     Our assessment of a particular issuers ability to meet all of its
contractual obligations changes based on changes in the facts and circumstances
related to the issuer.

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3.     New information is obtained or facts and circumstances change that cause a
change in our ability or intent to hold a security to maturity or until it
recovers in value.

When a security is considered other-than-temporarily impaired, we monitor
trends or circumstances that may impact other material investments in our
portfolio. For example, we review any other securities that are held in the
portfolio from the same issuer and also consider any circumstances that may
impact other securities of issuers in the same industry. At September 30,
2003, we had no significant concentration of unrealized losses in any one
issuer, industry or sector.

For fixed income and equity securities, we consider the following factors,
among others, to determine if a security is other-than-temporarily impaired:



| |  | the extent and duration to which market value is less than cost                                                                                                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | historical operating performance                                                                                                                                                                                                            
| |  | issuer news releases, including those disclosing that the issuer has committed an event of
default (missed payment beyond grace period, bankruptcy filing, loss of principle customer
or supplier, debt downgrade, disposal of segment, etc.
| |  | near term prospects for improvement of the issuer and/or its industry to include relevant
industry conditions and trends                                                                                                                    
| |  | industry research and communications with industry specialists                                                                                                                                                                              
| |  | third party research reports                                                                                                                                                                                                                
| |  | credit rating reports                                                                                                                                                                                                                       
| |  | financial models and expectations                                                                                                                                                                                                           
| |  | discussions with issuers management by investment manager                                                                                                                                                                                  
| |  | our ability and intent to hold the investment for a period of time sufficient to allow for
any anticipated recovery                                                                                                                         
| |  | time to conversion with respect to a mandatory convertible security                                                                                                                                                                         

For fixed income securities, we also consider the following factors:



| |  | whether the unrealized loss is credit-driven or is a result of changes in market interest
rates
|- |  | -----------------------------------------------------------------------------------------------
| |  | the recoverability of principle and interest                                                   
| |  | the issuers ability to continue to obligated payments to security holders                     

The investment portfolio is comprised of various asset classes which are
independently managed by external professional portfolio managers under the
oversight and guidelines established by our investment committee. We evaluate
the performance of the portfolio managers relative to benchmarks we believe
appropriate given the asset class. Investment managers will manage the
portfolio under these guidelines to maximize the return on their investment
class. As part of their investment strategy, the investment managers will buy
and sell securities based on changes in the availability of, and the yield on,
alternative investments. Investment managers may also buy and sell investments
to diversify risk, attain a specific characteristic such as duration or credit
quality, rebalance or reposition the portfolio or for a variety of other
reasons.

It is our intent, and thus the intent of our investment managers, to hold
securities that have an unrealized gain or loss. For the securities with an
unrealized loss, which in our judgement we believe to be temporary, it is our
intent to hold the security for a period of time that will allow the security
to recover in value. However, if the investment managers believe returns would
be enhanced by reallocating the capital from the security, the manager may sell
the security and reallocate the capital, in which case the unrealized gain or
loss will be recognized as a realized gain or loss. As part of our
comprehensive quarterly review for other than temporary impairment, the
investment managers identify any securities in which they have the intent to
sell in the near term. In the case where investment managers have indicated
their intent to sell a security in the near term and there is an unrealized
loss, we record an other than temporary impairment at the balance sheet date,
if such date it prior to the sale of the security. At September 30, 2003, we
had no securities with an unrealized loss for which a decision was made to sell
in the near term.

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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
September 30, 2003, our remaining goodwill balance was $2.1 million and is
included in other assets.

New Accounting Standards

The Financial Accounting Standards Board (FASB) issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in
April 2003 and SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, in May 2003. The adoption of
SFAS Nos. 149 and 150 did not have a material impact on Midlands consolidated
financial position or results of operations.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities. This interpretation
requires variable interest entities to be consolidated by the primary
beneficiary which represents the enterprise that will absorb the majority of
the variable interest entities expected losses if they occur, receive a
majority of the variable interest entities residual returns if they occur, or
both. Midland identified a synthetic lease arrangement for certain
transportation equipment in which Midland is deemed to be the primary
beneficiary as the registrant maintains the majority of the variable interests
in this leased asset. In the third quarter of 2003, the company recorded this
operating lease asset and a corresponding liability of $1.9 million.

Subsequent Event

During the first three weeks of October 2003, American Modern has experienced
some level of losses from wildfires in California. We are currently assessing
the potential impact of these losses.

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.

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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 4.0 year duration of American Moderns fixed
income portfolio as of September 30, 2003, management estimates that a 100
basis point increase in interest rates would decrease the market value of its
$662.3 million debt security portfolio by 4.0%, or $26.5 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 September 30, 2003, American Modern had $150.6
million in equity holdings, including $56.0 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 $5.6 million.
As of September 30, 2003, the remainder of American Moderns portfolio of
equity securities had a beta coefficient (a measure of stock price volatility)
of 1.07. 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 10.7%.

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 the end of the period covered by 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-15(e) 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 are
effective.

The Company maintains a system of internal control over financial reporting.
There have been no change in the Companys internal control over financial
reporting that occurred during the companys third fiscal quarter that has
materially effected, or is reasonably likely to materially effect, the
Companys internal control over financial reporting.

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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 September 30, 2003, and the related
condensed consolidated statements of operations for the three-months and
nine-months periods ended September 30, 2003 and 2002 and of changes in
shareholders equity and cash flows for the nine-month periods ended September
30, 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

November 10, 2003

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PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
SEPTEMBER 30, 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
             None
|
| |  | Item 5. Other Information
             None                                  
|
| |  | Item 6. Exhibits and Reports on Form 8-K                                     



| | a) |  | Exhibit 15  Letter re: Unaudited Interim Financial
Information                                                              
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Exhibit 31.1  Certification of Principal Executive Officer Pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934
|
| |    |  | Exhibit 31.2  Certification of Principal Financial Officer Pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934
|
| |    |  | Exhibit 32.1  Certification of Chief Executive Officer Pursuant to
18 U.S.C. § 1350                                         
|
| |    |  | Exhibit 32.2  Certification of Chief Financial Officer Pursuant to
18 U.S.C. § 1350                                         
|
| | 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 |  | November 10, 2003 |  | s/John I. Von Lehman                                                               
|     |  |                   |  |                                                                                    
|     |  |                   |  | John I. Von Lehman, Executive Vice President,
Chief Financial Officer and Secretary

26