EXHIBIT 13.1

Corporate Profile

Atlantic  American  Corporation is an insurance holding company involved through
its subsidiary companies in well-defined  specialty markets of the life, health,
property and casualty insurance industries.

SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
                                          Year Ended December 31,
--------------------------------------------------------------------------------
                                  1997      1996      1995      1994      1993
--------------------------------------------------------------------------------
Insurance premiums              $88,682  $ 86,025  $ 43,373  $ 41,701  $ 40,944
Investment income                11,457    11,457     6,566     6,628     6,048
Realized investment gains, net    1,076     1,589     1,731       870       744
--------------------------------------------------------------------------------
  Total revenue                 101,215    99,071    51,670    49,199    47,736
--------------------------------------------------------------------------------

Insurance benefits and
  losses incurred                61,018    54,281    24,689    21,955    25,364
Other expenses                   32,026    36,975    23,897    20,727    21,905
--------------------------------------------------------------------------------
  Total benefits and expenses    93,044    91,256    48,586    42,682    47,269
--------------------------------------------------------------------------------
                                  8,171     7,815     3,084     6,517       467
Income tax provision (benefit)      138       204       (34)   (1,632)     (989)
--------------------------------------------------------------------------------
  Income from continuing
    operations                    8,033     7,611     3,118     8,149     1,456
  (Loss) income from discontinued
    operations, net                  -     (4,447)  (10,094)    1,121     1,543
--------------------------------------------------------------------------------
  Income (loss) before extra-
    ordinary gain and cumulative
    effect of change in
    accounting principle for
    income taxes                  8,033     3,164    (6,976)    9,270     2,999
Extraordinary gain                   -         -         -        100       897
--------------------------------------------------------------------------------
  Income (loss) before cumulative
    effect of change in accounting
    principle, for income taxes   8,033     3,164    (6,976)    9,370     3,896
Cumulative effect of change
  in accounting principle,
  for income taxes                   -         -         -         -       (519)
    Net income (loss)          $  8,033  $  3,164  $ (6,976) $  9,370  $  3,377
================================================================================
Diluted net income (loss) per common share data:
    Continuing operations      $    .35  $    .32  $    .15  $    .43  $    .06
    Discontinued operations          -       (.23)     (.54)      .06       .09
    Extraordinary gain               -         -         -         -        .05
    Cumulative effect of change
      in accounting principle        -         -         -         -       (.03)
--------------------------------------------------------------------------------
      Net income (loss)        $    .35  $    .09  $   (.39) $    .49  $    .17
================================================================================
Diluted weighted average common
  shares outstanding             18,842    18,882    18,671    18,511    18,476
Book value per share           $   3.27  $   2.29  $   1.61  $   1.47  $   1.24
Common shares outstanding        18,907    18,684    18,679    18,414    18,399
Total assets                   $271,860  $252,994  $245,494  $148,740  $154,822
Total long-term debt           $ 27,600  $ 25,994   $31,569  $ 24,327  $ 21,827
Total shareholders' equity     $ 78,183  $ 59,136  $ 46,478  $ 30,022  $ 25,806


                                       1
<PAGE>
President's Message

To Our Shareholders:

     The past year was a successful and important one for our Company.  Atlantic
American completed two small but significant acquisitions,  American Independent
Life  Insurance  Company and SIA,  Inc.  These  acquisitions,  coupled  with the
continued solid performance of our existing insurance companies, produced a very
exciting and rewarding 1997.

     The financial  performance of the company was strong.  Net income  reported
was $8.0 million,  or $.35 per share,  compared with net income from  continuing
operations of $7.6 million, or $.32 per share, in 1996 - representing a 5.5% and
9.4%  increase,  respectively.  The  Company's  book  value per share grew by an
impressive 42.8% from $2.29 per share to $3.27 per share and total  shareholders
equity  increased by 32.3% to $78.2 million from $59.1 million.  Since 1991, the
book value of Atlantic American has appreciated  eight-fold.  Equally important,
during  1997 our total  debt,  which  was  primarily  incurred  to  finance  our
acquisition  of the American  Southern  Insurance  Companies  at year-end  1995,
decreased from $35.6 million to $28.6 million,  which represents a total debt to
equity ratio of 36.6% at year-end 1997.

     Atlantic  American's  property and  casualty  operations,  which  represent
approximately 70% of both our total revenue and net income,  once again produced
excellent  results.  The  American  Southern  Companies  renewed  all  of  their
important  accounts  during  the year and were able to report a very  successful
year with  continued  healthy  underwriting  profits.  The  hallmark of American
Southern's  success continues to be the strength of its  relationships  with its
producers and the unquestioned integrity of its senior management. The continued
outstanding   financial   performance  of  American  Southern  proves  that  the
old-fashioned  values of hard work, shooting straight,  and standing behind your
word are still key to long-term  success in our  fast-paced  modern  world.  Roy
Thompson elected to become Chairman  Emeritus of American Southern at the end of
1997.  Fortunately,  Roy will  remain an active  part of the Company and we will
still be able to draw upon his talents despite the change in title.  Calvin Wall
assumed the title of Chairman and CEO, a promotion he richly deserves.

     Georgia  Casualty,  which  celebrates its 50th  anniversary  in 1998,  also
produced a very good  year.  Despite  keen  pricing  competition  in most of its
markets  and  lines  of  business,   our  sound   underwriting   discipline  and
professional  claims  handling  produced  profitable  results  in all  lines  of
business,   other  than  our   discontinued   short-haul   trucking  program  in
Mississippi. In the fourth quarter, Georgia Casualty expanded into the states of
Florida,  Tennessee,  Louisiana,  North Carolina and South Carolina. In 1998, we
expect to see much growth  from these new  markets as we feel these  neighboring
states offer attractive markets for growth with little new overhead required. As
Georgia  Casualty embarks on its next 50 years, we will strive to continue to be
a strong regional  company which focuses on the people,  products and industries
it knows so well.

     SIA, Inc., which was acquired for shares of Atlantic  American common stock
in  October,  specializes  in  handling  the  workers'  compensation  claims  of
self-insured  companies and public sector  entities.  The addition of SIA, Inc.,
which continues to be ably run by its founder, Andy Thompson,  provides Atlantic
American with an entry into alternative  services in the insurance  marketplace.
It also complements the primary focus of Georgia Casualty,  allowing it to enter
a new line of business by providing  stop-loss  insurance to some of SIA, Inc.'s
clients.

     Our life and health  operations,  augmented  by the recent  acquisition  of
American  Independent,  a Pennsylvania  domiciled life insurance  company,  also
produced  an  admirable  year.  The  assimilation  of the  American  Independent
business into the Bankers Fidelity operation went very smoothly. We were able to
integrate close to $6 million in annualized premium and over 9,000 policyholders
into  our  operations  without  adding  any new  staff.  In  doing  so,  we have
eliminated virtually all of American Independent's operating expenses and spread
our own over a larger revenue base.  Going forward,  we expect this  acquisition
will add  significantly  to our  earnings  and will serve as a model for similar
acquisitions by Atlantic American.

     In terms of our marketing success, our life insurance sales continued their
climb as several new and refined life  products were  introduced.  For the first
time in  many  years,  our  supplemental  health  insurance  premiums  increased
significantly as our new products won consumer acceptance.  Since 1991, our life
insurance  premiums have increased more than 85% and our total life insurance in
force has increased over 60% during a time of relatively stagnant life insurance
sales for the industry as a whole.  We have also initiated a marketing  alliance
between the Bankers Fidelity payroll deduction  division and select property and
casualty  agents whereby they can introduce our payroll  products to their small
business  accounts.  Our first products from this distribution  method were sold
during the fourth quarter of 1997.

                                       2
<PAGE>
     We are also  extremely  pleased that Mark C. West,  Chairman and CEO of the
Genoa Companies, joined our Board of Directors in June, replacing his father who
served so ably on our board for 17 years.  Atlantic American is truly privileged
to have such  longstanding  support and guidance from such a fine family. We are
delighted to welcome Mark to the Board of Directors.

     The steps we have taken and the fine results  achieved  this past year have
strengthened  our balance  sheet and helped to ensure that we have the financial
flexibility to take advantage of opportunities as they present themselves.  Many
people share the credit for our excellent  year in 1997.  The  leadership of our
Board of Directors,  the hard work of our management team, the dedication of our
employees and the  enthusiasm  of our agents were  critical to producing  such a
successful  year.  As we look to 1998,  we are highly  confident  that  Atlantic
American is positioned to compete and win. We are enthusiastic  about our future
prospects and greatly  appreciate  your  continued  confidence in and support of
Atlantic American.






J. Mack Robinson                          Hilton H. Howell, Jr.
Chairman                                  President and Chief Executive Officer




                                       3
<PAGE>
OPERATIONS

Atlantic  American  Corporation  operates in both the  property and casualty and
life and  health  segments  of the  insurance  industry.  Each of our  insurance
subsidiaries  has a  distinct  niche and  strong  identity  in their  respective
markets.

The American Southern Insurance Companies

The American Southern Insurance  Companies provide tailored fleet automobile and
long haul physical damage insurance coverage, on a multi-year contract basis, to
state governments,  local  municipalities and other large motor pools and fleets
that can be specifically rated and underwritten.  While the majority of American
Southern's  premiums come from  Florida,  Georgia and South  Carolina,  American
Southern  produces  business  in 18 of the 24  states  in which it is  licensed.
Acquired  by  Atlantic  American  Corporation  at the  close of  1995,  American
Southern  continues  to  be a  solid  and  consistent  contributor  to  Atlantic
American's overall financial results.  American Southern generated approximately
47 percent of  Atlantic  American's  1997  premium  revenue  and both  insurance
companies of the American Southern group rated "A-", or Excellent, by A.M. Best.

A typical  American  Southern  account  ranges  from two to five years and has a
sizable  premium.  Consequently,  in  comparison  to Atlantic  American's  other
subsidiaries,  the growth in  premiums  written  by  American  Southern  is less
predictable;  however,  the underwriting  results and  profitability of American
Southern have  historically  been quite  consistent and new contracts tend to be
large, the addition of which can be significant.

Despite intensifying competition,  American Southern has been very successful in
its ability to maintain  and renew  virtually  all of its  long-term  contracts.
Throughout  its  60  years,  American  Southern's  executives  and  agents  have
instilled   confidence  in  their   customers   through  the  quality  of  their
relationships,  developed by  providing  outstanding  service and highly  unique
insurance programs.  To achieve higher growth rates while maintaining its target
profitability,  American  Southern  has  established  programs  to  enhance  its
business through  alternative,  customized  coverages and by obtaining licensing
approval in several additional states.

Another  objective  to  grow  American  Southern  is to seek  out  complementary
acquisitions that can be accretive and add depth to its business.  Moreover,  by
incrementally  expanding its business,  American  Southern strives to reduce the
risk of exposure that could result from the loss of any single large contract.

Georgia Casualty & Surety Company and SIA, Inc.

Georgia  Casualty  is  celebrating  its 50th  anniversary  in 1998.  Focusing on
underwriting  workers'  compensation and commercial  coverages in the Southeast,
Georgia  Casualty  increased  earned  premiums  by 6  percent  in 1997.  Georgia
Casualty  represented  approximately 22 percent of Atlantic  American's  overall
insurance  business and received a rating  increase to "B+", or Very Good,  from
A.M.  Best in  early  1997.  Another  significant  achievement  in 1997  was the
acquisition of Self-Insurance Administrators,  Inc. ("SIA, Inc."), a third party
administrator  of workers'  compensation  plans for  self-insured  companies and
organizations.  The addition of SIA,  Inc.  has  expanded  the services  Georgia
Casualty  offers  beyond  traditional   guaranteed-cost   workers'  compensation
insurance  and  various  deductible  programs  to  include  the  alternative  of
establishing self-insured workers' compensation programs.

An integral  component  of the growth of Georgia  Casualty has been its personal
approach to business  and loss control  programs  that enable it to identify and
correct potential loss exposures. This process allows Georgia Casualty to adjust
coverages or limits and, in some cases, decline to renew accounts at expiration.
By  adhering  to its  stringent  guidelines,  Georgia  Casualty  has  maintained
exceptional claim results and higher profitability levels.

Intense  competitive pricing throughout the workers'  compensation  industry has
been an  issue  impacting  margins  for all  insurers  who  write  this  line of
business.  Confident  in the  quality  of its  services  and  products,  Georgia
Casualty's  philosophy is to decline  business rather than reduce its pricing to
levels that could ultimately prove  unprofitable.  By adhering to this strategy,
Georgia Casualty has been able to maintain stable  profitability in the workers'
compensation  line.

                                       4
<PAGE>
Georgia Casualty is constantly  seeking ways in whichit can enhance its services
and ultimately  shareholder value. One of several objectives includes increasing
Georgia  Casualty's  geographic  presence  by  obtaining  licensing  and product
approval in new states.  In the fourth quarter,  Georgia  Casualty  expanded its
operations  into the  states  of  Louisiana,  North  Carolina,  South  Carolina,
Tennessee and Florida.

Bankers Fidelity and American Independent Life Insurance Companies

Bankers  Fidelity Life Insurance  Company,  and the recently  acquired  American
Independent Life Insurance  Company,  specialize in the sale of traditional life
and  supplemental  health and accident  insurance  coverages with a focus on the
senior and  middle-income  markets.  Over the years,  this  business  has been a
substantial   contributor   to  Atlantic   American  and  in  1997   contributed
approximately 30 percent of Atlantic  American's  total premium revenue.  At the
close of the year, Bankers Fidelity was rated "B+" by A.M. Best and was licensed
in 33 states, up from 28 in 1996.

In order to expand our existing businesses,  this past year we acquired American
Independent.  This acquisition  expanded our geographic presence by five states,
adding Arizona, Colorado, Delaware, Idaho and Pennsylvania;  and it complemented
our  product  offerings  by  adding  depth  in the  areas of  traditional  life,
supplemental  health and long-term care insurance.  The assimilation of American
Independent  into the  operations  of  Bankers  Fidelity  was  effective  almost
immediately  upon the  completion  of the  transaction,  allowing for  increased
operating efficiencies in addition to the new business acquired.

Bankers  Fidelity,  offering a series of value-added  products such as Standard,
Preferred and Modified Whole Life and Medicare supplement insurance,  focuses on
a  well-defined  customer  base - the senior and middle income  markets.  Recent
value-added  enhancements  have been to  package  and offer our  preferred  life
products,  with no additional application  requirements,  following the previous
approval of Medicare supplement  insurance  coverage.  Bankers Fidelity has also
introduced several new whole life products and a ten-year level term product, as
well as  refinements to our family life series of Cancer  Protection,  Accident,
Disability Income and Afford-A-Care products.

We have  continued to grow our business in the middle  income market by offering
payroll  deduction  programs  to  manufacturers  having 100 or fewer  employees.
Products in this series such as supplemental Cancer Care, Accident and Term-Life
have  been  particularly  well  received  in this  market.  The Life and  Health
Division has also fostered niche opportunities exemplified by its whole life and
annuity products to assist families with college funding.

A significant component to the strength of Bankers Fidelity has been its ability
to  offer  its  products  and  services   through  a  dedicated  agent  base  of
approximately 3,000 agents coupled with a strong internal support operation.

Bankers  Fidelity  has built its  business  based on the  confidence,  trust and
professionalism of its agents, and by offering a broad scope of quality products
and personal  services to its  customers.  We intend to maintain  this  culture,
pursue new business in niche markets and seek to maximize our potential  through
internal growth and by taking advantage of consolidation  opportunities  through
carefully selected acquisitions.

                                       5
<PAGE>
                                    DIRECTORS

                                J. MACK ROBINSON
                                    Chairman
                          Atlantic American Corporation

                              HILTON H. HOWELL, JR.
                      President and Chief Executive Officer
                          Atlantic American Corporation

                                SAMUEL E. HUDGINS
                                   Consultant

                                D. RAYMOND RIDDLE
                  Retired Chairman and Chief Executive Officer
                        National Service Industries, Inc.

                              HARRIETT J. ROBINSON
                     Director, Delta Life Insurance Company

                                SCOTT G. THOMPSON
                      President and Chief Financial Officer
                       American Southern Insurance Company

                                  MARK C. WEST
                      Chairman and Chief Executive Officer
                                 Genoa Companies

                             WILLIAM H. WHALEY, M.D.
                     William H. Whaley, M.D., P.C., F.A.C.P.

                                  DOM H. WYANT
                   Retired Partner, Jones, Day, Reavis & Pogue


                                    OFFICERS

                                J. MACK ROBINSON
                                    Chairman

                              HILTON H. HOWELL, JR.
                      President and Chief Executive Officer

                                 JOHN W. HANCOCK
                       Senior Vice President and Treasurer

                               EDWARD L. RAND, JR.
                          Vice President and Controller

                                CLARK W. BERRYMAN
                      Vice President, Information Services

                               MICHAEL J. BRASSER
                         Vice President, Internal Audit

                                  JANIE L. RYAN
                               Corporate Secretary

                                BARBARA B. SNYDER
             Assistant Vice President and Director, Human Resources


                                       6
<PAGE>
                 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


 (Dollars In Thousands, Except Share and Per Share Data)

                                  December 31,

                                     ASSETS
--------------------------------------------------------------------------------
                                                           1997          1996
--------------------------------------------------------------------------------
Cash, including short-term investments of
  $46,167 and $41,614                                   $ 51,044      $ 45,499

Investments                                              152,583       142,485

Receivables:
   Reinsurance                                            25,164        26,854

   Other (net of allowance for doubtful accounts:
     $916 and $1,151)                                     17,470        16,301

Deferred acquisition costs                                16,483        15,179

Other assets                                               4,510         4,576

Goodwill                                                   4,606         2,100
--------------------------------------------------------------------------------

    Total assets                                        $271,860      $252,994
================================================================================

                        LIABILITIES AND SHAREHOLDERS' EQUITY


Insurance reserves and policy funds                     $154,318      $149,198

Accounts payable and accrued expenses                     10,759         9,049

Debt payable                                              28,600        35,611
--------------------------------------------------------------------------------

    Total liabilities                                    193,677       193,858
--------------------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $1 par, 4,000,000 shares authorized:

    Series A preferred, 30,000 shares
      issued and outstanding, $3,000 redemption value         30            30

    Series B preferred, 134,000 shares
      issued and outstanding, $13,400 redemption value       134           134

  Common stock, $1 par,  30,000,000 shares authorized;
    18,920,728 shares issued in 1997 and 18,712,167
    shares issued in 1996 and 18,907,267 shares
    outstanding in 1997 and 18,684,217 shares
    outstanding in 1996                                   18,921        18,712

  Additional paid-in capital                              53,316        54,062

  Accumulated deficit                                    (23,653)      (31,426)

  Net unrealized investment gains                         29,498        17,713

  Treasury stock, at cost, 13,461 shares in 1997
    and 27,950 shares in 1996                                (63)          (89)

    Total shareholders' equity                            78,183        59,136
--------------------------------------------------------------------------------

    Total liabilities and shareholders' equity          $271,860      $252,994
================================================================================

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       7
<PAGE>
                 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



(Dollars In Thousands, Except Per Share Data)

                                                   Year Ended December 31,
--------------------------------------------------------------------------------
Revenue:                                          1997       1996       1995
--------------------------------------------------------------------------------
  Insurance premiums                           $ 88,682   $ 86,025   $ 43,373
  Investment income                              11,457     11,457      6,566
  Realized investment gains, net                  1,076      1,589      1,731
--------------------------------------------------------------------------------
    Total revenue                               101,215     99,071     51,670
--------------------------------------------------------------------------------
Benefits and expenses:
  Insurance benefits and losses incurred         61,018     54,281     24,689
  Commissions and underwriting expenses          23,012     26,959     15,249
  Interest expense                                2,902      3,292      2,458
  Other                                           6,112      6,724      6,190
--------------------------------------------------------------------------------
    Total benefits and expenses                  93,044     91,256     48,586
--------------------------------------------------------------------------------

    Income before income tax provision
      (benefit) and discontinued operations       8,171      7,815      3,084

Income tax provision (benefit)                      138        204        (34)
--------------------------------------------------------------------------------

Income from continuing operations, net            8,033      7,611      3,118

Loss from discontinued operations, net               -      (4,447)   (10,094)
--------------------------------------------------------------------------------

    Net income (loss) before preferred stock
      dividends                                   8,033      3,164     (6,976)

Preferred stock dividends                        (1,521)    (1,521)      (315)
--------------------------------------------------------------------------------

    Net income (loss) applicable to common
     stock                                     $  6,512   $  1,643   $ (7,291)
================================================================================

Diluted earnings (loss) per common share:
  Continuing operations                        $    .35   $    .32   $    .15
  Discontinued operations                            -        (.23)      (.54)
--------------------------------------------------------------------------------
    Net income (loss)                          $    .35   $    .09   $   (.39)
================================================================================

Basic earnings (loss) per common share:
  Continuing operations                        $    .35   $    .33   $    .15
  Discontinued operations                            -        (.24)      (.54)
--------------------------------------------------------------------------------
    Net income (loss)                          $    .35   $    .09   $   (.39)
================================================================================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       8
<PAGE>
                 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>

(Dollars In Thousands, Except Per Share Data)

                                                                                                    Net
                                                                     Additional                  Unrealized
                                                Preferred    Common    Paid-In    Accumulated    Investment    Treasury
                                                 Stock(1)     Stock    Capital      Deficit        Gains         Stock      Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>                                         <C>          <C>     <C>          <C>            <C>           <C>          <C>
Balance, December 31, 1994                        $  30      $18,414   $33,289     $(27,452)      $ 5,741         $  -      $30,022
  Net loss                                           -            -         -        (6,976)           -             -       (6,976)
  Cash dividends paid on preferred stock             -            -       (315)          -             -             -         (315)
  Purchase of 78,148 shares for treasury             -            -         -            -             -           (174)       (174)
  Issuance of 343,606 shares for employee
    benefit plans and stock options                  -           298       291          (18)           -            102         673
  Conversion of debt payable to preferred
     stock                                          134           -     13,266           -             -             -       13,400
  Increase in unrealized investment gains            -            -         -            -          9,848            -        9,848
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                          164       18,712    46,531      (34,446)       15,589           (72)     46,478
  Net income                                         -            -        -          3,164            -             -        3,164
  Cash dividends paid on preferred stock             -            -       (315)          -             -             -         (315)
  Dividends accrued on preferred stock               -            -     (1,206)          -             -             -       (1,206)
  Purchase of 104,635 shares for treasury            -            -         -            -             -           (338)       (338)
  Issuance of 109,452 shares for employee
    benefit plans and stock options                  -            -          6         (144)           -            321         183
  Gain on sale of subsidiary                         -            -      9,046           -             -             -        9,046
  Increase in unrealized investment gains            -            -         -            -          2,124            -        2,124
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                          164       18,712    54,062      (31,426)       17,713           (89)     59,136
  Net income                                         -            -         -         8,033            -             -        8,033
  Cash dividends paid on preferred stock             -            -       (315)          -             -             -         (315)
  Dividends accrued on preferred stock               -            -     (1,206)          -             -             -       (1,206)
  Purchase of 213,089 shares for treasury            -            -         -            -             -           (735)       (735)
  Issuance of 157,578 shares for employee
    benefit plans and stock options                  -            -         3          (260)           -            530         273
  Issuance of 278,561 shares for acquisition
    of Self-Insurance Administrators, Inc.           -           209       772           -             -            231       1,212
  Increase in unrealized investment gains            -            -         -            -         11,785            -       11,785
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                        $ 164      $18,921   $53,316     $(23,653)      $29,498         $ (63)    $78,183
====================================================================================================================================

<FN>

(1)  Includes Series A and B preferred stock
</FN>
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       9
<PAGE>
                 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     Year Ended December  31,
--------------------------------------------------------------------------------
(Dollars In Thousands)                              1997       1996       1995
--------------------------------------------------------------------------------
Cash flows from operating activities:

Net income (loss)                                $ 8,033    $ 3,164    $(6,976)
Adjustments  to reconcile net income (loss)
  to net cash provided  (used) by operating
  activities:
    Amortization of deferred acquisition costs     9,704      8,184      3,721
    Acquisition costs deferred                   (11,008)    (8,464)    (2,985)
    Realized investment gains                     (1,076)    (1,589)    (1,731)
    Increase (decrease) in reserves                  618      5,352     (1,203)
    Loss from discontinued operations, net            -       4,447     10,094
    Depreciation and amortization                  1,121      1,102        547
    Minority interest                                 -          -         285
    Decrease (increase) in receivables, net        1,114     (3,870)       997
    Increase (decrease) in other liabilities          13       (694)       177
    Other, net                                        98        811        319
--------------------------------------------------------------------------------
      Net cash provided by continuing operations   8,617      8,443      3,245
--------------------------------------------------------------------------------
      Net cash used by discontinued operations        -      (5,902)    (9,177)
--------------------------------------------------------------------------------
      Net cash provided (used) by operating
        activities                                 8,617      2,541     (5,932)
--------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from investments sold                   7,748     44,445     21,027
  Proceeds from investments matured, called
    or redeemed                                   52,074     40,868     17,004
  Investments purchased                          (53,544)   (54,632)   (32,909)
  Acquisition of minority interest                  (101)      (846)    (1,012)
  Additions to property and equipment               (733)    (1,616)    (1,107)
  Sale of Leath Furniture, Inc., net                  -       3,646         -
  Acquisition of American Independent, net
    of $1,946 acquired                              (719)        -          -
  Acquisition of SIA, Inc.                            25         -          -
--------------------------------------------------------------------------------
      Net cash provided (used) by continuing
        operations                                 4,750     31,865    (14,270)
--------------------------------------------------------------------------------
      Net cash used by discontinued operations        -        (440)    (2,551)
--------------------------------------------------------------------------------
      Net cash provided (used) by investing
        activities                                 4,750     31,425    (16,821)
--------------------------------------------------------------------------------
Cash flows from financing activities:
  Proceeds from issuance of bank financing         5,617     11,352     22,642
  Preferred stock dividends                         (315)      (315)      (315)
  Proceeds from exercise of stock options             62         85        600
  Purchase of treasury shares                       (558)      (338)      (174)
  Repayments of debt                             (12,628)   (20,662)      (675)
--------------------------------------------------------------------------------
      Net cash (used) provided by continuing
        operations                                (7,822)    (9,878)    22,078
      Net cash provided by discontinued
        operations                                    -       6,342      9,345
      Net cash (used) provided by financing
        activities                                (7,822)    (3,536)    31,423
      Net increase in cash and short-term
        investments                                5,545     30,430      8,670
  Cash and cash equivalents at beginning of year:
      Continuing operations                       45,499     15,069      4,016
      Discontinued operations                         -          -       2,383
--------------------------------------------------------------------------------
         Total                                    45,499     15,069      6,399
--------------------------------------------------------------------------------
  Cash and cash equivalents at end of year -
    continuing  operations                        51,044     45,499     15,069
--------------------------------------------------------------------------------
         Total                                   $51,044    $45,499    $15,069
================================================================================
Supplemental cash flow information:
  Cash paid for interest                         $ 2,958    $ 3,763    $ 3,096
================================================================================
  Cash paid for income taxes                     $    85    $   116    $   128
================================================================================
  Debt to seller for purchase of American
    Southern Insurance Company                   $    -     $    -     $11,352
================================================================================
  Debt payable converted to preferred stock      $    -     $    -     $13,400
================================================================================
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       10
<PAGE>
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995 (Dollars in Thousands, Except Per Share Data)


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity  with  generally  accepted  accounting  principles  ("GAAP").   These
financial  statements include the accounts of Atlantic American Corporation (the
"Company") and its wholly owned subsidiaries.  Leath Furniture, LLC (f/k/a Leath
Furniture,  Inc.), previously a majority owned subsidiary, has been reflected as
discontinued  operations in the accompanying  financial  statements (see Note 8)
through  the date of its  divestiture  on April  8,  1996  (see  Note  14).  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

At  December  31,  1997,  the  Company had five  insurance  subsidiaries,  which
included  Bankers   Fidelity  Life  Insurance   Company  and  its  wholly  owned
subsidiary,    American    Independent   Life   Insurance   Company   ("American
Independent"),  collectively termed as the "Life and Health Division",  American
Southern  Insurance  Company and its wholly owned  subsidiary,  American  Safety
Insurance  Company (together known as "American  Southern"),  Georgia Casualty &
Surety Company, and one non-insurance subsidiary, Self-Insurance Administrators,
Inc.  ("SIA,  Inc."),  collectively  termed the  "Casualty  Division".  American
Southern was acquired on December 31, 1995, American  Independent Life Insurance
Company was acquired on October 1, 1997,  and SIA,  Inc. was acquired on October
28, 1997 (see Note 7). The results of  operations  of American  Independent  and
SIA, Inc. are included from the date of acquisition  and are not material to the
overall operations of the Company. Assets and liabilities are not classified, in
accordance with insurance industry practice, and certain prior year amounts have
been reclassified to conform to the 1997 presentation.

Premium Revenue and Cost Recognition

Life insurance  premiums are recognized as revenues when due,  whereas  accident
and health premiums are recognized over the premium paying period.  Benefits and
expenses are associated  with earned  premiums so as to result in recognition of
profits over the lives of the contracts in proportion to premiums  earned.  This
association is accomplished by the provision of a future policy benefits reserve
and the deferral and subsequent  amortization of the costs of acquiring business
(principally commissions,  advertising and certain issue expenses).  Traditional
life insurance and long-duration  health insurance  deferred policy  acquisition
costs are  amortized  over the  estimated  premium-paying  period of the related
policies  using  assumptions  consistent  with  those used in  computing  policy
benefit  reserves.  The  deferred  policy  acquisition  costs for  property  and
casualty and  short-duration  health  insurance are amortized over the effective
period of the related insurance policies.  Deferred policy acquisition costs are
expensed  when such  costs are  deemed not to be  recoverable  from the  related
unearned premiums and investment income.

Property and casualty  insurance premiums are recognized as revenue ratably over
the contract period.  The Company provides for insurance  benefits and losses on
accident, health, and casualty claims based upon estimates of projected ultimate
losses.

Goodwill

Goodwill  resulting  from the  acquisitions  of American  Independent,  American
Southern,  and  SIA,  Inc.  is  amortized  over  a  15  year  period  using  the
straight-line  method.  The Company  periodically  evaluates  whether events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill  may  warrant  revision.  Should  factors  indicate  that  goodwill  be
evaluated for possible  impairment,  the Company will compare the recoverability
of goodwill to a projection of the acquired companies'  undiscounted income over
the estimated  remaining life of the goodwill in assessing  whether the goodwill
is recoverable.


                                       11
<PAGE>
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Investments

All of the Company's debt and equity  securities are classified as available for
sale and are carried at market value.  Mortgage loans, policy and student loans,
and real estate are  carried at  historical  cost.  Traded  limited  partnership
interests are carried at estimated market value; all other partnership interests
are carried at  historical  cost.  If a decline in the value of a common  stock,
preferred stock, limited partnership interest, or publicly traded bond below its
cost or amortized cost is considered to be other than temporary, a realized loss
is recorded to reduce the carrying  value of the investment to its estimated net
realizable value, which becomes the new cost basis.

The cost of  securities  sold is based on  specific  identification.  Unrealized
gains  (losses)  in the value of bonds and  common  and  preferred  stocks,  are
accounted  for as a direct  increase  (decrease)  in  shareholders'  equity and,
accordingly, have no effect on net income.

Income Taxes

Deferred income taxes represent the expected  future tax  consequences  when the
reported  amounts of assets and  liabilities  are recovered or paid.  They arise
from  differences  between the  financial  reporting and tax basis of assets and
liabilities  and are  adjusted  for  changes  in tax laws and tax rates as those
changes are enacted.  The provision for income taxes represents the total amount
of income  taxes  paid or  payable  for the  current  year,  plus the  change in
deferred taxes during the year.

Net Income (Loss) Per Common Share

Basic  earnings  per share are based on the  weighted  average  number of common
shares  outstanding  during each period.  Diluted  earnings per common share are
based on the weighted  average number of common shares  outstanding  during each
period,  plus common shares  calculated for stock options  outstanding using the
treasury  stock  method.  Unless  otherwise  indicated,  earnings  per share are
presented on a restated diluted basis.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and investments in short-term,
highly liquid securities which have original  maturities of three months or less
from date of purchase.

Impact of Recently Issued Accounting Standards

The Financial  Accounting Standards Boards has issued Statements 130, "Reporting
Comprehensive  Income  ("SFAS 130") and 131  "Disclosures  about  Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes new rules
for the reporting and displaying of comprehensive  income. SFAS 130 is effective
for fiscal years  beginning  after December 15, 1997, and will be adopted by the
Company in the first  quarter of 1998.  SFAS 131  requires  companies  to report
segment  information  based  upon  a  companies  operating  segments.  Operating
segments  are  revenue  components  of a company  for which  separate  financial
information is produced and are subject to evaluation by senior management. SFAS
131 is effective  for years  beginning  after  December 15, 1997 and need not be
applied to interim  financial  statements in the initial year.  SFAS 131 will be
adopted  by the  Company  in the first  quarter of 1998.  The  Company  does not
believe  the effect of  adoption  of either  statement  will be  material to its
financial position or results of operations.

Use of Estimates in the Preparation of Financial Statements

The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates, although, in the opinion of management, such differences would not be
significant.

                                       12
<PAGE>
NOTE 2.  INVESTMENTS

Investments are comprised of the following:
<TABLE>

                                                                                 1997
----------------------------------------------------------------------------------------------------------
                                                                         Gross       Gross
                                                           Carrying    Unrealized  Unrealized  Amortized
                                                             Value       Gains       Losses       Cost
----------------------------------------------------------------------------------------------------------
<S><C>                                                     <C>         <C>         <C>         <C>

Bonds:
  U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies              $ 75,724    $   670      $  136      $75,190
  Obligations of states and political subdivisions            2,738         30          -         2,708
  Corporate securities                                       12,745        464          14       12,295
  Mortgage-backed securities (government guaranteed)            977         30           3          950
----------------------------------------------------------------------------------------------------------
                                                             92,184    $ 1,194      $  153      $91,143

Common and preferred stocks                                  46,876    $29,561      $1,044      $18,359
Investment in limited partnerships                            3,941         -           60        4,001
Mortgage loans (estimated fair value of $4,406)               4,243
Policy and student loans                                      5,293
Real estate                                                      46
----------------------------------------------------------------------------------------------------------
  Investments                                               152,583
Short-term investments                                       46,167
----------------------------------------------------------------------------------------------------------
  Total investments                                        $198,750

</TABLE>
<TABLE>
                                                                                 1996
----------------------------------------------------------------------------------------------------------
                                                                         Gross       Gross
                                                           Carrying    Unrealized  Unrealized  Amortized
                                                             Value       Gains       Losses       Cost
----------------------------------------------------------------------------------------------------------
<S><C>                                                     <C>         <C>         <C>         <C>
Bonds:
  U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies              $ 67,370    $   275       $  443     $67,538
  Obligations of states and political subdivisions            3,496         86          168       3,578
  Corporate securities                                       14,717        272          272      14,717
  Mortgage-backed securities (government guaranteed)          5,727         -            51       5,778
----------------------------------------------------------------------------------------------------------
                                                             91,310    $   633       $  934     $91,611

Common and preferred stocks                                  37,762    $19,348       $1,334     $19,748
Mortgage loans (estimated fair value of $7,732)               6,812
Policy and student loans                                      6,555
Real estate                                                      46
----------------------------------------------------------------------------------------------------------
  Investments                                               142,485
Short-term investments                                       41,614
----------------------------------------------------------------------------------------------------------
  Total investments                                        $184,099
==========================================================================================================

</TABLE>

Bonds  having an  amortized  cost of $15,684  and $13,578  were on deposit  with
insurance regulatory authorities at December 31, 1997 and 1996, respectively, in
accordance with statutory requirements.


                                       13
<PAGE>
NOTE 2.  INVESTMENTS (CONTINUED)

The amortized  cost and carrying  value of bonds and  short-term  investments at
December 31, 1997 by contractual maturity are as follows.  Actual maturities may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

                                                    Carrying       Amortized
                                                      Value           Cost
--------------------------------------------------------------------------------
Due in one year or less                             $ 59,651        $ 59,711
Due after one year through five years                 19,873          19,449
Due after five years through ten years                47,358          46,861
Due after ten years                                   10,492          10,339
Varying maturities                                       977             950
--------------------------------------------------------------------------------
  Totals                                            $138,351        $137,310
================================================================================

Investment income was earned from the following sources:

                                                   1997        1996      1995
--------------------------------------------------------------------------------
Bonds                                             $6,906      $6,728    $3,549
Common and preferred stocks                        1,373       1,622     1,205
Mortgage loans                                       554         863       791
CDs and commercial paper                           2,130       1,443       548
Other                                                494         801       473
--------------------------------------------------------------------------------
  Total investment income                         11,457      11,457     6,566
  Less investment expenses                          (340)       (452)     (424)
--------------------------------------------------------------------------------
Net investment income                            $11,117     $11,005    $6,142
================================================================================

A summary of realized investment gains (losses) follows:

                                                       1997
--------------------------------------------------------------------------------
                                                            Limited
                                       Stocks    Bonds    Partnership    Total
--------------------------------------------------------------------------------
  Gains                               $1,597     $  16      $  2         $1,615
  Losses                                (104)     (435)        -           (539)
--------------------------------------------------------------------------------
  Total realized investment gains
    (losses), net                     $1,493     $(419)     $  2         $1,076
================================================================================

                                                      1996
--------------------------------------------------------------------------------
                                                            Limited
                                       Stocks    Bonds    Partnership    Total
--------------------------------------------------------------------------------
  Gains                               $1,910     $  73      $ 17         $2,000
  Losses                                (411)        -        -            (411)
--------------------------------------------------------------------------------
  Total realized investment
    gains (losses), net               $1,499     $  73      $ 17         $1,589
================================================================================

                                                      1995
--------------------------------------------------------------------------------
                                                            Limited
                                       Stocks    Bonds    Partnership    Total
--------------------------------------------------------------------------------
  Gains                               $1,743     $  35      $363         $2,141
  Losses                                 (73)       (9)       -             (82)
  Write-downs                           (162)     (166)       -            (328)
--------------------------------------------------------------------------------
  Total realized investment
    gains (losses), net               $1,508     $(140)     $363         $1,731
================================================================================

Proceeds  from  the  sale of  common  and  preferred  stocks,  bonds  and  other
investments are as follows:

                                            1997        1996        1995
--------------------------------------------------------------------------------
   Common and preferred stocks             $6,393      $9,734     $10,199
   Bonds                                       -       25,335       1,730
   Student loans                            1,262       6,053       7,278
   Other investments                           93       3,323       1,820
--------------------------------------------------------------------------------
      Total proceeds                       $7,748     $44,445     $21,027
================================================================================

The single investment which exceeds 10% of shareholders'  equity at December 31,
1997 was a common stock investment in Wachovia Corporation with a carrying value
of $26,215 and a cost basis of $3,388.

The Company's  bond  portfolio  included 99% of investment  grade  securities at
December 31, 1997 as defined by the NAIC.

                                       14
<PAGE>
NOTE 3.  INSURANCE RESERVES AND POLICY FUNDS


The following table presents the Company's reserves for life,  accident,  health
and casualty losses as well as loss adjustment expenses.
                               Amount of Insurance
                                    in Force
                                                             -------------------
                                           1997       1996      1997      1996
--------------------------------------------------------------------------------
Future policy benefits Life insurance policies:
    Ordinary                            $ 26,403   $ 22,451   $301,341  $256,482
    Mass market                            8,916      9,364     17,253    21,409
    Individual annuities                     808        856         -         -
--------------------------------------------------------------------------------
                                          36,127     32,671   $318,594  $277,891
                                                             ===================
  Accident and health insurance policies   3,061      3,714
------------------------------------------------------------
                                          39,188     36,385
Unearned premiums                         24,412     25,100
Losses and claims                         86,721     84,074
Other policy liabilities                   3,997      3,639
------------------------------------------------------------
  Total policy liabilities              $154,318   $149,198
============================================================

Annualized  premiums for accident and health insurance policies were $21,434 and
$15,884 at December 31, 1997 and 1996, respectively.

Future Policy Benefits -

Liabilities  for life  insurance  future policy  benefits are based upon assumed
future  investment  yields,  mortality  rates and withdrawal  rates after giving
effect to  possible  risks of  adverse  deviation.  The  assumed  mortality  and
withdrawal  rates are based upon the Company's  experience.  The interest  rates
assumed for life, accident and health are generally: (i) 2.5% to 5.5% for issues
prior to 1977, (ii) 7% graded to 5.5% for 1977 through 1979 issues, (iii) 9% for
1980 through 1987 issues, and (iv) 7% for 1988 and later issues.

Loss and Claim Reserves -

Loss and claim reserves represent estimates of projected ultimate losses and are
based upon: (a) management's estimate of ultimate liability and claim adjusters'
evaluations  for unpaid  claims  reported  prior to the close of the  accounting
period,  (b)  estimates  of  incurred  but not  reported  claims  based  on past
experience,  and  (c)  estimates  of loss  adjustment  expenses.  The  estimated
liability is  continually  reviewed by  management  and  independent  consulting
actuaries  and updated with changes to the estimated  liability  recorded in the
statement of operations in the year in which such changes are known.


                                       15
<PAGE>
NOTE 3.  INSURANCE RESERVES AND POLICY FUNDS (CONTINUED)

Activity in the  liability for unpaid  claims and claim  adjustment  expenses is
summarized as follows:

                                                        1997         1996
--------------------------------------------------------------------------------
Balance at January 1                                  $84,074      $79,514
Less:  Reinsurance recoverables                       (26,854)     (22,467)
--------------------------------------------------------------------------------
   Net balance at January 1                            57,220       57,047
--------------------------------------------------------------------------------

Incurred related to:
  Current year                                         59,655       57,481
  Prior years                                              21       (4,802)
--------------------------------------------------------------------------------
   Total incurred                                      59,676       52,679
--------------------------------------------------------------------------------
Paid related to:
  Current year                                         33,857       28,279
  Prior years                                          22,246       24,227
--------------------------------------------------------------------------------
   Total paid                                          56,103       52,506
--------------------------------------------------------------------------------

Reserves acquired due to acquisition                      764           -
--------------------------------------------------------------------------------
Net balance at December 31                             61,557       57,220
Plus:  Reinsurance recoverables                        25,164       26,854
--------------------------------------------------------------------------------
Balance at December 31                                $86,721      $84,074
================================================================================

Following  is a  reconciliation  of total  incurred  claims  to total  insurance
benefits and losses incurred:

                                                        1997         1996
--------------------------------------------------------------------------------
Total incurred claims                                 $59,676      $52,679
Cash surrender value and matured endowments             1,263        1,522
Death benefits                                             79           80
--------------------------------------------------------------------------------
      Total insurance benefits and losses incurred    $61,018      $54,281
================================================================================



                                       16
<PAGE>
NOTE 4.  REINSURANCE


In accordance with general practice in the insurance  industry,  portions of the
life,  property and  casualty  insurance  written by the Company are  reinsured;
however,  the Company  remains  contingently  liable with respect to reinsurance
ceded should any reinsurer be unable to meet its obligations.  Approximately 74%
of the reinsurance  receivables are due from three reinsurers as of December 31,
1997.   Reinsurance   receivables  of  $14,300  are  with  National  Reinsurance
Corporation,  "A++"  (Superior),  $2,100 are with First  Colony  Life  Insurance
Company,  "A++"  (Superior),  and  $2,300  are with  Pennsylvania  Manufacturers
Association  Insurance Company,  "A+" (Superior).  In the opinion of management,
the Company's reinsurers are financially stable and allowances for uncollectible
amounts  are  established  against  reinsurance  receivables,   if  appropriate.
Premiums assumed of $23,738 and $25,739 in 1997 and 1996, respectively,  include
a contract  with  premiums of $15,900 and  $15,400,  both 17.9% of net  premiums
earned for the years 1997 and 1996, respectively. The following table reconciles
premiums  written to premiums  earned and summarizes the components of insurance
benefits and losses incurred.

                                                1997        1996        1995
--------------------------------------------------------------------------------

     Premiums written                         $73,006     $70,295     $46,773
     Plus - premiums assumed                   23,738      25,739          -
     Less - premiums ceded                     (9,345)     (9,074)     (3,037)
--------------------------------------------------------------------------------
     Net premiums written                      87,399      86,960      43,736
--------------------------------------------------------------------------------

     Change in unearned premiums                1,314        (960)       (230)
     Change in unearned premiums ceded            (31)         25        (133)
--------------------------------------------------------------------------------
     Net change in unearned premiums            1,283        (935)       (363)
--------------------------------------------------------------------------------

          Net premiums earned                 $88,682     $86,025     $43,373
================================================================================
    Provision for benefits and
      losses incurred                         $68,043     $58,801     $25,999
    Reinsurance loss recoveries                (7,025)     (4,520)     (1,310)
--------------------------------------------------------------------------------
    Insurance benefits and losses incurred    $61,018     $54,281     $24,689
================================================================================

                                       17
<PAGE>
NOTE 5.  INCOME TAXES

A  reconciliation  of the  differences  between  income  taxes on income  before
discontinued  operations computed at the federal statutory income tax rate is as
follows:

                                                   1997      1996      1995
--------------------------------------------------------------------------------
Federal income tax provision at statutory
  rate of 35%                                    $ 2,860   $ 2,735   $ 1,079
Tax exempt interest and dividends
  received deductions                               (267)     (413)     (391)
Change in asset valuation allowance -
  Utilization of net operating loss               (2,585)   (2,260)     (731)
Alternative minimum tax                              130       142         9
--------------------------------------------------------------------------------
    Total provision (benefit) for income taxes   $   138   $   204   $   (34)
================================================================================



Deferred tax  liabilities and assets at December 31, 1997 and 1996 are comprised
of the following:


                                                    1997        1996
--------------------------------------------------------------------------------
  Deferred tax liabilities:
    Deferred acquisition costs                    $(3,875)    $(3,585)
    Net unrealized investment gains               (10,325)     (6,199)
--------------------------------------------------------------------------------
      Total deferred tax liabilities              (14,200)     (9,784)
================================================================================

  Deferred tax assets:
    Net operating loss carryforwards               15,101      17,856
    Insurance reserves                              8,600       7,702
    Bad debts                                         321         404
--------------------------------------------------------------------------------
      Total deferred tax assets                    24,022      25,962
--------------------------------------------------------------------------------
  Asset valuation allowance                        (9,822)    (16,178)
--------------------------------------------------------------------------------

  Net deferred tax assets                         $    -      $    -
================================================================================






                                       18

<PAGE>
NOTE 5.  INCOME TAXES (CONTINUED)

The components of the provision (benefit) are:

                                               1997         1996        1995
--------------------------------------------------------------------------------

      Current - Federal                        $138         $204        $(34)
      Deferred - Federal                         -            -           -
--------------------------------------------------------------------------------
         Total                                 $138         $204        $(34)
================================================================================


At  December  31,  1997,  the Company  has  regular  tax loss  carryforwards  of
approximately $43,147 expiring generally between 2000 and 2009.

The  Company  has  determined,  based  on its  earnings  history,  that an asset
valuation allowance of $9,822 should be established against its net deferred tax
assets at December 31, 1997. The Company's asset valuation  allowance  decreased
by  $6,356  during  1997,   due  primarily  to  the   utilization  of  net  loss
carryforwards in the current year from profitable operations and the increase in
unrealized  gains on the investment  portfolio.  Due to the uncertain  nature of
their ultimate realization based upon past performance and expiration dates, the
Company has established a full valuation  allowance  against these  carryforward
benefits and recognizes the benefits only as reassessment  demonstrates they are
realizable.  The Company's ability to generate taxable income from operations is
dependent upon various factors,  many of which are beyond management's  control.
Accordingly,  there can be no assurance  that the Company will  generate  future
taxable income based on historical  performance.  Therefore,  the realization of
the deferred  tax assets will be assessed  periodically  based on the  Company's
current  and  anticipated  results  of  operations.  The  Company  has a  formal
tax-sharing  agreement  with each of its  subsidiaries.  With the  exception  of
American  Independent,  which files a separate  federal  income tax return,  the
Company files a consolidated federal income tax return with its subsidiaries.


                                       19
<PAGE>
NOTE 6.  CREDIT ARRANGEMENTS

Debt payable is as follows:
                                                                 1997      1996
--------------------------------------------------------------------------------

8% Convertible Subordinated Notes paid May 15, 1997
   ($1,058 held by affiliates at December 31, 1996)            $    -   $ 5,617
Note payable to bank due December 31, 2000
   Balance at prime rate of interest (1997 8.50%; 1996 8.25%)   28,600   18,642
   Balance at prime plus1/2% (1997 9.00%; 1996 8.75%)               -    11,352
--------------------------------------------------------------------------------
     Total arrangements                                        $28,600  $35,611
================================================================================

Total arrangements
------------------
  Due within one year                                          $ 1,000  $ 9,617
================================================================================
  Long-term debt                                               $27,600  $25,994
================================================================================

The note payable to bank due December 31, 2000, is payable in quarterly payments
of $1,000  beginning in the fourth quarter of 1998 through 2000 with the balance
due at maturity. Interest is paid quarterly in arrears. The interest rate on the
note payable to bank changes based upon the Company  meeting  certain  financial
criteria.  On  January  1,  1998,  the  interest  rate on the note  payable  was
decreased  to 8.0% (50 basis  points  below  prime)  as a result of the  Company
meeting certain financial criteria.

The Company is required to maintain certain financial covenants including, among
others,  ratios that relate funded debt to  consolidated  total  capitalization,
cash  flow  to debt  service,  and  must  comply  with  limitations  on  capital
expenditures and debt obligations. The Company was in compliance with all of the
convenants associated with the debt payable to bank at December 31, 1997.

Maturities

The Company's principal payments on credit arrangements  outstanding at December
31, 1997 are as follows:

        Year            Amount
---------------------------------
        1998          $ 1,000
        1999            4,000
        2000           23,600
                     ---------
                      $28,600
                     =========

                                       20
<PAGE>
NOTE 7.  ACQUISITIONS

On  October 1, 1997,  the  Company  acquired  100% of the  outstanding  stock of
American   Independent  for  approximately   $2,700  in  cash.  The  assets  and
liabilities of American  Independent  are included in the 1997 balance sheet and
the results of operations are included from the date of acquisition.  On October
28, 1997, the Company  acquired 100% of the  outstanding  stock of SIA, Inc. for
approximately  $1,200 in common stock of the Company. The assets and liabilities
of SIA,  Inc.  are  included  in the  1997  balance  sheet  and the  results  of
operations  are included  since the date of  acquisition.  The  acquisitions  of
American Independent and SIA, Inc. were both accounted for as purchases and were
not material to the  financial  position or results of operations of the Company
in  1997.  Had  both  companies  been  included  in the  consolidated  financial
statements  for the earliest year  presented,  their impact on the  consolidated
results of operations would not have been material.

On December 31, 1995, the Company acquired a 100% ownership interest in American
Southern  for  $34,000  ($22,648  in cash  and a note  to  seller  of  $11,352).
Accordingly,  the assets and  liabilities of American  Southern were included in
the  accompanying  1997  and  1996  balance  sheets;  however,  the  results  of
operations  were only  included  beginning  January 1, 1996.  American  Southern
operates as a  multi-line  property  and casualty  insurance  company  primarily
engaged in the sale of state and municipality automobile insurance.

The acquisition of American Southern was accounted for as a purchase transaction
and,  accordingly,  the purchase  price was allocated to assets and  liabilities
based on their estimated fair values as of the date of  acquisition.  The excess
of the consideration  paid over the estimated fair values of net assets acquired
in the  amount  of  $2,250  was  recorded  as  goodwill  and is  amortized  on a
straight-line basis over 15 years.

The following  unaudited pro forma summary combines the consolidated  results of
operations of the Company and American  Southern as if the acquisition had taken
place at the beginning of 1995 after giving effect to certain adjustments. These
adjustments  include  adjustments to increase  interest expense on funds used by
the Company to purchase  American  Southern,  the  amortization  of goodwill,  a
reduction  in  American  Southern's  income  tax  expense  due to the  Company's
intercompany  tax-sharing  agreement and the effect of the conversion of $13,400
in debt into 134,000 shares of Series B Preferred  Stock (see Note 11). This pro
forma  information  is not  necessarily  indicative of the results of operations
that would have occurred had the acquisition taken place at the beginning of the
period.

                                                                1995
--------------------------------------------------------------------------------
Revenue                                                       $ 95,855
================================================================================

Net (loss) income:
   Continuing operations                                      $  6,865
   Discontinued operations                                     (10,094)
--------------------------------------------------------------------------------
      Net (loss) income                                       $ (3,229)
================================================================================

Diluted net (loss) income per common share data:
   Continuing operations                                      $    .29
   Discontinued operations                                        (.54)
--------------------------------------------------------------------------------
      Net (loss) income                                       $   (.25)
================================================================================


                                       21
<PAGE>
In  connection  with the  acquisitions  of American  Independent  and SIA,  Inc.
the following assets and liabilities were acquired:

                                                             1997
--------------------------------------------------------------------------------
            Cash, short-term investments                  $  1,971
            Other investments                                3,585
            Goodwill                                         2,701
            Other assets                                       732
--------------------------------------------------------------------------------
               Total assets                                  8,989
--------------------------------------------------------------------------------
            Insurance reserves and policy funds              4,502
            Other liabilities                                  593
--------------------------------------------------------------------------------
               Total liabilities                             5,095
--------------------------------------------------------------------------------
                  Net assets                              $  3,894
================================================================================


                                       22
<PAGE>
NOTE 8.  DISCONTINUED OPERATIONS

Subsequent  to year end  1995,  the  Company  announced  its  intent to sell its
approximately  88%  interest in Leath  Furniture,  LLC (f/k/a  Leath  Furniture,
Inc.),  a  retail  furniture  chain.  Accordingly,  the  consolidated  financial
statements  report  separately  the  operating  results  of  these  discontinued
operations.  The Company  completed  the sale of its  interest  to Gulf  Capital
Services,  Ltd.,  a  related  party,  on  April 8,  1996.  The  gain  from  this
transaction is reflected as a direct credit to additional paid-in capital.

The following results of operations are attributable to discontinued operations:

                                                               1996      1995
--------------------------------------------------------------------------------
Results of Operations:
  Net sales                                                 $45,502    $113,265
================================================================================

  Loss from discontinued operations                         $(7,885)   $ (6,656)
  Benefit (provision) for discontinued operations             3,438      (3,438)
--------------------------------------------------------------------------------
  Net loss from discontinued operations                     $(4,447)   $(10,094)
================================================================================
  Diluted net loss per share from discontinued operations   $  (.23)   $   (.54)
================================================================================



                                       23
<PAGE>
NOTE 9.  COMMITMENTS AND CONTINGENCIES

Litigation

The Company and its subsidiaries are party to litigation occurring in the normal
course of business. In the opinion of management,  such litigation will not have
a material  adverse  effect on the  Company's  financial  position or results of
operations.

Operating Lease Commitments

The Company's  rental  expense,  including  common area  charges,  for operating
leases was $1,178, $1,222 and $1,013 in 1997, 1996 and 1995,  respectively.  The
Company's future minimum lease obligations under non-cancelable operating leases
are as follows:

                               Year Ending December 31,
--------------------------------------------------------------------------------
                             1998                  $1,053
                             1999                   1,053
                             2000                     800
                             2001                     771
                             2002                     563
                             Thereafter             1,242
--------------------------------------------------------------------------------
                               Total               $5,482
================================================================================


                                       24
<PAGE>
NOTE 10.  EMPLOYEE BENEFIT PLANS

Stock Options

In 1992, the shareholders  approved the Company's adoption of the 1992 Incentive
Plan ("1992 Plan").  The 1992 Plan originally  provided for a maximum of 400,000
stock  options  subject to  issuance.  The 1992 Plan was amended by the Board of
Directors  in 1995,  and  subsequently  ratified at the 1996  Annual  Meeting of
Shareholders,  to provide for an additional 400,000 stock options.  The Board of
Directors may grant:  (a) incentive  stock options within the meaning of section
422  of  the  Internal  Revenue  Code;  (b)  non-qualified  stock  options;  (c)
performance  units;  (d) awards of  restricted  shares of the  Company's  common
stock;  or (e) all or any  combination  of the  foregoing  to  officers  and key
employees.  Options granted under these plans expire five years from the date of
grant.  Vesting  occurs at 50% upon  issuance  of an option,  and the  remaining
portion  is vested  at 25% in each of the  following  two  years.  In 1996,  the
Company  adopted the 1996  Director  Stock  Option  Plan,  which  provides for a
maximum of 200,000  stock  options  with full vesting six months after the grant
date. As of December 31, 1997, sixty-six employees,  officers and directors were
participants in the Plan.

A summary of the status of the Company's stock option plans at December 31, 1997
and 1996, is as follows:

                                               1997                 1996
--------------------------------------------------------------------------------
                                                  Weighted             Weighted
                                                    Avg.                 Avg.
                                         Shares   Ex. Price   Shares   Ex. Price
--------------------------------------------------------------------------------
Options outstanding, beginning of year   625,391    $2.14     430,141    $ 1.74
Options granted                          379,500     4.08     276,000      2.47
Options exercised                       (129,491)    1.30     (76,750)     1.11
Options canceled or expired               (5,000)    3.25      (4,000)     1.44
--------------------------------------------------------------------------------
Options outstanding, end of year         870,400     3.11     625,391      2.14
================================================================================
Options exercisable                      624,900     2.89     441,141      1.98

The  Company  does not  recognize  compensation  cost  since  the  option  price
approximates fair value. If compensation cost had been recognized, the Company's
net income (loss) and earnings (loss) per share would have been as follows:

                                           1997        1996         1995
--------------------------------------------------------------------------------

      Net income:
         As reported                     $ 8,033     $ 3,164      $ (6,976)
         Pro forma                         7,793       2,972        (6,989)
      Diluted earnings per share:
         As reported                     $   .35     $   .09      $   (.39)
         Pro forma                           .34         .08          (.39)

The resulting pro forma  compensation  cost may not be representative of that to
be expected in future years.

Of the 870,400  options  outstanding at December 31, 1997,  94,900 have exercise
prices  of $1.875  with a  remaining  contractual  life of 2.0 years and all are
currently  exercisable.  125,000  options have an exercise price of $2.50 with a
remaining  contractual  life of 2.8  years  and all are  currently  exercisable.
269,000  options have exercise prices between $2.375 and $3.3125 with a weighted
average exercise price of $2.46, a weighted average  remaining  contractual life
of 3.2 years and 201,750  are  currently  exercisable.  62,500  options  have an
exercise price between $3.00 and $3.25 with a weighted average exercise price of
$3.1375,  a weighted average remaining  contractual life of 4.1 years and 43,750
are currently exercisable.  The remaining 319,000 options have an exercise price
of  $4.25  with a  remaining  contractual  life of 4.8  years  and  159,500  are
currently exercisable.

                                       25
<PAGE>
NOTE 10.  EMPLOYEE BENEFIT PLANS (CONTINUED)

The  weighted  average  fair value of options  granted  estimated on the date of
grant using the Black-Scholes option pricing model is $1.83 and $1.11 for grants
in 1997 and  1996,  respectively,  based on  expected  dividend  yields of zero;
expected  lives of 5 years;  risk free  interest  rates of 5.71% and 6.13%;  and
expected  volatility of 39.97% and 39.80%, for the years ended December 31, 1997
and 1996, respectively.

401(k) Plan

The Company  initiated an employees'  savings plan under  Section  401(k) of the
Internal  Revenue  Code in May of 1995.  The plan covers  substantially  all the
Company's  employees,   except  employees  of  American  Southern.  The  Company
previously  had a profit sharing plan for its employees  which was  subsequently
amended and  restated to comply with the Section  401(k)  provisions.  Under the
plan,   employees  generally  may  elect  to  contribute  up  to  16%  of  their
compensation  to the plan.  The Company  makes a matching  contribution  to each
employee in an amount  equal to 50% of the first 6% of such  contributions.  The
Company's matching contribution to the plan has been funded by reissuance of the
Company's treasury stock and was approximately $103, $102, and $72 in 1997, 1996
and 1995, respectively.

Defined Benefit Pension Plans

The Company has two defined  benefit  pension  plans  covering the  employees of
American  Southern.  The  Company's  general  funding  policy  is to  contribute
annually the maximum amount that can be deducted for income tax purposes.

Net periodic pension cost for American  Southern's  qualified and  non-qualified
defined  benefit  plans for the years ended  December 31, 1997 and 1996 included
the following components:
                                                         1997          1996
--------------------------------------------------------------------------------
    Service costs                                        $102          $103
    Interest costs                                        221           204
    Actual return on plan assets                         (205)          (97)
    Net amortization and deferral                          28           (74)
--------------------------------------------------------------------------------
                                                         $146          $136
================================================================================

The following  assumptions were used to measure the projected benefit obligation
for the benefit plans at December 31, 1997 and 1996:
                                                         1997          1996
--------------------------------------------------------------------------------
    Discount rate to determine the projected
      benefit obligation                                 7.25%         7.75%
    Expected long-term rate of return on plan
      assets used to determine net periodic pension
      cost                                               8.00%         8.00%
    Projected annual salary increases                    6.00%         6.00%

The following  table sets forth the benefit plans' funded status at December 31,
1997 and 1996:

                                                         1997          1996
--------------------------------------------------------------------------------
    Actuarial present value of benefit obligation:
      Vested benefit obligation                        $2,219        $1,862
      Non-vested benefit obligation                        12             7
--------------------------------------------------------------------------------
    Accumulated benefit obligation                      2,231         1,869
    Effect of projected future compensation levels      1,050           901
--------------------------------------------------------------------------------
    Projected benefit obligation                        3,281         2,770
    Plan assets at fair value                           2,508         2,371
--------------------------------------------------------------------------------
    Projected benefit obligation in excess of plan
      assets                                              773           399
    Unrecognized net loss                                (503)         (272)
    Unrecognized net transition obligation and
      prior service costs                                  (7)           (9)
--------------------------------------------------------------------------------
    Accrued pension cost                               $  263        $  118
================================================================================

                                       26
<PAGE>
NOTE 11.  PREFERRED STOCK

Annual  dividends  on the  Series  A  Convertible  Preferred  Stock  ("Series  A
Preferred  Stock")  are  $10.50  per  share  and are  cumulative.  The  Series A
Preferred  Stock  is  convertible  into  approximately  752,000  shares  of  the
Company's  common  stock  at a  conversion  price  of  $3.99  per  share  and is
redeemable at the Company's option at $100 per share, plus unpaid dividends.

As part of the American  Southern  acquisition and effective  December 31, 1995,
the  Company  issued  134,000  shares of Series B  Preferred  Stock  ("Series  B
Preferred  Stock") having a stated value of $100 per share.  Annual dividends to
be paid are $9.00 per share and are cumulative.  The Series B Preferred Stock is
not  currently  convertible,  but may  become  convertible  into  shares  of the
Company's common stock under certain circumstances.  In such event, the Series B
Preferred  Stock  would  be  convertible  into  an  aggregate  of  approximately
3,358,000  shares of the common stock at a  conversion  rate of $3.99 per share.
The Series B Preferred Stock is redeemable at the option of the Company.


                                       27
<PAGE>
NOTE 12.  EARNINGS PER SHARE

Statement of Financial  Accounting Standards No. 128 "Earnings per Share" ("SFAS
128") is effective for 1997 and  subsequent  periods.  A  reconciliation  of the
numerator and denominator of the earnings per common share  calculations  are as
follows:

                                        For the Year Ended December 31, 1997
--------------------------------------------------------------------------------
                                         Income         Shares       Per Share
                                                                       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Common Share
-------------------------------
Net income                               $ 8,033        18,667
Less preferred dividends                  (1,521)
                                      ------------  ------------
Net income available to common
shareholders                             $ 6,512        18,667         $ .35
                                      ------------
Diluted Earnings Per Common Share
---------------------------------
Effect of dilutive stock options                           175
                                                    ------------  ------------
Net income available to common
shareholders plus assumed conversions    $ 6,512        18,842         $ .35
                                      ============  ============  ============

                                        For the Year Ended December 31, 1996
--------------------------------------------------------------------------------
                                         Income         Shares       Per Share
                                                                       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Common Share
Net income from continuing operations    $ 7,611        18,682
Less preferred dividends                  (1,521)
                                      ------------  ------------
Net income available to common
  shareholders from continuing
  operations                               6,090        18,682         $ .33
Net loss from discontinued operations     (4,447)       18,682          (.24)
                                      ------------  ------------  ------------
Net income available to common
  shareholders                             1,643        18,682         $ .09
                                      ------------
Diluted Earnings Per Common Share
---------------------------------
Effect of dilutive stock options                           200
                                                    ------------  ------------
  Net income available to common
    shareholders from continuing
    operations                             6,090        18,882         $ .32
  Net loss from discontinued
    operations                            (4,447)       18,882          (.23)
                                      ------------  ------------  ------------
Net income available to common
  shareholders                           $ 1,643        18,882         $ .09
                                      ============  ============  ============

                                        For the Year Ended December 31, 1995
--------------------------------------------------------------------------------
                                         Income         Shares       Per Share
                                                                       Amount
--------------------------------------------------------------------------------
Basic Earnings Per Common Share
-------------------------------
  Net income from continuing operations  $ 3,118        18,557
  Less preferred dividends                  (315)
                                      ------------  ------------
  Net income available to common
    shareholders from continuing
    operations                             2,803        18,557         $ .15
  Net loss from discontinued
    operations                           (10,094)       18,557          (.54)
                                      ------------  ------------  ------------
Net loss available to common
  shareholders                           $(7,291)       18,557         $(.39)
                                      ------------
Diluted Earnings Per Common Share
---------------------------------
Effect of dilutive stock options                           114
                                                    ------------  ------------
  Net income available to common
    shareholders from continuing
    operations                             2,803        18,671         $ .15
  Net loss from discontinued operations  (10,094)       18,671          (.54)
                                      ------------  ------------  ------------
Net loss available to common
  shareholders                           $(7,291)       18,671         $(.39)
                                      ============  ============  ============
                                       28
<PAGE>
NOTE 13.  STATUTORY REPORTING

The assets,  liabilities  and results of  operations  have been  reported on the
basis  of  GAAP,  which  varies  from  statutory  accounting  practices  ("SAP")
prescribed  or permitted  by insurance  regulatory  authorities.  The  principal
differences between SAP and GAAP are that under SAP: (i) certain assets that are
nonadmitted assets are eliminated from the balance sheet; (ii) acquisition costs
for policies are  expensed as  incurred,  while they are deferred and  amortized
over the estimated life of the policies  under GAAP;  (iii) no provision is made
for deferred income taxes;  (iv) the timing of establishing  certain reserves is
different than under GAAP; and (v) valuation  allowances are established against
investments.

The amount of statutory  net income and surplus  (shareholders'  equity) for the
insurance subsidiaries for the years ended December 31 were as follows:

                                                 1997       1996        1995
--------------------------------------------------------------------------------
    Life and Health, net income               $ 2,523(2)  $1,315     $ 3,021
    Property and Casualty, net income           6,694      7,567       1,466(1)
--------------------------------------------------------------------------------
        Total net income                      $ 9,217      8,882     $ 4,487
================================================================================

    Life and Health, surplus                  $26,517(2)  $25,792    $24,724
    Property and Casualty, surplus             48,032      42,416     38,995
--------------------------------------------------------------------------------
        Total surplus                         $74,549      68,208    $63,719
================================================================================

(1) Excludes American Southern which was acquired  effective  December 31, 1995.
(2) Impact of American Independent was not material.

Under the  Insurance  Code of the State of  Georgia,  dividend  payments  to the
Company by its insurance subsidiaries have certain limitations without the prior
approval of the  Insurance  Commissioner.  The  Company  received  dividends  of
$11,209  and  $6,850  in  1997  and  1996,  respectively,   from  its  insurance
subsidiaries. Approval from the Insurance Commissioner was required and obtained
for a portion of the  dividends  received  in 1997 and 1996.  In 1998,  dividend
payments by the  insurance  companies  in excess of $8,900 would  require  prior
approval.


                                       29
<PAGE>
NOTE 14.  RELATED PARTY AND OTHER TRANSACTIONS

In the  normal  course  of  business,  and in  management's  opinion,  at  terms
comparable to those available from unrelated parties, the Company has engaged in
transactions with its Chairman and his affiliates.  These  transactions  include
leasing of office space, investing and financing. A brief description of each of
these is discussed below.

The Company leases approximately 54,637 square feet of office and covered garage
space from an affiliated company. In the years ended December 31, 1997, 1996 and
1995, the Company paid $900, $957 and $960, respectively, under the lease.

A majority  of the  financing  of the  Company  has  historically  been  through
affiliates of the Company or its Chairman,  in the form of debt and the Series A
Preferred Stock.  Effective December 31, 1995, the Company issued 134,000 shares
of Series B  Preferred  Stock in  exchange  for  cancellation  of  approximately
$13,400  in  outstanding  debt to the  Company's  Chairman  and  certain  of his
affiliates (see Note 11).

The Company has mortgage loans to finance  properties  owned by its discontinued
furniture  subsidiary.  At December  31, 1997 and 1996,  the balance of mortgage
loans owed to various of the  Company's  insurance  subsidiaries  was $3,921 and
$6,391,  respectively.  For 1997, 1996 and 1995,  interest on the mortgage loans
totaled $521, $688 and $730, respectively.

Certain  members  of  management  are on the  Board  of  Directors  of Bull  Run
Corporation and Gray Communications  Systems, Inc. At both December 31, 1997 and
1996,  the Company  owned  600,000  common  shares of Bull Run  Corporation  and
236,040 common shares of Gray Communications Systems, Inc.

On April 8, 1996,  the Company  completed  the sale of its 88% interest in Leath
Furniture, LLC (f/k/a Leath Furniture,  Inc.) to Gulf Capital Services, Ltd., in
exchange for $5.3 million.  Gulf Capital is controlled by certain  affiliates of
the Company.

Delta Life Insurance Company purchases credit life insurance  policies with face
amounts  greater  than $50 from  Bankers  Fidelity.  Bankers  Fidelity  receives
premiums  for these  policies  from Delta  Life and pays  benefits  directly  to
policyholders.  At December 31, 1997 and 1996, the face amount of these policies
was  $673  and  $416,  respectively,  and the  reserve  balance  was $11 and $9,
respectively.



                                       30
<PAGE>
NOTE 15.  SEGMENT INFORMATION

The  following  summary sets forth the Company's  business  segments by revenue,
income (loss) before income tax  provision  (benefit),  and assets.  The Company
operates in three segments: Property and Casualty Insurance, Life Insurance, and
Accident and Health Insurance.

<TABLE>

                                  Property                   Accident                    Adjustments
                                    and                        and                           and
                                  Casualty        Life        Health        Other        Eliminations        Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                           <C>             <C>         <C>           <C>           <C>                 <C>
Revenue
  1997                            $ 69,078       $14,467     $17,675       $   48          $ (53)              $101,215
  1996                              67,468        14,450      16,972          144             37                 99,071
  1995                              21,532(1)     12,435      18,508            2           (807)                51,670

Income (loss) before income
tax provision (benefit)
  1997                               7,890         3,425       1,153       (4,297)            -                   8,171
  1996                               8,834         2,012         431       (3,588)           126                  7,815
  1995                               2,353(1)      2,033       1,025       (2,419)            92                  3,084

Assets
  1997                             167,993        85,822      13,769        4,276             -                 271,860
  1996                             160,502        74,798      15,884        1,810             -                 252,994
  1995                             150,505        71,532      19,603        3,854             -                 245,494


<FN>
(1) Excludes American Southern which was acquired effective December 31, 1995.
</FN>
</TABLE>


                                       31
<PAGE>
NOTE 16.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


The following table sets forth a summary of the quarterly  unaudited  results of
operations for the two years ended December 31, 1997 and 1996:

<TABLE>
                                                      1997                                                1996
------------------------------------------------------------------------------------------------------------------------------------
                                  First       Second        Third       Fourth        First       Second        Third       Fourth
                                 Quarter      Quarter      Quarter      Quarter      Quarter      Quarter      Quarter      Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                           <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Revenue                          $24,691      $24,339      $25,249      $26,936      $24,773      $24,414       $25,681     $24,203
====================================================================================================================================
Income:
  Income before income tax
    provision,                   $ 1,978      $ 1,466      $ 2,418      $ 2,309      $ 1,977      $ 1,849       $ 2,169     $ 1,820
  Income tax provision               (40)         (20)         (23)         (55)          -           (59)         (101)        (44)
------------------------------------------------------------------------------------------------------------------------------------
  Continuing operations            1,938        1,446        2,395        2,254        1,977        1,790         2,068       1,776

  Discontinued operations             -            -            -            -            -        (4,447)           -           -
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)            $ 1,938      $ 1,446      $ 2,395      $ 2,254      $ 1,977      $(2,657)     $ 2,068      $ 1,776
====================================================================================================================================

Diluted per common share data:
  Continuing operations          $   .08      $   .06      $   .11      $   .10      $   .08      $   .08      $   .09      $   .07
  Discontinued operations             -            -            -            -            -          (.23)          -            -
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)            $   .08      $   .06      $   .11      $   .10      $   .08      $  (.15)     $   .09      $   .07
====================================================================================================================================

</TABLE>
                                       32
<PAGE>
NOTE 17.  DISCLOSURES ABOUT FAIR VALUE FINANCIAL INSTRUMENTS

The  estimated  fair value  amounts have been  determined  by the Company  using
available market information and appropriate valuation  methodologies.  However,
considerable  judgment is necessary to interpret  market data and to develop the
estimates of fair value.  Accordingly,  the estimates  presented  herein are not
necessarily  indicative  of the  amounts  which the Company  could  realize in a
current  market  exchange.  The  use  of  different  market  assumptions  and/or
estimation  methodologies may have a material effect on the estimated fair value
amounts. <TABLE>
                                                               1997                      1996
--------------------------------------------------------------------------------------------------------
                                                      Carrying    Estimated     Carrying    Estimated
                                                       Amount     Fair Value     Amount     Fair Value
--------------------------------------------------------------------------------------------------------
<S><C>                                                <C>         <C>           <C>         <C>
Assets:

  Cash and short-term investments                     $51,044      $51,044       $45,499      $45,499
  Bonds                                                92,184       92,184        91,310       91,310
  Common and preferred stocks                          46,876       46,876        37,762       37,762
  Mortgage loans                                        4,243        4,406         6,812        7,732
  Investments in limited partnerships                   3,941        3,941            -            -
  Insurance premiums receivable                        14,074       14,074        13,485       13,485
Liabilities:
  Debt - affiliated                                        -            -          1,058          952
        - non-affiliated                               28,600       28,600        34,553        34,097
  Accounts payable and accrued liabilities             10,759       10,759         9,049         9,049


</TABLE>

The fair value estimates as of December 31, 1997 and 1996 are based on pertinent
information  available  to  management  as of  the  respective  dates.  Although
management  is not aware of any  factors  that  would  significantly  affect the
estimated  fair  value  amounts,  current  estimates  of fair  value may  differ
significantly from amounts that might ultimately be realized.

The  following  describes  the  methods and  assumptions  used by the Company in
estimating fair values:

   Cash, Short-term Investments, Investments in  Limited Partnerships, Insurance
   Premiums  Receivable,  Accounts Payable, and Accrued Liabilities

      The carrying amount approximates fair value.

   Bonds, Common and Preferred Stocks

      The carrying amount is determined in accordance with methods prescribed by
      the National Association of Insurance Commissioners ("NAIC"), which do not
      differ materially from nationally quoted market prices.  The fair value of
      certain  municipal  bonds is assumed to be equal to  amortized  cost where
      market quotations exist.

   Mortgage Loans

      The fair values are  estimated  based on quoted market prices for those or
      similar investments.

   Debt Payable

      The fair value is estimated based on the quoted market prices for the same
      or similar issues or on the current rates offered for debt having the same
      or similar returns and remaining maturities.




                                       33
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's  discussion and analysis of the financial condition and the results
of  operations  for the three  years  ended  December  31,  1997,  1996 and 1995
analyzes the results of operations,  consolidated financial condition, liquidity
and capital resources of Atlantic American Corporation (the "Company" or "Parent
Company") and its  consolidated  subsidiaries  Bankers  Fidelity Life  Insurance
Company and American Independent Life Insurance Company  (collectively the "Life
and Health Division"), American Southern Insurance Company ("American Southern")
and Georgia Casualty & Surety Company  ("Georgia  Casualty" and collectively the
"Casualty  Division").   Effective  January  1,  1997,  Atlantic  American  Life
Insurance  Company was merged  into  Bankers  Fidelity  Life  Insurance  Company
("Bankers  Fidelity").  The following  discussion  should be read in conjunction
with the consolidated financial statements and notes thereto.

OVERVIEW

Atlantic  American  Corporation's net income for 1997 was $8.0 million ($.35 per
share), compared to a net income of $3.2 million ($.09 per share) (net income of
$7.6 million or $.32 per share from continuing  operations),  in 1996, and a net
loss of $7.0  million  ($.39 per share) (net income of $3.1  million or $.15 per
share from  continuing  operations),  in 1995.  The  increase in  earnings  from
continuing  operations in 1997 was  attributable to increased  revenues from the
insurance operations.  The increase in earnings in 1996 was primarily due to the
inclusion of American Southern's 1996 earnings ($4.3 million).

As  discussed  below,  1997  represents  the first full year not impacted by the
discontinued operations of the Company's previously owned furniture operation.

ACQUISITIONS

On October 1, 1997, the Company  acquired  American  Independent  Life Insurance
Company  ("American  Independent")  for  approximately  $2.7  million  in  cash.
American Independent  specializes in traditional life insurance and supplemental
health insurance,  including Medicare supplement.  American Independent has been
consolidated  in the  Company's  December  31, 1997  balance  sheet.  Results of
operations and cash flows are reflected from the date of acquisition.

On October 28, 1997, the Company acquired  Self-Insurance  Administrators,  Inc.
("SIA,  Inc.") for  approximately  $1.2  million in common stock of the Company.
SIA,  Inc.   specializes  in  the   administration   of  self-insured   workers'
compensation  funds  and was  acquired  to  complement  the  Company's  existing
workers'  compensation  book of  business.  SIA  Inc.'s  balance  sheet has been
consolidated in the Company's December 31, 1997 balance sheet, while the results
of operations  and cash flows of SIA, Inc. have been included  since the date of
acquisition.

Although  the  results of both  American  Independent  and SIA,  Inc.  have been
included since their  respective  acquisition  dates, the net earnings impact of
these  acquisitions is not material to the overall financial position or results
of  operations  of  the  Company  and  therefore,  have  not  been  individually
discussed.  The results of American Independent from the date of acquisition are
included in discussions of the Life and Health Division.

On December 31,  1995,  the Company  acquired  American  Southern for  aggregate
consideration of $34.0 million.  American Southern,  a highly rated property and
casualty  insurance  company  specializing in state and municipality  automobile
insurance,  was  acquired  to  complement  the  Company's  position  as a  niche
insurance  holding  company.   American   Southern's   balance  sheet  has  been
consolidated  since it was  acquired  on December  31,  1995,  while  results of
operations and cash flows are not reflected  until 1996 (see Note 7 of the Notes
to Consolidated Financial Statements).


                                       34
<PAGE>
DISCONTINUED OPERATIONS

In  early  1996,  the  Company  announced  its  intent  to  sell  its  furniture
operations.  The furniture  division,  which consisted of Leath Furniture,  Inc.
("Leath") and its  subsidiaries,  Modernage  Furniture,  Inc. and Jefferson Home
Furniture  Company,  Inc.,  suffered  significant  losses  in an  industry  wide
downturn.  Management anticipated continued losses in the future and, therefore,
decided  to exit the  retail  furniture  business  and  concentrate  on its core
insurance  businesses  (see  Note  8 of  the  Notes  to  Consolidated  Financial
Statements). The Company completed the sale of its approximately 88% interest in
Leath on April 8, 1996,  to Gulf Capital  Services,  Ltd., a related  party (see
Note 14 of the Notes to Consolidated Financial Statements).

Leath's operating losses for 1995 totaled $6.7 million.  The Company recorded an
additional charge to earnings of $3.4 million in 1995 for estimated losses to be
incurred  prior to  disposition,  bringing  the  total  loss  from  discontinued
operations in 1995 to $10.1 million. The losses anticipated prior to disposition
were inadequate,  and the Company incurred an additional loss from  discontinued
operations of $4.4 million in 1996.  Previously separated  intersegment revenues
attributable  to mortgage loans from the insurance  companies to Leath have been
included in  investment  income of the  continuing  operations  of the insurance
segment.


                                       35
<PAGE>
RESULTS OF CONTINUING OPERATIONS

Revenue

The  Company  markets  insurance  through  various  distribution  channels.  The
following table summarizes the insurance premiums during each of the three years
ended December 31, 1997, 1996 and 1995 by company and line of business. American
Southern is included for 1997 and 1996.


                      Net Earned Premium by Company by Line
                                 (in thousands)
<TABLE>

                                                                      Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                     1997                       1996                       1995

                                             Amount  % of Total        Amount   % of Total        Amount   % of Total
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                                       <C>      <C>             <C>       <C>              <C>       <C>
Life and Health Companies:
  Ordinary Life                             $ 9,437     10.64%        $ 8,937      10.39%        $ 7,037      16.22%
  Mass Market Life                            1,016      1.15%          1,303       1.51%          1,260       2.91%
------------------------------------------------------------------------------------------------------------------------------------
    Total Life                               10,453     11.79%         10,240      11.90%          8,297      19.13%
------------------------------------------------------------------------------------------------------------------------------------
  Medicare Supplement                        12,534     14.13%         11,560      13.44%         11,882      27.39%
  Convalescent Care/Short-Term Care           1,141      1.29%            955       1.11%          1,191       2.75%
    Medical Surgical                            122       .14%            160        .19%            211        .49%
    Cancer                                    1,803      2.03%          1,982       2.30%          2,221       5.12%
    Hospital Indemnity                          241       .27%            282        .33%            337        .77%
    Accident Expense                            523       .59%            677        .79%            790       1.82%
    Disability                                  150       .17%            122        .14%            142        .33%
------------------------------------------------------------------------------------------------------------------------------------
      Total Accident and Health              16,514     18.62%         15,738      18.30%         16,774      38.67%
------------------------------------------------------------------------------------------------------------------------------------
        Total Life and Health Companies      26,967     30.41%         25,978      30.20%         25,071      57.80%
------------------------------------------------------------------------------------------------------------------------------------
Georgia Casualty:
  Workers' Compensation                      12,841     14.48%         13,826      16.07%         14,954      34.48%
  Business Automobile                         4,031      4.55%          2,550       2.96%          1,436       3.31%
  General Liability                           1,387      1.56%          1,152       1.34%          1,025       2.36%
  Property                                    1,657      1.87%          1,269       1.48%            887       2.05%
------------------------------------------------------------------------------------------------------------------------------------
    Total Georgia Casualty                   19,916     22.46%         18,797      21.85%         18,302      42.20%
------------------------------------------------------------------------------------------------------------------------------------
American Southern:
  Automobile Physical Damage                  4,508      5.08%          4,865       5.66%
  Automobile Liability                       30,909     34.85%         30,889      35.91%
  General Liability                           3,116      3.51%          1,947       2.26%
  Property                                    3,206      3.62%          3,461       4.02%
  Surety                                         60       .07%             88        .10%
------------------------------------------------------------------------------------------------------------------------------------
    Total American Southern                  41,799     47.13%         41,250      47.95%
------------------------------------------------------------------------------------------------------------------------------------
Total Consolidated                          $88,682    100.00%        $86,025     100.00%        $43,373     100.00%
====================================================================================================================================

</TABLE>
                                       36
<PAGE>
Premium  revenues  increased 3% in 1997 to $88.7  million from $86.0  million in
1996 and $43.4  million  in 1995.  Inclusion  of  American  Southern's  premiums
accounted for 95.1% of the increased  premium revenue in 1996, or $41.3 million.
Premiums at American  Southern  increased  1% in 1997 or  $549,000.  The general
liability line increased 60% or $1.2 million which was offset by slight declines
in American  Southern's  other lines of business.  Georgia  Casualty's  premiums
increased 6% over 1996  results to $19.9  million  from $18.8  million.  Georgia
Casualty  experienced  a  decline  of 7% in the  workers'  compensation  line of
business as a result of increasing price  competition,  which has caused Georgia
Casualty to choose not to  underwrite  some risks  rather than  pricing  them at
levels  the  Company  believes  to  be   unprofitable.   Modest  increases  were
experienced  in Georgia  Casualty's  other lines of  business  in 1997.  Georgia
Casualty's  premiums  increased in 1996 to $18.8  million from $18.3  million in
1995.  Increases  occurred  in all lines for  Georgia  Casualty  in 1996  except
workers'  compensation,  which  declined to $13.8  million from $15.0 million in
1995.  The decline from 1995 was due to a decrease of $1.6 million in net earned
premiums  from  direct-assignment  workers'  compensation  policies,  over which
Georgia Casualty had no control.

The Life and  Health  Division's  premiums  increased  by  $989,000  in 1997 and
$907,000 in 1996,  after decreasing by $2.0 million in 1995. The main reason for
the increase in 1997 was a $974,000  increase in Medicare  supplement  business.
The increase in 1996 was  attributable  to a $1.9  million  increase in ordinary
life premiums offset by an accident and health premiums decrease of $1.0 million
in 1996. The increase in Medicare  supplement  business in 1997 was  principally
the  result  of the  acquisition  of  American  Independent  combined  with  the
introduction  of a new  Preferred  Medicare  supplement  product  in  1996  that
provides lower commissions and a preferred underwriting classification. In 1996,
for the first  time  since  1986,  annualized  premiums  for the Life and Health
Division  increased from the preceding year to $26.7 million for 1996,  compared
to $26.3  million for 1995.  This trend  continued  in 1997 ending the year with
$33.7 million in annualized premium.

Investment  income remained flat at $11.5 million in 1997 and 1996,  although it
represented  an increase  from $6.6 million  earned in 1995.  Investment  income
remained  unchanged due in part to declines in interest rates and the flattening
of the yield curve.  The  inclusion  of American  Southern for the first time in
1996  accounted for $4.3 million of the total  increase in 1996.  Management has
continued to focus on increasing  the Company's  investments in short and medium
maturity bonds and  government  backed  securities.  The carrying value of funds
available for investment (which include cash, short-term investments, bonds, and
common and preferred stocks) at December 31, 1997, increased approximately $15.6
million from 1996,  primarily due to cash provided by operations of $8.6 million
and an increase in  unrealized  investment  gains of $11.8  million  offset by a
reduction of $7 million attributable to the payment of debt.

Realized investment gains were down $513,000 in 1997 to $1.1 million compared to
$1.6  million  for 1996 and $1.7  million  for 1995.  The  changes  in  realized
investment gains for these periods were primarily the result of adjustments made
in the investment  portfolio to increase the yield on invested assets.  In 1997,
fewer opportunities presented themselves for increasing the overall yield on the
investment  portfolio and as a result,  fewer  securities  were sold compared to
1996.

Benefits and Expenses

Total  insurance  benefits and losses  increased  to $61.0  million in 1997 from
$54.3 million in 1996 and $24.7 million in 1995.  Insurance  benefits and losses
increased  $1.6  million at  American  Southern in 1997 while  Georgia  Casualty
experienced  a $2.8  million  increase  over 1996.  The increase in benefits and
losses at  Georgia  Casualty  was the result of worse  than  anticipated  claims
frequency in one agent's line of business. The Company discontinued this line of
business in August 1997, and has instituted additional loss control programs and
tightened  underwriting  standards  in the line in an  effort  to  maintain  its
underwriting  discipline.  Insurance  benefits and losses in the Life and Health
Division  increased  $1.5  million  which  paralleled  the  increased  level  of
insurance  premiums.  In  1996,  the  Casualty  Division's  increase  is  due to
inclusion  of American  Southern's  benefits  and losses,  accounting  for $28.6
million of the increase, offset by a decrease in Georgia Casualty's benefits and
losses of  $698,000.  The Life and Health  Division's  1996  increase  is mainly
caused by an increase in  reserves  and claims  resulting  from  increased  life
premiums,  whereas  in  1995  there  was a  decrease  in  reserves  due  to  the
elimination of a block of life insurance business sold through funeral homes.

                                       37
<PAGE>
As a percentage of premium revenue,  insurance  benefits and losses increased to
68.8%  in 1997  from  63.1%  in 1996 and  56.9%  in  1995.  The Life and  Health
Division's  percentages  increased to 57.8% in 1997 from 54.0% in 1996 and 49.1%
in 1995. Georgia Casualty's percentages increased to 77.6% in 1997 from 66.4% in
1996 and 67.5% in 1995. American Southern's  percentage  increased to 72.2% from
69.3% in 1996, its first year of operations as a subsidiary of the Company.

Commission  and  underwriting  expenses  decreased to $23.0 million in 1997 from
$27.0  million  in 1996 and  $15.2  million  in 1995.  The  overall  decline  in
commissions and underwriting  expenses in 1997 was spread across all segments of
the Company's  operations.  Commissions  and  underwriting  expenses at American
Southern  were down  $525,000  from 1996 and the ratio of expense  to  insurance
premiums  ("expense  ratio")  decreased to 23.3% in 1997 from 24.9% in 1996.  At
Georgia Casualty commission and underwriting  expenses decreased $1.1 million in
1997. This decrease was attributable to contingent ceding  commissions  received
under Georgia Casualty's reinsurance agreements.  As a result, the expense ratio
at  Georgia  Casualty  decreased  to 27.6% from  35.3% in 1996.  Commission  and
underwriting  expenses in the Life and Health Division decreased $3.0 million in
1997,  in part as a result of  efficiencies  achieved  following  the  merger of
Atlantic   American  Life  Insurance  Company  with  Bankers  Fidelity  and  the
acquisition  and  assimilation  of the  operations of American  Independent.  In
addition,  the Life and Health Division  deferral of acquisition costs increased
in 1997 as a result of its growth of business,  deferring costs  associated with
that division's lead program and improving lapse rates.

The Company  had a net  deferral of  acquisition  costs in 1997 of $1.3  million
compared  to a net  deferral  of  $280,000  in  1996  and  net  amortization  of
acquisition  costs in 1995 of $736,000.  Aside from items previously  discussed,
the  increase  in  deferred  costs is  attributable  to an  increase in business
produced,  particularly  in the fourth  quarter.  The increase in commission and
underwriting  expenses in 1996 was  attributable  to the  inclusion  of American
Southern which accounted for $10.3 million of the $11.7 million increase.

Interest expense decreased to $2.9 million in 1997 from $3.3 million in 1996 and
$2.5 million in 1995.  The decrease in 1997 was due to the  reduction of debt in
1997 and 1996. Other expense decreased by $612,000 in 1997 to $6.1 million,  and
increased  in 1996 by $534,000  and by $786,000 in 1995.  The  decrease in other
expenses in 1997 is the result of a decrease in legal fees and overall operating
cost  reductions for the Parent  Company.  In 1996  significant  legal fees were
incurred  relating to the  acquisition  of the remaining  minority  interests in
Bankers  Fidelity and Georgia  Casualty  and the sale of Leath.  The increase in
1995 other  expense was due in part to an  increase of $248,000 in the  expenses
related to claims of the Company's self-insured employee group medical plan.

The  Company's  net tax  provision  of $138,000  and  $204,000 in 1997 and 1996,
respectively,  was for alternative  minimum taxes, while the tax benefit in 1995
consisted of $9,000 of alternative  minimum taxes offset by a benefit of $43,000
from overpayments of alternative taxes in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The major cash needs of the Company  are for the payment of claims and  expenses
as they come due and  maintaining  adequate  statutory  capital  and  surplus to
satisfy state regulatory  requirements and meeting debt service  requirements of
the Parent.  The  Company's  primary  sources of cash are written  premiums  and
investment  income.  Cash payments consist of current claim payments to insureds
and operating expenses such as salaries, employee benefits,  commissions, taxes,
and shareholder  dividends,  when earnings warrant such payment. By statute, the
state regulatory  authorities establish minimum liquidity standards primarily to
protect policyholders.

The Company's  insurance  subsidiaries  reported a combined  statutory profit of
$9.2 million in 1997  compared to $8.9 million in 1996 and $4.5 million in 1995.
The  statutory  results  in 1997  were  comprised  of a $4.8  million  profit at
American Southern,  a $1.9 million profit at Georgia Casualty and a $2.5 million
profit in the Life and Health Division. The 1996 statutory results were due to a
profit of $5.6  million  from  American  Southern,  $2.0  million  from  Georgia
Casualty, and $1.3 million from the Life and Health Division. The 1995 statutory
results were due to a profit of $1.5 million from Georgia  Casualty and a profit
of $3.0 million in the Life and Health Division.

                                       38
<PAGE>
Statutory results  differfrom the results of operations under generally accepted
accounting  principles ("GAAP") for the Casualty Division due to the deferral of
acquisition costs. The Life and Health Division's  statutory results differ from
GAAP  primarily  due to  deferral of  acquisition  costs,  as well as  different
reserving methods.

On April 1, 1996, the Company completed a merger  transaction  pursuant to which
the Company  acquired the remaining  publicly-held  interest in Bankers Fidelity
that the Company did not own. As a result of the merger,  the Company  owns 100%
of the  equity of  Bankers  Fidelity,  and the  public  shareholders  of Bankers
Fidelity  received  $6.25  in  cash  per  share,  for  an  aggregate  payout  of
approximately  $1.3  million.  The source of funds for the payment of the merger
consideration,  together  with an estimated  $225,000 in related  expenses,  was
Bankers Fidelity's surplus account.

On November 26, 1996, the Company acquired the remaining  publicly-held interest
in Georgia Casualty. The transaction was completed through the merger of a newly
formed  wholly-owned  subsidiary  of the Company  into  Georgia  Casualty,  with
Georgia Casualty being the surviving  corporation in the merger.  As a result of
the transaction,  the Company owns 100% of the equity of Georgia  Casualty,  and
the remaining public shareholders of Georgia Casualty received $9.00 in cash per
share, for an aggregate payout of approximately $20,000.

In connection  with the  acquisition of American  Southern on December 31, 1995,
the Company entered into a Credit Agreement with Wachovia Bank of Georgia,  N.A.
The Credit Agreement  provides for aggregate  borrowings of approximately  $34.0
million,  of which $22.6 million was immediately  drawn on December 31, 1995, to
finance  the cash  portion  of the  purchase  price.  The  remaining  amount was
borrowed  on  October  11,  1996 to  finance  the $11.4  million  balance of the
purchase  price  due on that  date.  At  December  31,  1997,  the  Company  had
outstanding  borrowings  under the Credit  Agreement of $28.6 million,  of which
approximately  $1.0 million will become due and payable during 1998. The Company
intends to repay its  obligations  under the  Credit  Agreement  using  dividend
payments   received  from  its   subsidiaries  and  through  receipts  from  its
tax-sharing agreement with its subsidiaries.

In connection with entering into the Credit  Agreement,  the Company  converted,
effective December 31, 1995,  approximately $13.4 million in outstanding debt to
affiliates into a new series of preferred stock,  which accrues  dividends at 9%
per year. The Company has accrued but not paid the cumulative  dividends on this
preferred  stock since its  issuance and does not  currently  intend to pay such
dividends in 1998.  At December  31, 1997,  the Company had accrued but not paid
dividends on its Series B preferred  stock  totaling  $2.4  million.  On May 15,
1997, the Company borrowed an additional $5.6 million under the Credit Agreement
in order to retire a like  amount of 8%  subordinated  notes that  became due on
that day.

The Company  provides certain  administrative  and other services to each of its
insurance  subsidiaries.  The  amounts  charged to and paid by the  subsidiaries
remained  constant at $5.6  million in 1997,  1996 and 1995.  In  addition,  the
Company has a formal tax-sharing agreement between the Company and its insurance
subsidiaries, to which American Southern was added when it was acquired in 1996.
A net total of $1.2  million,  $3.4  million and $1.4  million  were paid to the
Company under the tax-sharing agreement in 1997, 1996 and 1995, respectively. It
is  anticipated  that this  agreement  will provide the Company with  additional
funds from profitable subsidiaries due to the subsidiaries' use of the Company's
tax loss carryforwards  which totaled  approximately $43 million at December 31,
1997. Approximately 94% of the invested assets of the insurance subsidiaries are
in marketable securities that can be converted into cash, if required;  however,
use of such  assets by the  Company is limited by state  insurance  regulations.
Dividend  payments  to the  Company by its  insurance  subsidiaries,  subject to
annual limitations,  are restricted to the accumulated statutory earnings of the
individual  insurance  subsidiaries.  At December 31, 1997, Georgia Casualty had
$13.0 million of  accumulated  statutory  earnings,  Bankers  Fidelity had $18.0
million of  accumulated  statutory  earnings,  and  American  Southern had $19.6
million of accumulated statutory earnings for a total of $50.6 million.

Net cash provided by operating  activities totaled $8.6 million in 1997 and $8.4
million in 1996,  compared to $3.2 million in 1995. The Company incurred a total
cost of $733,000 in 1997,  $1.6  million in 1996,  and $1.1  million in 1995 for
additions  to  property  and  equipment,   which  mainly   represent   leasehold
improvements  and  additions  to  new  computer  systems.  Cash  and  short-term
investments increased to $51.0 million in 1997.

                                       39
 <PAGE>
The Company  believes that the fees,  charges and dividends it receives from its
subsidiaries and, if needed, borrowings from banks and affiliates of the Company
will enable the Company to meet its liquidity  requirements  for the foreseeable
future.  Management  is not aware of any current  recommendations  by regulatory
authorities  which, if implemented,  would have a material adverse effect on the
Company's liquidity, capital resources or operations.

YEAR 2000

Many existing  computer systems currently in use were developed using two digits
rather than four  digits to specify the year.  As a result,  many  systems  will
recognize a date code of "00" as the  calendar  year 1900 rather than 2000 which
could cause systems to fail or cause erroneous results.

The Company has  undertaken  projects to ensure that all of its systems  will be
compliant  with year 2000 issues.  Currently,  one of the Company's  three major
operating  systems is fully year 2000  compliant and the process of bringing the
other operating  systems into compliance is underway.  All operating systems are
expected to be fully compliant by the end of 1998. If the Company fails to bring
its systems into  compliance  by the year 2000 the Company may, as a result,  be
unable to process  some  business  which  could  potentially  have a  materially
adverse  effect on the  financial  operations  of the Company;  however,  in the
opinion  of  management  the  risk of this  occurrence  is  remote.  The cost of
bringing  the  Company's  systems  into  compliance  is not  expected  to have a
material  effect on the  results of  operations  or  financial  position  of the
Company.


DEFERRED TAXES

At December 31,  1997,  the Company had a net  cumulative  deferred tax asset of
zero.  The net  cumulative  deferred  tax asset is the result of $24  million of
deferred tax assets, offset by $14.2 million of deferred tax liabilities,  and a
$9.8  million  valuation  allowance.  SFAS No.  109  requires  that a  valuation
allowance  be recorded  against tax assets  which are not likely to be realized.
The Company's  carryforwards  expire at specific future dates and utilization of
certain  carryforwards is limited to specific amounts each year. However, due to
the uncertain nature of their ultimate  realization  based upon past performance
and expiration  dates,  the Company has  established a full valuation  allowance
against  these  carryforward  benefits  and  recognizes  the  benefits  only  as
reassessment demonstrates they are realizable. The Company's ability to generate
taxable income from operations is dependent upon various factors,  many of which
are beyond management's control. Accordingly, there can be no assurance that the
Company will generate  future  taxable  income based on historical  performance.
Therefore,  the  realization  of  the  deferred  tax  assets  will  be  assessed
periodically  based  on  the  Company's  current  and  anticipated   results  of
operations.

IMPACT OF INFLATION


Insurance  premiums  are  established  before  the  amount  of  losses  and loss
adjustment expenses, or the extent to which inflation may affect such losses and
expenses,  are known.  Consequently,  the Company attempts,  in establishing its
premiums,  to anticipate the potential  impact of inflation.  If for competitive
reasons premiums cannot be increased to anticipate inflation, this cost would be
absorbed by the Company. Inflation also affects the rate of investment return on
the Company's  investment  portfolio with a  corresponding  effect on investment
income.

                                       40
<PAGE>




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of
Atlantic American Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets  of  Atlantic
American Corporation (a Georgia corporation) and subsidiaries as of December 31,
1997  and  1996,  and  the  related   consolidated   statements  of  operations,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1997. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial statements (pages 8 through 22) referred to above
present fairly,  in all material  respects,  the financial  position of Atlantic
American  Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1997,  in  conformity  with  generally  accepted
accounting principles.

                               ARTHUR ANDERSEN LLP

Atlanta, Georgia
March 20, 1998




                                       41
<PAGE>
                                  SUBSIDIARIES

                     Bankers Fidelity Life Insurance Company
                   American Independent Life Insurance Company

                                J. MACK ROBINSON
                                    Chairman
                              HILTON H. HOWELL, JR.
                                  Vice Chairman
                                  EUGENE CHOATE
                                    President
                                 JOHN W. HANCOCK
                              Senior Vice President
                                ROBERT A. RENAUD
                     Vice President, Secretary and Treasurer
                               ANTHONY D. CHAPMAN
           Vice President and Chief Marketing Officer, Agency Division
                                 ROBERT E. OREAN
                           Vice President and Actuary
                                 SHARON A. BUSCH
                       Assistant Vice President, Marketing
                              DEWEY A. SANDAGE, JR.
                        Assistant Vice President, Claims
                                  JANIE L. RYAN
                               Assistant Secretary
                                 GAIL T. ARNOLD
                               Assistant Secretary

                        Georgia Casualty & Surety Company

                                J. MACK ROBINSON
                             Chairman and President
                              HILTON H. HOWELL, JR.
                                  Vice Chairman
                                  LINDA S. COOK
                     Vice President, Secretary and Treasurer
                               GEORGE G. CLEMENTS
                             Vice President, Claims
                                 SANDRA W. DOAR
                          Vice President, Underwriting
                                JOE F. BERRYHILL
                            Vice President, Marketing
                              Mississippi/Louisiana
                                  JACK R. BAKER
                            Assistant Vice President
                                  JANIE L. RYAN
                               Assistant Secretary

                                       42
<PAGE>



                       American Southern Insurance Company
                        American Safety Insurance Company

                              ROY S. THOMPSON, JR.
                                Chairman Emeritus
                                 CALVIN L. WALL
                      Chairman and Chief Executive Officer
                                SCOTT G. THOMPSON
                      President and Chief Financial Officer
                                THOMAS J. WHITTY
                          Senior Vice President, Claims
                                 DAVID I. WEEKS
                             General Vice President
                                 WANDA J. HULSEY
                          Vice President, Underwriting
                                BRIAN G. HAURYLAK
                                 Vice President
                                  JOHN R. HUOT
                                 Vice President
                                 GLENDA N. BATES
                                    Treasurer
                                 GAIL A. PARSONS
                          Secretary and Vice President
                                FRANK J. CICCONE
                                 Vice President
                              ERNEST E. GRANT, JR.
                                 Vice President
                                WILLIAM E. LYNCH
                                 Vice President
                                  BRIAN C. MOSS
                                 Vice President
                               MICHAEL D. WINSTON
                                 Vice President
                                 TERESA P. GANN
                               Assistant Secretary


                       Self-Insurance Administrators, Inc.

                              HILTON H. HOWELL, JR.
                                    Chairman
                                ANDY M. THOMPSON
                                    President
                               EDWARD L. RAND, JR.
                                    Treasurer
                                  JANIE L. RYAN
                                    Secretary



                                       43

<PAGE>
MARKET INFORMATION (UNAUDITED)

The common stock of the Company is traded in the over-the-counter  market and is
quoted on the NASDAQ National Market under the symbol "AAME". As of December 31,
1997, the Company had approximately  6,586  stockholders,  including  beneficial
owners holding shares in nominee or "street" name. The following tables show for
the  periods  indicated  the range of the  reported  high and low  prices of the
common stock on the NASDAQ  National  Market and the closing  price of the stock
and  percent of change at  December  31. The Company did not declare or pay cash
dividends  on its common stock  during the year ended  December 31, 1997.  Since
1988,  the  Company  has  retained  its  earnings  to support  the growth of its
business.


                                         1997                     1996
--------------------------------------------------------------------------------
                                           High     Low       High     Low

First quarter                             $3 3/4   $3 1/16   $3 1/4   $2 1/8
Second quarter                             3 1/4    2 1/2     4        2 3/4
Third quarter                              4 1/8    2 1/2     3 5/8    3
Fourth quarter                             5 1/2    4         3 5/8    3


                                        1997    1996    1995    1994    1993
--------------------------------------------------------------------------------
December 31, stock price close
  per share                           $ 5 1/16  $3 1/16  $2 5/16  $2 1/4  $1 3/4
Stock price percentage of change
  from prior year                       +65.3%   +32.4%    +2.8%  +28.6%    +8%



FORWARD-LOOKING STATEMENTS

This  report  contains  and  references  certain  information  that  constitutes
forward-looking  statements  as that term is defined in the  Private  Securities
Litigation  Reform Act of 1995.  Those  statements,  to the extent  they are not
historical facts,  should be considered  forward-looking  and subject to various
risks and  uncertainties.  Such  forward-looking  statements are made based upon
management's  assessments  of  various  risks  and  uncertainties,  as  well  as
assumptions made in accordance with the "safe harbor"  provisions of the Private
Securities  Litigation  Reform Act of 1995.  The Company's  actual results could
differ  materially  from  the  results  anticipated  in  these   forward-looking
statements  as a  result  of  such  risks  and  uncertainties,  including  those
identified  in the  Company's  Annual  Report on Form 10-K for the  fiscal  year
ending  December 31, 1997 and the other filings made by the Company from time to
time with the Securities and Exchange Commission.

                                       44
<PAGE>


SHAREHOLDER INFORMATION

ANNUAL MEETING

Atlantic American's annual meeting of shareholders will be held on Tuesday,  May
5, 1998, at 9:00 a.m. in the Peachtree  Insurance  Center,  4370 Peachtree Road,
N.E.,  Atlanta,  Georgia.  Holders  of  common  stock of  record at the close of
business on March 8, 1998, are entitled to vote at the meeting,  and all parties
interested  in Atlantic  American  are  invited to attend.  A notice of meeting,
proxy statement and proxy were mailed to shareholders with this annual report.

Independent Accountants
Arthur Andersen LLP
Atlanta, Georgia

Legal Counsel
Jones, Day, Reavis & Pogue
Atlanta, Georgia

Stock Exchange Listing
Symbol: AAME
Traded over-the-counter market
Quoted on the NASDAQ National Market System

Transfer Agent and Registrar
Atlantic American Corporation
Attn:  Janie L. Ryan, Corporate Secretary
P. O. Box 190720
Atlanta, Georgia 31119-0720
(800) 241-1439 or (404) 266-5532

Form 10-K and Other Information For investors and others seeking additional data
regarding  Atlantic American  Corporation or copies of the Corporation's  annual
report to the Securities  and Exchange  Commission  (Form 10-K),  please contact
Janie L. Ryan  Corporate  Secretary,  (800) 241-1439 or (404)  266-5532.  Please
visit our web site at: www.atlam.com.


                                       45
<PAGE>
Atlantic
American
Corporation

4370 Peachtree Road, N.E.
Atlanta, Georgia 30319-3000
Telephone:  404-266-5500
Facsimile:  404-266-5702
Internet:   www.atlam.com


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