##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




---

Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the Fiscal Year Ended December 31,
    2002                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-3722



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ATLANTIC AMERICAN CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Georgia                                                            |  | 58-1027114                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification no.)
|                                                                  
|4370 Peachtree Road, N.E.,                                         |  |                                         
|Atlanta, Georgia                                                   |  | 30319                                   
|(Address of principal executive
    offices)                       |  | (Zip code)                              

(Registrants telephone number, including
area code)

(404) 266-5500


Securities registered pursuant to section
12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $1.00 par value

(Title of class)




---

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or
any amendment to this
Form 10-K.     þ

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

The aggregate market value of voting and
nonvoting common stock held by non-affiliates of the registrant
as of June 28, 2002, the last business day of the
registrants most recently completed second fiscal quarter,
was $13,243,235. On March 20, 2003 there were 21,170,645
shares of the registrants common stock, par value $1.00
per share, outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrants Proxy
Statement for the Annual Meeting of Shareholders, to be held on
May 6, 2003, have been incorporated by reference in Items
10, 11, 12 and 13 of Part III of this Form 10-K.



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                           |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------- |  |  |  |  |  | 
|PART I                                          
|                                                 | Item 1. Business                                                                             
|                                                 |                                                                                               | The Company                              
|                                                 |                                                                                               | Casualty Operations                      
|                                                 |                                                                                               | Life and Health Operations               
|                                                 |                                                                                               | Marketing                                
|                                                 |                                                                                               | Underwriting                             
|                                                 |                                                                                               | Policyholder and Claims Services         
|                                                 |                                                                                               | Reserves                                 
|                                                 |                                                                                               | Reinsurance                              
|                                                 |                                                                                               | Competition                              
|                                                 |                                                                                               | Ratings                                  
|                                                 |                                                                                               | Regulation                               
|                                                 |                                                                                               | NAIC Ratios                              
|                                                 |                                                                                               | Risk-Based Capital                       
|                                                 |                                                                                               | Investments                              
|                                                 |                                                                                               | Employees                                
|                                                 |                                                                                               | Financial Information By Industry Segment
|                                                 |                                                                                               | Executive Officers of the Registrant     
|                                                 |                                                                                               | Forward-Looking Statements               
|                                                 | Item 2. Properties                                                                           
|                                                 | Item 3. Legal Proceedings                                                                    
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                         
|                                                 | Item 5. Market for the Registrants Common Equity and Related Shareholder Matters            
|                                                 | Item 6. Selected Financial Data                                                              
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                 | Item 8. Financial Statements and Supplementary Data                                          
|                                                 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                        
|                                                 | Item 14. Controls and Procedures                                                             
|PART IV                                         
|                                                 | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                      
|EX-3.1 RESTATED ARTICLES OF INCORPORATION       
|EX-10.19 FOURTH AMENDMENT TO CREDIT AGREEMENT   
|EX-10.23 SUMMARY TERMS OF CONSULTING ARRANGEMENT
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT          
|EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP        
|SECTION 906 CERTIFICATION OF CEO & CFO          



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##### Table of Contents



TABLE OF CONTENTS

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                           |  | Page
|         |  |                                                                                           |  |     
|PART I  
|Item 1.  |  | Business                                                                                  |  |      | 2  | 
|         |  | The Company                                                                               |  |      | 2  | 
|         |  | Casualty Operations                                                                       |  |      | 2  | 
|         |  | Life and Health Operations                                                                |  |      | 4  | 
|         |  | Marketing                                                                                 |  |      | 5  | 
|         |  | Underwriting                                                                              |  |      | 6  | 
|         |  | Policyholder and Claims Services                                                          |  |      | 7  | 
|         |  | Reserves                                                                                  |  |      | 8  | 
|         |  | Reinsurance                                                                               |  |      | 11 | 
|         |  | Competition                                                                               |  |      | 12 | 
|         |  | Ratings                                                                                   |  |      | 12 | 
|         |  | Regulation                                                                                |  |      | 13 | 
|         |  | NAIC Ratios                                                                               |  |      | 14 | 
|         |  | Risk-Based Capital                                                                        |  |      | 14 | 
|         |  | Investments                                                                               |  |      | 15 | 
|         |  | Employees                                                                                 |  |      | 16 | 
|         |  | Financial Information by Industry Segment                                                 |  |      | 16 | 
|         |  | Executive Officers of the Registrant                                                      |  |      | 16 | 
|         |  | Forward-Looking Statements                                                                |  |      | 17 | 
|Item 2.  |  | Properties                                                                                |  |      | 17 | 
|Item 3.  |  | Legal Proceedings                                                                         |  |      | 18 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 18 | 
|PART II 
|Item 5.  |  | Market for the Registrants Common Equity
    and Related Shareholder Matters             |  |      | 18 | 
|Item 6.  |  | Selected Financial Data                                                                   |  |      | 20 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 21 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |  |      | 34 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                               |  |      | 36 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |      | 64 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                        |  |      | 64 | 
|Item 11. |  | Executive Compensation                                                                    |  |      | 64 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |      | 64 | 
|Item 13. |  | Certain Relationships and Related Transactions                                            |  |      | 64 | 
|Item 14. |  | Controls and Procedures                                                                   |  |      | 64 | 
|PART IV 
|Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |      | 65 | 

1



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##### Table of Contents






PART I




Item 1.     Business




The Company

Atlantic American Corporation, a Georgia
corporation incorporated in 1968 (the Parent or
Company), is a holding company that operates through
its subsidiaries in well-defined specialty markets of the life,
health, property and casualty insurance industries. Atlantic
Americans principal subsidiaries are American Southern
Insurance Company and American Safety Insurance Company
(collectively known as American Southern),
Association Casualty Insurance Company and Association Risk
Management General Agency, Inc. (collectively known as
Association Casualty), Georgia Casualty &
Surety Company, (Georgia Casualty) and Bankers
Fidelity Life Insurance Company (Bankers Fidelity).

The Companys strategy is to focus on
well-defined geographic, demographic and/or product niches
within the insurance market place. The underwriting function of
each of the Companys subsidiaries operates with relative
autonomy, which allows for quick reaction to market
opportunities. In addition, the Company seeks to develop and
expand cross-selling opportunities and other synergies among its
subsidiaries as they arise.




Casualty Operations

The Companys casualty operations are
composed of three distinct entities, American Southern,
Association Casualty and Georgia Casualty. The primary products
offered by the casualty group are described below, followed by
an overview of each company.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Workers Compensation Insurancepolicies provide indemnity and medical
    benefits to insured workers for injuries sustained in the course
    of their employment.                                  
|
| | Business Automobile Insurancepolicies provide for bodily injury
    and/or property damage liability coverage, uninsured motorists
    coverage, and physical damage coverage to commercial accounts.
|
| | General Liability Insurancepolicies cover bodily injury and
    property damage liability for both premises and completed
    operations exposures for general classes of business.                  
|
| | Property Insurancepolicies provide for payment of losses
    on real and personal property caused by fire and other multiple
    perils.                                                             
|
| | Personal Automobile Insurancepolicies provide for bodily injury and
    property damage liability coverage, uninsured motorists
    coverage, and physical damage coverage for individuals.          

American Southern.American Southern provides 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 (block accounts)
that can be specifically rated and underwritten. The size of the
block accounts insured by American Southern are such that
individual class experience generally can be determined, which
allows for customized policy terms and rates. American Southern
produces business in 16 of the 24 states in the Southeast
and Midwest in which it is authorized to conduct business.
Additionally, American Southern provides personal automobile
insurance to the members of the Carolina Motor Club, an AAA
affiliate. While the majority of American Southerns
premiums are derived from auto liability and auto physical
damage, American Southern also provides property, general
liability and surety coverage.

2



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##### Table of Contents



The following table summarizes, for the periods
indicated, the allocation of American Southerns net earned
premiums for each of its principal product lines:

|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|-------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                           |       |                        
|                           |       | Year Ended December 31,
|                           |       |                        
|                           |       | 2002                    |        | 2001   |  | 2000 |        | 1999   |  | 1998
|                           |       |                         |        |        |  |      |        |        |  |     
|                           |       |                        
|                           |       | (In thousands)         
|Automobile Liability       |       | $                       | 22,748 |        |  | $    | 23,677 |        |  | $    | 22,795 |        |  | $ | 24,573 |        |  | $ | 23,396 |       
|Automobile Physical Damage |       |                         | 9,829  |        |  |      | 8,732  |        |  |      | 7,397  |        |  |   | 6,112  |        |  |   | 4,288  |       
|General Liability          |       |                         | 3,647  |        |  |      | 3,161  |        |  |      | 3,536  |        |  |   | 4,302  |        |  |   | 4,291  |       
|Property                   |       |                         | 3,627  |        |  |      | 3,386  |        |  |      | 3,383  |        |  |   | 3,118  |        |  |   | 2,970  |       
|Surety                     |       |                         | 63     |        |  |      | 67     |        |  |      | 61     |        |  |   | 61     |        |  |   | 57     |       
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                           | Total |                         | $      | 39,914 |  |      | $      | 39,023 |  |      | $      | 37,172 |  |   | $      | 38,166 |  |   | $      | 35,002 | 
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

Georgia Casualty.Georgia Casualty is a property-casualty insurance company
providing workers compensation, property, general
liability, automobile, umbrella, inland marine and mechanical
breakdown coverage to businesses throughout the Southeastern
United States. Georgia Casualtys primary marketing focus
is toward small to middle market accounts with low to moderate
hazard grades, ranging from $15,000 to $250,000 in written
premiums. In addition to the wide range of commercial products
available, Georgia Casualty offers customized products for nine
classes of business, including, but not limited to, light
manufacturing, restaurants, golf clubs and artisan contractors.
These products, along with innovative risk management services
and exceptional claims handling, are offered through an
exclusive network of independent agents. Georgia Casualty is
licensed to do business in thirteen states. Its principal
marketing territories include Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina and Tennessee.

The following table summarizes, for the periods
indicated, the allocation of Georgia Casualtys net earned
premiums for each of its principal product lines:

|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|--------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                      |       |                        
|                      |       | Year Ended December 31,
|                      |       |                        
|                      |       | 2002                    |        | 2001   |  | 2000 |        | 1999   |  | 1998
|                      |       |                         |        |        |  |      |        |        |  |     
|                      |       |                        
|                      |       | (In thousands)         
|Workers Compensation |       | $                       | 10,592 |        |  | $    | 10,744 |        |  | $    | 16,741 |        |  | $ | 13,157 |        |  | $ | 14,344 |       
|Business Automobile   |       |                         | 7,388  |        |  |      | 5,412  |        |  |      | 4,918  |        |  |   | 2,876  |        |  |   | 3,750  |       
|General Liability     |       |                         | 1,761  |        |  |      | 2,610  |        |  |      | 2,531  |        |  |   | 1,251  |        |  |   | 1,619  |       
|Property              |       |                         | 10,003 |        |  |      | 6,813  |        |  |      | 4,386  |        |  |   | 2,119  |        |  |   | 2,100  |       
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                      | Total |                         | $      | 29,744 |  |      | $      | 25,579 |  |      | $      | 28,576 |  |   | $      | 19,403 |  |   | $      | 21,813 | 
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

Association
Casualty.Association Casualty is a
property-casualty insurance company that has historically
written primarily workers compensation in the state of
Texas. Recently, Association Casualty has begun to diversify its
book of business and now offers commercial property, commercial
automobile, general liability, umbrella and inland marine
coverages throughout Texas, in addition to workers
compensation. Association Casualty has adopted a strategy
consistent with that of Georgia Casualty and is focused on small
to middle market accounts with low to moderate hazard grades,
ranging from $15,000 to $250,000 in written premium. In addition
to this wide range of products, customized coverages are offered
to six classes of business, including restaurants, light
manufacturing and country clubs. These particular products are
coupled with specialized loss control and claims services and
are offered through an exclusive network of independent agents.
Association Casualty is licensed to do business in eight states.

3



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##### Table of Contents



The following table summarizes, for the periods
indicated, the allocation of Association Casualtys net
earned premiums for each of its principal product lines since
its acquisition by the Company.

|                          |       |                         |        |        |  |      |        |         |  |   |        |        |  |   |       |       | 
|------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------- |  | - | ------ | ------ |  | - | ----- | ----- | 
|                          |       |                        
|                          |       | Year Ended December 31,
|                          |       |                        
|                          |       | 2002                    |        | 2001   |  | 2000 |        | 1999(1)
|                          |       |                         |        |        |  |      |        |        
|                          |       |                        
|                          |       | (In thousands)         
|Workers Compensation     |       | $                       | 18,950 |        |  | $    | 22,784 |         |  | $ | 19,051 |        |  | $ | 8,158 |      
|Business Automobile       |       |                         | 1,811  |        |  |      | 671    |         |  |   | 64     |        |  |   |      |      
|General Liability         |       |                         | 221    |        |  |      | 117    |         |  |   | 5      |        |  |   |      |      
|Property                  |       |                         | 3,080  |        |  |      | 1,001  |         |  |   | 81     |        |  |   |      |      
|Group Accident and Health |       |                         | 182    |        |  |      | 1,138  |         |  |   | 909    |        |  |   | 340   |      
|                          |       |                         |        |        |  |      |        |         |  |   |        |        |  |   |       |      
|                          | Total |                         | $      | 24,244 |  |      | $      | 25,711  |  |   | $      | 20,110 |  |   | $     | 8,498 | 
|                          |       |                         |        |        |  |      |        |         |  |   |        |        |  |   |       |      



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Includes results for the period July 1, 1999
    through December 31, 1999.






| |                           
| | --------------------------
| | Life and Health Operations

Bankers Fidelity.Bankers Fidelity constitutes the life and health operations of
the Company and offers a variety of life and supplemental health
products with a focus on the senior markets. Products offered by
Bankers Fidelity include: ordinary life, Medicare supplement,
cancer, and other supplemental health insurance products. Health
business, primarily Medicare supplement, accounted for 74.6% of
Bankers Fidelitys net premiums in 2002. Life insurance,
including both whole and term life insurance policies, accounted
for 25.4% of Bankers Fidelitys premiums in 2002. In terms
of the number of policies written in 2002, 53% were life
policies and 47% were health policies.

The following table summarizes, for the periods
indicated, the allocation of Bankers Fidelitys net
premiums earned for each of its principal product lines followed
by a brief description of the principal products:

|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|--------------------------------- | ------------ | ----------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                  |              |                        
|                                  |              | Year Ended December 31,
|                                  |              |                        
|                                  |              | 2002                    |        | 2001   |        | 2000 |        | 1999   |        | 1998
|                                  |              |                         |        |        |        |      |        |        |        |     
|                                  |              |                        
|                                  |              | (In thousands)         
|Life Insurance                    |              | $                       | 15,421 |        |        | $    | 14,096 |        |        | $    | 13,445 |        |        | $ | 12,499 |        |        | $ | 11,748 |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Medicare Supplement               |              |                         | 42,298 |        |        |      | 38,268 |        |        |      | 31,295 |        |        |   | 25,822 |        |        |   | 19,743 |       
|Cancer, Accident and Other Health |              |                         | 2,878  |        |        |      | 2,912  |        |        |      | 2,899  |        |        |   | 3,206  |        |        |   | 2,986  |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  | Total Health |                         |        | 45,176 |        |      |        | 41,180 |        |      |        | 34,194 |        |   |        | 29,028 |        |   |        | 22,729 |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  |              | Total                   |        | $      | 60,597 |      |        | $      | 55,276 |      |        | $      | 47,639 |   |        | $      | 41,527 |   |        | $      | 34,477 | 
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       

Life Productsinclude non-participating individual term and whole life
insurance policies with a variety of riders and options.

Medicare Supplementincludes 5 of the 10 standardized Medicare supplement policies
created under the Omnibus Budget Reconciliation Act of 1990
(OBRA 1990), which are designed to provide insurance
coverage for certain expenses not covered by the Medicare
program, including copayments and deductibles.

Cancer, Accident & Other Health
Coveragesinclude several policies
providing for payment of benefits in connection with the
treatment of diagnosed cancer, as well as a number of other
policies including convalescent care, accident expense,
hospital/surgical and disability.

4



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##### Table of Contents






Marketing



| |                    
| | -------------------
| | Casualty Operations

American Southern.American Southerns business is marketed through a small
number of specialized, experienced independent agents. Most of
American Southerns agents are paid a moderate up-front
commission with the potential for additional commission by
participating in a profit sharing arrangement that is directly
linked to the profitability of the business generated. In
addition, a significant portion (approximately 33% of total
written premium in 2002) of American Southerns premiums
are assumed from third parties. In arrangements similar to those
with its agents, the premium assumed from some of these parties
is adjusted based upon the profitability of the assumed
business. During 1998, American Southern formed American Auto
Club Insurance Agency, LLC in a 50/50 joint venture with the AAA
of the Carolinas motor club to market personal automobile
insurance to the members of the automobile club. This program
produced gross written premiums of approximately
$7.1 million during 2002.

Association
Casualty.Association Casualty is
represented by a field force of 75 independent agencies
with 120 locations in Texas for the sale and distribution
of its insurance products. Each agency is a party to a standard
agency contract that sets forth the commission structure and
other terms and can be terminated by either party. Association
Casualty also offers a contingent profit sharing arrangement
that allows profitable agents to earn additional commissions
when specific loss experience and premium growth goals are
achieved. Marketing efforts are handled by an experienced staff
of insurance professionals, and complimented by the assistance
of the underwriting, loss control and claims staffs.

Georgia Casualty.Georgia Casualty is represented by a field force of 63
independent agencies with 105 locations in eight states for the
sale and distribution of its insurance products. Each agency is
a party to a standard agency contract that sets forth the
commission structure and other terms and can be terminated by
either party upon thirty days written notice. Georgia Casualty
also offers a contingent profit-sharing arrangement that allows
profitable agents to earn additional commissions when specific
loss experience and premium growth goals are achieved. Marketing
efforts, directed by experienced marketing professionals, are
complemented by the underwriting, risk management, and audit
staffs of Georgia Casualty, who are available to assist agents
in the presentation of all insurance products and services to
their insureds.



| |                           
| | --------------------------
| | Life and Health Operations

Bankers Fidelity.Bankers Fidelity markets its policies through commissioned,
independent agents. In general, Bankers Fidelity enters
contractual arrangements with general agents who, in turn,
contract with independent agents. The standard agreements set
forth the commission arrangements and are terminable by either
party upon thirty days written notice. General agents receive an
override commission on sales made by agents contracted by them.
Management believes utilizing direct writing, experienced
agents, as well as independent general agents who recruit and
train their own agents, is cost effective. All independent
agents are compensated on a pure commission basis. Using
independent agents also enables Bankers Fidelity to expand or
contract their sales forces at any time without incurring
significant additional expense.

Bankers Fidelity has implemented a selective
agent qualification process and had 2,885 licensed agents as of
December 31, 2002. The agents concentrate their sales
activities in either the accident and health or life insurance
product lines. During 2002, a total of 1,346 agents wrote
policies on behalf of Bankers Fidelity.

Products of Bankers Fidelity compete directly
with products offered by other insurance companies, as agents
may represent several insurance companies. Bankers Fidelity, in
an effort to motivate agents to market its products, offers the
following agency services: a unique lead system, competitive
products and commission structures, efficient claims service,
prompt payment of commissions, simplified policy issue

5



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##### Table of Contents



procedures, periodic sales incentive programs
and, in some cases, protected sales territories determined based
on specific counties and/or zip codes.


Bankers Fidelity utilizes a distribution sales
system which is centered around a lead generation plan that
rewards qualified agents with leads in accordance with monthly
production goals. In addition, a protected territory is
established for each qualified agent, which entitles them to all
leads produced within that territory. The territories are zip
code or county based and encompass sufficient geographical
territory to produce a minimum senior population of 12,000.
Bankers Fidelity also recruits at a general agent level rather
than at a managing general agent level in an effort to reduce
commission expenses further.

The Company believes this distribution system
solves an agents most important dilemma 
prospecting  and allows Bankers Fidelity to build
long-term relationships with individual producers who view
Bankers Fidelity as their primary company. In addition,
management believes that Bankers Fidelitys product line is
less sensitive to competitor pricing and commissions because of
the perceived value of the protected territory and the lead
generation plan. In protected geographical areas, production per
agent compares favorably to unprotected areas served by the
general brokerage division.




Underwriting

Casualty
Operations

American Southern specializes in the handling of
block accounts, such as states and municipalities that generally
are sufficiently large to establish separate class experience,
relying upon the underwriting expertise of its agents. In
contrast, Georgia Casualty and Association Casualty internally
underwrite all of their accounts.

During the course of the policy year, extensive
use is made of risk management representatives to assist
underwriters in identifying and correcting potential loss
exposures and to pre-inspect a majority of the new underwritten
accounts. The results of each product line are reviewed on a
stand-alone basis. When the results are below expectations,
management takes appropriate corrective action which may include
raising rates, reviewing underwriting standards, reducing
commissions paid to agents, altering or declining to renew
accounts at expiration, and/or terminating agencies with an
unprofitable book of business.

American Southern also acts as a reinsurer with
respect to all of the risks associated with certain automobile
policies issued by various state administrative agencies, naming
the state and various local governmental entities as insureds.
Premiums written from such policies constituted $18.7 million,
or 38.5%, of American Southerns gross premiums written in
2002. For 2002, premiums assumed of $18.7 million included
a single state contract of $14.3 million. These contracts
are periodically subject to competitive renewal quotes and the
loss of a significant contract could have a material adverse
effect on the business or financial condition of the Company.
(See Note 8 of Notes to Consolidated Financial Statements.)

Life and
Health Operations

Bankers Fidelity issues a variety of products for
both life and health, which includes senior life products
typically with small face amounts of not less than $1,000 and up
to $30,000 and Medicare Supplement. The majority of its products
are Yes or No applications that are
underwritten on a non-medical basis. Bankers Fidelity offers
products to all age groups; however its primary focus is the
senior market. For life products other than the senior market,
Bankers Fidelity may require medical information such as medical
examinations subject to age and face amount based on published
guidelines. Approximately 95% of the net premiums earned for
both life and health insurance sold during 2002 were derived
from insurance written below Bankers Fidelitys medical
limits. For the senior market, Bankers Fidelity issues products
primarily on an accept-or-reject basis with face amounts up to
$30,000 for ages 45-70, $20,000 for ages 71-80 and
$10,000 for ages 81-85. Bankers Fidelity retains a maximum
amount of $50,000 with respect to any individual life (see
Reinsurance).

Applications for insurance are reviewed to
determine the face amount, age, and medical history. Depending
upon information obtained from the insured, Medical Information
Bureau (M.I.B.) report,

6



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##### Table of Contents



paramedical testing, and/or medical records,
special testing may be ordered. If deemed necessary, Bankers
Fidelity may use investigative services to supplement and
substantiate information. For certain limited coverages, Bankers
Fidelity has adopted simplified policy issue procedures by which
an application containing a variety of Yes/No health related
questions is submitted. For these plans, a M.I.B. report is
ordered, however, paramedical testing and medical records are
not ordered in most cases. All applications for individuals
age 60 and above are verified by telephone interview.





Policyholder and Claims Services

The Company believes that prompt, efficient
policyholder and claims services are essential to its continued
success in marketing its insurance products (see
Competition). Additionally, the Company believes
that its insureds are particularly sensitive to claims
processing time and to the accessibility of qualified staff to
answer inquiries. Accordingly, the Companys policyholder
and claims services seek to offer expeditious disposition of
service requests by providing toll-free access to all customers,
24-hour claim reporting services, and direct computer links with
some of its largest accounts. The Company also utilizes a
state-of-the-art automatic call distribution system to insure
that inbound calls to customer service support groups are
processed efficiently. Operational data generated from this
system allows management to further refine ongoing client
service programs and service representative training modules.

The Company supports a Customer Awareness Program
as the basis for its customer service philosophy. All personnel
are required to attend customer service classes. Hours have been
expanded in all service areas to serve customers and agents in
all time zones.

Casualty
Operations

American Southern, Association Casualty, and
Georgia Casualty control their claims costs by utilizing an
in-house staff of claim supervisors to investigate, verify,
negotiate and settle claims. Upon notification of an occurrence
purportedly giving rise to a claim, the claims department
conducts a preliminary investigation, determines whether an
insurable event has occurred and, if so, records the claim. The
casualty companies frequently utilize independent adjusters and
appraisers to service claims which require on-site inspections.

Life and
Health Operations

Insureds obtain claim forms by calling the claims
department customer service group. To shorten claim processing
time, a letter detailing all supporting documents that are
required to complete a claim for a particular policy is sent to
the customer along with the correct claim form. With respect to
life policies, the claim is entered into Bankers Fidelitys
claims system when the proper documentation is received.
Properly documented claims are generally paid within three to
nine business days of receipt. With regard to Medicare
Supplement policies, the claim is either directly billed to
Bankers Fidelity by the provider or sent electronically by using
a Medicare clearing house.

7



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##### Table of Contents






Reserves

The following table sets forth information
concerning the Companys reserves for losses and claims and
reserves for loss adjustment expenses (LAE) for the
periods indicated:

|                               |                          |                         |         |         |         |      |         |         |         |   |         |         |        | 
|------------------------------ | ------------------------ | ----------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                               |                          |                        
|                               |                          | Year Ended December 31,
|                               |                          |                        
|                               |                          | 2002                    |         | 2001    |         | 2000
|                               |                          |                         |         |         |         |     
|                               |                          |                        
|                               |                          | (In thousands)         
|Balance at January 1           |                          | $                       | 143,515 |         |         | $    | 133,220 |         |         | $ | 126,556 |        
|Less: Reinsurance recoverables |                          |                         | (47,729 | )       |         |      | (38,851 | )       |         |   | (38,759 | )      
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|                               | Net balance at January 1 |                         |         | 95,786  |         |      |         | 94,369  |         |   |         | 87,797  |       
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|Incurred related to:           |                          |                         |         |         |         |      |         |         |         |   |         |        
|                               | Current year             |                         |         | 104,724 |         |      |         | 108,068 |         |   |         | 102,336 |       
|                               | Prior years              |                         |         | (57     | )       |      |         | (2,415  | )       |   |         | (6,085  | )     
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|                               |                          | Total incurred          |         |         | 104,667 |      |         |         | 105,653 |   |         |         | 96,251 | 
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|Paid related to:               |                          |                         |         |         |         |      |         |         |         |   |         |        
|                               | Current year             |                         |         | 52,253  |         |      |         | 59,506  |         |   |         | 54,313  |       
|                               | Prior years              |                         |         | 38,889  |         |      |         | 44,730  |         |   |         | 35,366  |       
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|                               |                          | Total paid              |         |         | 91,142  |      |         |         | 104,236 |   |         |         | 89,679 | 
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|Net balance at December 31     |                          |                         | 109,311 |         |         |      | 95,786  |         |         |   | 94,369  |        
|Plus: Reinsurance recoverables |                          |                         | 39,380  |         |         |      | 47,729  |         |         |   | 38,851  |        
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        
|Balance at December 31         |                          | $                       | 148,691 |         |         | $    | 143,515 |         |         | $ | 133,220 |        
|                               |                          |                         |         |         |         |      |         |         |         |   |         |        

Casualty
Operations

Atlantic Americans casualty operations
maintain loss reserves representing estimates of amounts
necessary for payment of losses and LAE. The casualty operations
also maintain incurred but not reported reserves and bulk
reserves for future development. These loss reserves are
estimates, based on known facts and circumstances at a given
point in time, of amounts the insurer expects to pay on incurred
claims. All balances are reviewed quarterly and annually by
qualified internal actuaries. Reserves for LAE are intended to
cover the ultimate costs of settling claims, including
investigation and defense of lawsuits resulting from such
claims. Loss reserves for reported claims are based on a
case-by-case evaluation of the type of claim involved, the
circumstances surrounding the claim, and the policy provisions
relating to the type of loss along with anticipated future
development. The LAE for claims reported and claims not reported
is based on historical statistical data and anticipated future
development. Inflation and other factors which may affect claim
payments are implicitly reflected in the reserving process
through analysis of cost trends and reviews of historical
reserve results.

The casualty operations establish reserves for
claims based upon: (a) managements estimate of
ultimate liability and claims 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 LAE. The
estimated liability is continually reviewed and updated, and
changes to the estimated liability are recorded in the statement
of operations in the year in which such changes become known.

The table on the following page sets forth the
development of the statutory balance sheet reserves for unpaid
losses and LAE for the casualty operations insurance lines
for 1992 through 2002, including periods prior to the
Companys ownership of American Southern and Association
Casualty. Specifically excluded from the table on the following
page are the life and health divisions claims reserves,
which are included in the consolidated claims reserves
determined in accordance with generally accepted accounting
principles. Further, statutory reserves represent claims
reserves, net of related reinsurance receivables; whereas
reserves reported in accordance with generally accepted
accounting principles are reported on a gross basis. Management
believes statutory reserve development to be meaningful and
relevant as it is among the primary financial data used by
regulators and rating agencies in evaluating the Companys

8



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reserving practices and adequacy of reserves. The
top line of the table represents the estimated amount of losses
and LAE for claims arising in all prior years that were unpaid
at the balance sheet date for each of the indicated periods,
including an estimate of losses that have been incurred but not
yet reported. The amounts represent initial reserve estimates at
the respective balance sheet dates for the current and all prior
years. The next portion of the table shows the cumulative
amounts paid with respect to claims in each succeeding year. The
lower portion of the table shows the reestimated amounts of
previously recorded reserves based on experience as of the end
of each succeeding year.


The reserve estimates are modified as more
information becomes known about the frequency and severity of
claims for individual years. The cumulative redundancy or
deficiency for each year represents the aggregate change
in such years estimates through the end of 2002. In
evaluating this information, it should be noted that the amount
of the redundancy or deficiency for any year represents the
cumulative amount of the changes from initial reserve estimates
for such year. Operations for any one year are only affected,
favorably or unfavorably, by the amount of the change in the
estimate for such year. Conditions and trends that have affected
development of the reserves in the past may not necessarily
occur in the future. Accordingly, it is inappropriate to predict
future redundancies or deficiencies based on the data in this
table.

9



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##### Table of Contents



|                                     |                   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------ | ----------------- | ----------------------- | ------- | ------- |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                     |                   |                        
|                                     |                   | Year Ended December 31,
|                                     |                   |                        
|                                     |                   | 2002                    |         | 2001    |  | 2000 |        | 1999   |  | 1998 |        | 1997   |  | 1996 |        | 1995   |  | 1994 |        | 1993   |  | 1992
|                                     |                   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |     
|                                     |                   |                        
|                                     |                   | (In thousands)         
|Statutory reserve for losses and LAE |                   | $                       | 100,548 |         |  | $    | 88,709 |        |  | $    | 88,247 |        |  | $    | 82,867 |        |  | $    | 78,320 |        |  | $    | 78,444 |        |  | $ | 74,115 |        |  | $ | 70,470 |        |  | $ | 65,970 |        |  | $ | 64,211 |        |  | $ | 59,720 |       
|Cumulative paid as of:               |                   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                     | One year later    |                         |         |         |  |      |        | 32,301 |  |      |        | 37,970 |  |      |        | 30,278 |  |      |        | 26,454 |  |      |        | 24,247 |  |   |        | 25,445 |  |   |        | 29,538 |  |   |        | 18,133 |  |   |        | 24,247 |  |   |        | 22,478 | 
|                                     | Two years later   |                         |         |         |  |      |        |        |  |      |        | 54,980 |  |      |        | 46,489 |  |      |        | 40,491 |  |      |        | 35,534 |  |   |        | 34,409 |  |   |        | 39,084 |  |   |        | 34,485 |  |   |        | 30,754 |  |   |        | 34,055 | 
|                                     | Three years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        | 55,432 |  |      |        | 49,341 |  |      |        | 42,513 |  |   |        | 39,579 |  |   |        | 43,597 |  |   |        | 39,091 |  |   |        | 42,480 |  |   |        | 36,757 | 
|                                     | Four years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 54,791 |  |      |        | 47,412 |  |   |        | 43,171 |  |   |        | 46,334 |  |   |        | 40,885 |  |   |        | 45,530 |  |   |        | 46,676 | 
|                                     | Five years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 50,462 |  |   |        | 45,393 |  |   |        | 48,555 |  |   |        | 42,551 |  |   |        | 46,805 |  |   |        | 49,082 | 
|                                     | Six years later   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        | 47,674 |  |   |        | 49,958 |  |   |        | 44,244 |  |   |        | 48,012 |  |   |        | 50,206 | 
|                                     | Seven years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        | 51,425 |  |   |        | 45,412 |  |   |        | 49,419 |  |   |        | 51,244 | 
|                                     | Eight years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 46,751 |  |   |        | 50,399 |  |   |        | 52,483 | 
|                                     | Nine years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 51,698 |  |   |        | 53,418 | 
|                                     | Ten years later   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 54,698 | 
|Ultimate losses and LAE              |                   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|Reestimated as of:                   |                   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                     | End of Year       |                         | $       | 100,548 |  |      | $      | 88,709 |  |      |        | 88,247 |  |      |        | 82,867 |  |      |        | 78,320 |  |      |        | 78,444 |  |   |        | 74,115 |  |   |        | 70,470 |  |   |        | 65,970 |  |   |        | 64,211 |  |   |        | 59,720 | 
|                                     | One year later    |                         |         |         |  |      |        | 89,055 |  |      |        | 85,694 |  |      |        | 77,347 |  |      |        | 74,985 |  |      |        | 68,338 |  |   |        | 67,772 |  |   |        | 70,778 |  |   |        | 56,945 |  |   |        | 61,054 |  |   |        | 58,371 | 
|                                     | Two years later   |                         |         |         |  |      |        |        |  |      |        | 87,922 |  |      |        | 74,370 |  |      |        | 71,453 |  |      |        | 65,374 |  |   |        | 60,257 |  |   |        | 65,716 |  |   |        | 59,266 |  |   |        | 54,329 |  |   |        | 56,072 | 
|                                     | Three years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        | 75,337 |  |      |        | 70,278 |  |      |        | 63,674 |  |   |        | 58,693 |  |   |        | 61,121 |  |   |        | 57,047 |  |   |        | 60,145 |  |   |        | 50,916 | 
|                                     | Four years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 69,790 |  |      |        | 62,764 |  |   |        | 58,442 |  |   |        | 61,085 |  |   |        | 53,995 |  |   |        | 60,381 |  |   |        | 60,701 | 
|                                     | Five years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 62,976 |  |   |        | 57,800 |  |   |        | 61,030 |  |   |        | 54,732 |  |   |        | 58,217 |  |   |        | 61,685 | 
|                                     | Six years later   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        | 58,362 |  |   |        | 60,709 |  |   |        | 55,339 |  |   |        | 59,280 |  |   |        | 60,606 | 
|                                     | Seven years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        | 60,867 |  |   |        | 55,317 |  |   |        | 60,027 |  |   |        | 61,796 | 
|                                     | Eight years later |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 55,297 |  |   |        | 60,074 |  |   |        | 62,845 | 
|                                     | Nine years later  |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 60,021 |  |   |        | 62,971 | 
|                                     | Ten years later   |                         |         |         |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 62,769 | 
|Cumulative redundancy (deficiency)   |                   |                         |         |         |  | $    | (346   | )      |  | $    | 325    |        |  | $    | 7,530  |        |  | $    | 8,530  |        |  | $    | 15,468 |        |  | $ | 15,753 |        |  | $ | 9,603  |        |  | $ | 10,673 |        |  | $ | 4,190  |        |  | $ | (3,049 | )     
|                                     |                   |                         |         |         |  |      | -0.4   | %      |  |      | 0.4    | %      |  |      | 9.1    | %      |  |      | 10.9   | %      |  |      | 19.7   | %      |  |   | 21.3   | %      |  |   | 13.6   | %      |  |   | 16.2   | %      |  |   | 6.5    | %      |  |   | -5.1   | %     

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##### Table of Contents





| |                           
| | --------------------------
| | Life and Health Operations

Bankers Fidelity establishes liabilities for
future policy benefits to meet projected future obligations
under outstanding policies. These reserves are calculated to
satisfy policy and contract obligations as they mature. The
amount of reserves for insurance policies is calculated using
assumptions for interest rates, mortality and morbidity rates,
expenses, and withdrawals. Reserves are adjusted periodically
based on published actuarial tables with modification to reflect
actual experience (see Note 3 of Notes to Consolidated Financial
Statements).




Reinsurance

The insurance subsidiaries purchase reinsurance
from unaffiliated insurers and reinsurers to reduce their
liability on individual risks and to protect against
catastrophic losses. In a reinsurance transaction, an insurance
company transfers, or cedes, a portion or all of its
exposure on insurance policies to a reinsurer. The reinsurer
assumes the exposure in return for a portion of the premiums.
The ceding of insurance does not legally discharge the insurer
from primary liability for the full amount of policies written
by it, and the ceding company incurs a loss if the reinsurer
fails to meet its obligations under the reinsurance agreement.



| |                    
| | -------------------
| | Casualty Operations

American Southern.American Southern retains a maximum
amount of $240,000 per occurrence on any one risk. Limits per
occurrence within reinsurance treaties are as follows: Fire,
inland marine and commercial automobile  $125,000
excess $50,000 retention; All other lines vary by type of policy
and generally have retentions in excess of $100,000, up to
$240,000. American Southern maintains a property catastrophe
treaty with a $6.6 million limit excess of $400,000
retention.

Association Casualty.Association Casualty retains a maximum
amount of $250,000 per occurrence on workers compensation
up to $20.0 million. Limits per occurrence within the
treaties are as follows: Automobile and general
liability  $1.75 million excess $250,000
retention; Property  $2.75 million excess
$250,000 retention. The property lines of coverage are protected
with an excess of loss treaty, which affords recovery for
property losses in excess of $3.0 million up to a maximum
of $10 million. Association Casualty maintains a property
catastrophe treaty with a $4.65 million limit excess of
$350,000.

Georgia Casualty.Georgia Casualtys basic treaties
cover all claims in excess of $200,000 per occurrence. Limits
per occurrence within the treaties and excess of the retention
are as follows: Workers compensation 
$20.0 million; Property per location 
$10.0 million; Excess of policy and extra contractual
obligations  $10.0 million;
Liability  $6.0 million; and Surety 
$3.0 million. Georgia Casualty maintains a property catastrophe
treaty with a $7.15 million limit excess of $350,000 retention.
In 2002, Georgia Casualty entered into a quota share reinsurance
agreement to cover 30% of the first $200,000 of occurrence
losses and the first $350,000 of catastrophe losses on policies
written after January 1, 2002. Georgia Casualty terminated
its first multiple layer reinsurance contract for accident years
2000 through 2002, effective December 31, 2002.



| |                           
| | --------------------------
| | Life and Health Operations

Bankers Fidelity.Bankers Fidelity has entered into
reinsurance contracts ceding the excess of their retention to
several primary reinsurers. Maximum retention by Bankers
Fidelity on any one individual in the case of life insurance
policies is $50,000. At December 31, 2002, Bankers Fidelity
reinsured $32.2 million of the $310.9 million of life
insurance in force, generally under yearly renewable term
agreements. Certain prior year reinsurance agreements remain in
force although they no longer provide reinsurance for new
business.

11



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##### Table of Contents






Competition



| |                    
| | -------------------
| | Casualty Operations

American Southern.The businesses in which American
Southern engages are highly competitive. The principal areas of
competition are pricing and service. Many competing property and
casualty companies, which have been in business longer than
American Southern, have available more diversified lines of
insurance and have substantially greater financial resources.
Management believes, however, that the policies it sells are
competitive with those providing similar benefits offered by
other insurers doing business in the states where American
Southern operates.

Association Casualty.The Texas market, historically
Association Casualtys primary market, is extremely
competitive. Association Casualtys competition comes from
carriers that are of a larger size than Association Casualty as
well as the state fund that writes monoline workers
compensation. Association Casualtys strong focus and
commitment to its target markets has enabled it to forge
stronger ties with the agency networks that exclusively
represent the company. Insurance products that provide a full
range of commercial coverage, as well as customized loss control
and claims services, position the agency partners to compete
effectively within their geographic location. Association
Casualty writes workers compensation coverage only as a
part of the total insurance package. Flexible commission
agreements award the greatest commissions to those agents that
demonstrate loyalty and commitment to Association Casualty
through continued premium growth and exceptional profitability.
This further allows Association Casualty to be competitive in
the market place.

Georgia Casualty.Georgia Casualtys insurance
business is highly competitive. The competition can be placed in
four categories: (1) companies with higher A.M. Best
ratings, (2) alternative workers compensation
markets, (3) self-insured funds, and (4) insurance
companies that actively solicit monoline workers
compensation accounts. Georgia Casualtys efforts are
directed in the following three general categories where the
company has the best opportunity to control exposures and
claims: (1) manufacturing, (2) artisan contractors,
and (3) service industries. Management believes that
Georgia Casualtys key to being competitive in these areas
is maintaining strong underwriting standards, risk management
programs, writing workers compensation coverage as part of
the total insurance package, maintaining and expanding its loyal
network of agents and development of new agents in key
territories. In addition, Georgia Casualty offers quality
customer service to its agents and insureds, and provides
rehabilitation, medical management, and claims management
services to its insureds. Georgia Casualty believes that it will
continue to be competitive in the marketplace based on its
current strategies and services.



| |                           
| | --------------------------
| | Life and Health Operations

The life and health insurance business is highly
competitive and includes a large number of insurance companies,
many of which have substantially greater financial resources.
Bankers Fidelity believes that the primary competitors are the
Blue Cross/Blue Shield companies, United American Insurance
Corporation, Standard Life and Accident Insurance Company,
Continental Life Insurance Company, the London Group and
Continental Group. Bankers Fidelity competes with these as well
as other insurers on the basis of premium rates, policy
benefits, and service to policyholders. Bankers Fidelity also
competes with other insurers to attract and retain the
allegiance of its independent agents through commission
arrangements, accessibility and marketing assistance, lead
programs, reputation, and market expertise. Bankers Fidelity
believes that it competes effectively on the basis of policy
benefits, services, and market expertise.




Ratings

Ratings of insurance companies are not designed
for investors and do not constitute recommendations to buy,
sell, or hold any security. Ratings are important measures
within the insurance industry, and improved ratings should have
a favorable impact on the ability of a company to compete in the
marketplace.

12



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##### Table of Contents



Each year A.M. Best Company, Inc.
(Best) publishes Bests Insurance Reports,
which includes assessments and ratings of all insurance
companies. Bests ratings, which may be revised quarterly,
fall into fifteen categories ranging from A++ (Superior) to F
(in liquidation). Bests ratings are based on a detailed
analysis of the financial condition and operations of an
insurance company compared to the industry in general.

American Southern.American Southern and its wholly-owned
subsidiary, American Safety Insurance Company, are each
currently rated A- (Excellent) by A.M. Best.

Association Casualty.Association Casualty maintains a
rating of A- (Excellent) by A.M. Best.

Georgia Casualty.Georgia Casualty maintains an A.M.
Bests rating of B++ (Very Good).

Bankers Fidelity.Bankers Fidelity maintains an A.M.
Bests rating of B++ (Very Good).

Since 1999, Atlantic American has been
voluntarily rated by Standard and Poors Rating Services
(S&P). In the initial review, the Company was
assigned a single A- counterparty credit and
financial strength rating. Placed on CreditWatch with negative
implications in 2000, on March 14, 2001, the Companys
rating was lowered to a BBB+. Again on February 11, 2003,
S&P placed the Companys BBB+ counterparty credit and
financial strength rating on CreditWatch with negative
implications pending a review of the capital allocation and the
support of the individual companies in the group. Although the
Company does anticipate a downgrade, given current economic
conditions and sensitivity of the rating agencies, management
does not anticipate that any changes would have a significant
impact on the balance sheet or results of operations. Further,
the Company is evaluating the need to continue with the service
of S&P. While ratings are important in the insurance
industry, management believes that Bests Insurance Reports
is a more closely followed rating service within the insurance
industry. Management also believes that Best is more objective
in their evaluation of smaller niche insurance companies such as
Atlantic Americans subsidiaries.




Regulation

In common with all domestic insurance companies,
the Companys insurance subsidiaries are subject to
regulation and supervision in the jurisdictions in which they do
business. Statutes typically delegate regulatory, supervisory,
and administrative powers to state insurance commissioners. The
method of such regulation varies, but regulation relates
generally to the licensing of insurers and their agents, the
nature of and limitations on investments, approval of policy
forms, reserve requirements, the standards of solvency to be met
and maintained, deposits of securities for the benefit of
policyholders, and periodic examinations of insurers and trade
practices, among other things. The Companys products
generally are subject to rate regulation by state insurance
commissions, which require that certain minimum loss ratios be
maintained. Certain states also have insurance holding company
laws which require registration and periodic reporting by
insurance companies controlled by other corporations licensed to
transact business within their respective jurisdictions. The
Companys insurance subsidiaries are subject to such
legislation and are registered as controlled insurers in those
jurisdictions in which such registration is required. Such laws
vary from state to state, but typically require periodic
disclosure concerning the corporation which controls the
registered insurers and all subsidiaries of such corporations,
as well as prior notice to, or approval by, the state insurance
commissioners of intercorporate transfers of assets (including
payments of dividends in excess of specified amounts by the
insurance subsidiaries) within the holding company system.

Most states require that rate schedules and other
information be filed with the states insurance regulatory
authority, either directly or through a rating organization with
which the insurer is affiliated. The regulatory authority may
disapprove a rate filing if it determines that the rates are
inadequate, excessive, or discriminatory. The Company has
historically experienced no significant regulatory resistance to
its applications for rate increases.

A state may require that acceptable securities be
deposited for the protection either of policyholders located in
those states or of all policyholders. As of December 31,
2002, $16.2 million of securities were on

13



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##### Table of Contents



deposit either directly with various state
authorities or with third parties pursuant to various custodial
agreements on behalf of the Companys insurance
subsidiaries.


Virtually all of the states in which the
Companys insurance subsidiaries are licensed to transact
business require participation in their respective guaranty
funds designed to cover claims against insolvent insurers.
Insurers authorized to transact business in these jurisdictions
are generally subject to assessments of up to 4% of annual
direct premiums written in that jurisdiction to pay such claims,
if any. The occurrence and amount of such assessments has
increased significantly in recent years. The likelihood and
amount of any future assessments cannot be estimated until an
insolvency has occurred. For 2002, 2001, and 2000 the amounts
expensed by the Company were $0.4 million,
$0.3 million, and $0, respectively.

Workers compensation insurance carriers
authorized to transact business in certain states are required
to participate in second injury trust funds of those states. A
second injury fund is a state-mandated monetary reserve designed
to remove financial disincentives from employment of individuals
with disabilities. Without a second injury fund, the employer or
insurer might be required to absorb full indemnity and/or
medical and rehabilitation costs if a worker suffered increased
disability from a work-related injury because of a pre-existing
condition. Second injury funds are used to reimburse indemnity
and medical costs to employer/insurers on accepted, qualified
second injury cases. In recent years the Company has experienced
significant increases in second injury trust fund assessments.
For 2002, 2001, and 2000 the amounts expensed by the Company
were $1.8 million, $0.6 million, $1.2 million,
respectively.




NAIC Ratios

The National Association of Insurance
Commissioners (the NAIC) was established to provide
guidelines to assess the financial strength of insurance
companies for state regulatory purposes. The NAIC conducts
annual reviews of the financial data of insurance companies
primarily through the application of 13 financial ratios
prepared on a statutory basis. The annual statements are
submitted to state insurance departments to assist them in
monitoring insurance companies in their states and to set forth
a desirable range in which companies should fall in each such
ratio.

The NAIC suggests that insurance companies which
fall outside of the usual range in four or more
financial ratios are those most likely to require analysis by
state regulators. However, according to the NAIC, it may not be
unusual for a financially sound company to have several ratios
outside the usual range, and in normal years the
NAIC expects 15% of the companies it tests to be outside the
usual range in four or more categories.

For the year ended December 31, 2002,
Bankers Fidelity was within the NAIC usual range for
all 13 financial ratios. American Southern was outside the
usual range on one ratio, the investment yield. The
investment yield variance resulted from declining interest rate
yields in American Southerns bond portfolio. Association
Casualty was outside the usual range on two ratios,
the two year overall operating ratio and the investment yield.
The two year overall operating ratio was outside the
usual range primarily due to adverse development on
prior year losses in addition to a reduction in investment
income. The investment yield ratio variance resulted for similar
reasons as for American Southern. Georgia Casualty was outside
the usual range on two ratios, the change in net
writings and the two year reserve development to
policyholders surplus. The change in net writings variance
is primarily due to a significant increase in gross written
premiums in addition to a decline in the effective percent of
ceded premiums to premiums written resulting from a reduction in
the quota share reinsurance program to 30% from 40%. The two
year reserve development to policyholders surplus variance
is primarily attributable to adverse development on prior year
loss, specifically accident years 1999 and 2000.




Risk-Based Capital

Risk-based capital (RBC) is used by
rating agencies and regulators as an early warning tool to
identify weakly capitalized companies for the purpose of
initiating further regulatory action. The RBC calculation
determines the amount of Adjusted Capital needed by a company to
avoid regulatory action. Authorized Control Level
Risk-Based Capital (ACL) is calculated; if a
companys adjusted capital is

14



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##### Table of Contents



200% or lower than ACL, it is subject to
regulatory action. At December 31, 2002, all of the
Companys insurance subsidiaries exceeded the RBC
regulatory levels.





Investments

Investment income represents a significant
portion of the Companys total income. Insurance company
investments are subject to state insurance laws and regulations
which limit the concentration and types of investments. The
following table provides information on the Companys
investments as of the dates indicated.

|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |      |       |  
|------------------------------------- | ------------------------------------------------- | ------------------------- | ------ | ------- | ------- | ------ | ---- | ------- | ----- | ------ | ------ | ------- | ------- |  | ---- | ---- | ----- | - | ------ | ------- | ------- |  | ---- | ---- | ----- | -
|                                      |                                                   |                          
|                                      |                                                   | December 31,             
|                                      |                                                   |                          
|                                      |                                                   |                           |        |         |         |       
|                                      |                                                   | 2002                      |        | 2001    |         | 2000  
|                                      |                                                   |                           |        |         |         |       
|                                      |                                                   | Amount                    |        | Percent |         | Amount |      | Percent |       | Amount |        | Percent
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |        
|                                      |                                                   |                          
|                                      |                                                   | (Dollars in thousands)   
|Bonds:                                |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      | U.S. Government agencies and authorities          |                           | $      | 120,348 |         |        |      | 44.3    | %     |        | $      | 81,440  |         |  |      | 34.2 | %     |   | $      | 117,564 |         |  |      | 50.9 | %    
|                                      | States, municipalities and political subdivisions |                           |        | 3,064   |         |        |      | 1.1     |       |        |        | 4,317   |         |  |      | 1.8  |       |   |        | 4,088   |         |  |      | 1.8  |      
|                                      | Public utilities                                  |                           |        | 8,074   |         |        |      | 3.0     |       |        |        | 4,229   |         |  |      | 1.8  |       |   |        | 3,671   |         |  |      | 1.6  |      
|                                      | Convertibles and bonds with warrants attached     |                           |        |        |         |        |      | NIL     |       |        |        |        |         |  |      | NIL  |       |   |        |        |         |  |      | NIL  |      
|                                      | All other corporate bonds                         |                           |        | 49,038  |         |        |      | 18.1    |       |        |        | 42,124  |         |  |      | 17.7 |       |   |        | 32,721  |         |  |      | 14.2 |      
|                                      | Certificates of deposit                           |                           |        | 1,306   |         |        |      | 0.5     |       |        |        | 1,360   |         |  |      | 0.6  |       |   |        | 1,360   |         |  |      | 0.6  |      
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      |                                                   | Total fixed maturities(1) |        |         | 181,830 |        |      |         | 67.0  |        |        |         | 133,470 |  |      |      | 56.1  |   |        |         | 159,404 |  |      |      | 69.1  |  
|Common and preferred stocks(2)        |                                                   |                           | 57,242 |         |         |        | 21.1 |         |       |        | 54,628 |         |         |  | 22.9 |      |       |   | 43,945 |         |         |  | 19.0 |     
|Mortgage, policy and student loans(3) |                                                   |                           | 5,739  |         |         |        | 2.1  |         |       |        | 6,134  |         |         |  | 2.6  |      |       |   | 6,636  |         |         |  | 2.9  |     
|Other invested assets(4)              |                                                   |                           | 5,031  |         |         |        | 1.9  |         |       |        | 4,854  |         |         |  | 2.0  |      |       |   | 5,862  |         |         |  | 2.5  |     
|Real estate                           |                                                   |                           |       |         |         |        | NIL  |         |       |        | 46     |         |         |  | NIL  |      |       |   | 46     |         |         |  | NIL  |     
|Short-term investments(5)             |                                                   |                           | 21,487 |         |         |        | 7.9  |         |       |        | 39,151 |         |         |  | 16.4 |      |       |   | 15,013 |         |         |  | 6.5  |     
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      |                                                   | Total investments         |        | $       | 271,329 |        |      |         | 100.0 | %      |        | $       | 238,283 |  |      |      | 100.0 | % |        | $       | 230,906 |  |      |      | 100.0 | %
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     



|    |                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fixed maturities are carried on the balance sheet
    at market value. Total cost of fixed maturities was
    $175.7 million as of December 31, 2002,
    $132.2 million as of December 31, 2001, and
    $160.6 million as of December 31, 2000.                                                                                                                                  
|   
|(2) | Equity securities are valued at market. Total
    cost of equity securities was $42.0 million as of
    December 31, 2002, $41.7 million as of
    December 31, 2001, and $32.1 million as of
    December 31, 2000.                                                                                                                                                               
|   
|(3) | Mortgage loans and policy and student loans are
    valued at historical cost.                                                                                                                                                                                                                                                                                                     
|   
|(4) | Investments in other invested assets which are
    traded are valued at estimated market value and those in which
    the Company has significant influence are accounted for using
    the equity method. Total cost of other invested assets was
    $5.3 million as of December 31, 2002,
    $5.1 million as of December 31, 2001 and
    $6.0 million as of December 31, 2000.
|   
|(5) | Short-term investments are valued at cost, which
    approximates market value.                                                                                                                                                                                                                                                                                                    

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Results of the investment portfolio for periods
shown were as follows:

|                               |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                               |  |                        
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2002                    |         | 2001 |  | 2000
|                               |  |                         |         |      |  |     
|                               |  |                        
|                               |  | (Dollars in thousands) 
|Average investments(1)         |  | $                       | 246,704 |      |  | $    | 227,922 |   |  | $ | 222,369 |  
|Net investment income          |  |                         | 13,793  |      |  |      | 14,141  |   |  |   | 15,320  |  
|Average yield on investments   |  |                         | 5.59    | %    |  |      | 6.20    | % |  |   | 6.89    | %
|Realized investment gains, net |  |                         | 587     |      |  |      | 1,708   |   |  |   | 1,922   |  



|    |                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated as the average of the balances at the
    beginning of the year and at the end of each of the succeeding
    four quarters. Managements investment strategy is an
    increased investment in short and medium maturity bonds and
    common and preferred stocks.




Employees

The Company and its subsidiaries
employed 265 people at December 31, 2002.




Financial Information By Industry
Segment

The Companys primary insurance subsidiaries
operate with relative autonomy and each company is evaluated
based on its individual performance. American Southern,
Association Casualty, and Georgia Casualty operate in the
Property and Casualty insurance market, while Bankers Fidelity
operates in the Life and Health insurance market. All segments
derive revenue from the collection of premiums, as well as from
investment income. Substantially all revenue other than those in
the corporate and other segment are from external sources. (See
Note 14 of Notes to Consolidated Financial Statements.)




Executive Officers of the Registrant

The table below and the information following the
table set forth, for each executive officer of the Company as of
March 1, 2003, his name, age, positions with the Company,
principal occupation, and business experience for the past five
years and prior service with the Company (based upon information
supplied by each of them).

|                      |  |     |    |                           |  |                             |  |  |      | 
|--------------------- |  | --- | -- | ------------------------- |  | --------------------------- |  |  | ---- | 
|                      |  |     |    |                           |  | Director or                
|Name                  |  | Age |    | Position with the Company |  | Officer Since              
|                      |  |     |    |                           |  |                            
|J. Mack Robinson      |  |     | 79 |                           |  | Chairman of the Board       |  |  | 1974 | 
|Hilton H. Howell, Jr. |  |     | 40 |                           |  | Director, President & CEO   |  |  | 1992 | 
|John G. Sample, Jr.   |  |     | 46 |                           |  | Senior Vice President & CFO |  |  | 2002 | 

Officers are elected annually and serve at the
discretion of the Board of Directors.

Mr. Robinsonhas served as Director and Chairman of
the Board since 1974 and served as President and Chief Executive
Officer of the Company from September 1988 to May 1995. In
addition, Mr. Robinson is a Director of Bull Run
Corporation and Gray Television, Inc.

Mr. Howellhas
been President and Chief Executive Officer of the Company since
May 1995, and prior thereto served as Executive Vice President
of the Company from October 1992 to May 1995. He has been a
Director of the Company since October 1992. Mr. Howell is
the son-in-law of Mr. Robinson. He is also a Director of
Bull Run Corporation and Gray Television, Inc.

Mr. Samplehas
served as Senior Vice President and Chief Financial Officer of
the Company since July 2002. He also serves in the following
capacities at subsidiaries of the Company, Director of Georgia
Casualty, Director of Association Casualty, and a Director of
Bankers Fidelity Life Insurance Company. Prior to joining the
Company in July 2002, he was a partner of Arthur
Andersen LLP since 1990.

16



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##### Table of Contents






Forward-Looking Statements

Certain of the statements and subject matters
contained herein that are not based upon historical or current
facts deal with or may be impacted by potential future
circumstances and developments, and should be considered
forward-looking and subject to various risks and uncertainties.
Such forward-looking statements are made based upon
managements belief, as well as assumptions made by and
information currently available to management pursuant to
safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements, and the
discussion of such subject areas, involve, and therefore are
qualified by, the inherent risks and uncertainties surrounding
future expectations generally, and may materially differ from
the Companys actual future experience involving any one or
more of such subject areas. The Company has attempted to
identify, in context, certain of the factors that it currently
believes may cause actual future experience and results to
differ from current expectations. The Companys operations
and results also may be subject to the effect of other risks and
uncertainties in addition to the relevant qualifying factors
identified elsewhere herein, including, but not limited to,
locality and seasonality in the industries to which the Company
offers its products, the impact of competitive products and
pricing, unanticipated increases in the rate and number of
claims outstanding, volatility in the capital markets that may
have an impact on the Companys investment portfolio, the
uncertainty of general economic conditions, and other risks and
uncertainties identified from time to time in the Companys
periodic reports filed with the Securities and Exchange
Commission. Many of such factors are beyond the Companys
ability to control or predict. As a result, the Companys
actual financial condition, results of operations and stock
price could differ materially from those expressed in any
forward-looking statements made by the Company. Undue reliance
should not be placed upon forward-looking statements contained
herein. The Company does not intend to publicly update any
forward-looking statements that may be made from time to time
by, or on behalf of, the Company.




Item 2.     Properties

Owned Properties.The Company owned two parcels of unimproved property consisting
of a total of approximately seven acres located in Fulton and
Washington Counties, Georgia. During 2002, the Company disposed
of both properties.

Leased Properties.The Company leases space for its principal offices and for some
of its insurance operations in an office building located in
Atlanta, Georgia, from Delta Life Insurance Company under leases
which expire at various times from July 31, 2005 to
May 31, 2012. Under the current terms of the leases, the
Company occupies approximately 65,489 square feet of office
space. Delta Life Insurance Company, the owner of the building,
is controlled by J. Mack Robinson, Chairman of the Board of
Directors and the largest shareholder of the Company. The terms
of the leases are believed by Company management to be
comparable to terms which could be obtained by the Company from
unrelated parties for comparable rental property.

American Southern leases space for its office in
a building located in Atlanta, Georgia. The lease term expires
January 31, 2010. Under the terms of the lease, American
Southern occupies approximately 17,014 square feet.

Association Casualty leases space for its office
in a building located in Austin, Texas. The lease term expires
December 31, 2005. Under the terms of the lease,
Association Casualty occupies 18,913 square feet.

Self Insurance Administrators, Inc.
(SIA) a non-insurance subsidiary of the Company,
leases space for its office in a building located in Stone
Mountain, Georgia. The lease term expires December 31,
2003. Under the terms of the lease, SIA, Inc. occupies
1,787 square feet.

17



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##### Table of Contents






Item 3.     Legal
Proceedings

Litigation

During 2000, American Southern renewed one of its
larger accounts. Although this contract was renewed through a
competitive bid process, one of the parties bidding for this
particular contract contested the award of this business to
American Southern and filed a claim to nullify the contract.
During the fourth quarter of 2000, American Southern received an
unfavorable judgment relating to this litigation and appealed
the ruling. The contract, which accounts for approximately 10%
of annualized premium revenue of Atlantic American, remained in
effect pending the appeal. On March 4, 2003 the South
Carolina Court of Appeals reversed the lower court ruling and
remanded the case back to the Procurement Review Panel to
determine if American Southern is entitled to vendor preference.
The contract subject to dispute contractually terminates on
April 30, 2003. While management at this time cannot
predict the potential outcome in this case, or quantify the
actual impact of any future decisions or determinations, it may
have a material impact on the future results of operations of
the Company.

From time to time, the Company and its
subsidiaries are involved in various claims and lawsuits
incidental to and in the ordinary course of their businesses. In
the opinion of management, such claims will not have a material
effect on the business or financial condition of the Company.




Item 4.     Submission
of Matters to a Vote of Security Holders

There were no matters submitted to a vote of the
Companys shareholders during the quarter ended
December 31, 2002.




PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Shareholder Matters

The Companys common stock is quoted on the
Nasdaq National Market (Symbol: AAME). As of March 20,
2003, there were 4,819 shareholders of record. The following
table sets forth for the periods indicated the high and low sale
prices of the Companys common stock as reported on the
Nasdaq National Market.

|                        |             |      |   |      |  |  |   |      | 
|----------------------- | ----------- | ---- | - | ---- |  |  | - | ---- | 
|Year Ending December 31 |             | High |   | Low 
|                        |             |      |   |     
|2002                    |             |      |   |      |  |  |   |     
|                        | 1st quarter |      | $ | 2.67 |  |  | $ | 1.60 | 
|                        | 2nd quarter |      |   | 2.73 |  |  |   | 1.87 | 
|                        | 3rd quarter |      |   | 2.46 |  |  |   | 1.62 | 
|                        | 4th quarter |      |   | 2.35 |  |  |   | 1.25 | 
|2001                    |             |      |   |      |  |  |   |     
|                        | 1st quarter |      | $ | 2.06 |  |  | $ | 1.63 | 
|                        | 2nd quarter |      |   | 2.06 |  |  |   | 1.00 | 
|                        | 3rd quarter |      |   | 2.31 |  |  |   | 0.75 | 
|                        | 4th quarter |      |   | 3.10 |  |  |   | 1.00 | 

The Company has not paid dividends to its common
shareholders since the fourth quarter of 1988. Payment of
dividends in the future will be at the discretion of the
Companys Board of Directors and will depend upon the
financial condition, capital requirements, and earnings of the
Company as well as other factors as the Board of Directors may
deem relevant. The Companys primary sources of cash for
the payment of dividends are dividends from its subsidiaries.
Under the insurance code of the state of jurisdiction under
which each insurance subsidiary operates, dividend payments to
the Parent by its insurance subsidiaries are limited to the
greater of 10% of accumulated statutory earnings or statutory
net income before recognizing realized investment gains of the
insurance subsidiaries without the prior approval of the
Insurance Commissioner. The Companys principal insurance
subsidiaries had the following accumulated statutory earnings as
of December 31, 2002: Georgia Casualty 
$18.2 million, American

18



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##### Table of Contents



Southern  $32.7 million,
Association Casualty  $17.9 million, Bankers
Fidelity Life  $25.9 million. The Company has
elected to retain its earnings to grow its business and does not
anticipate paying cash dividends on its common stock in the
foreseeable future.


Equity Compensation Plan Information

The following table sets forth, as of
December 31, 2002, the number of securities outstanding
under the Companys equity compensation plans, the weighted
average exercise price of such securities and the number of
securities available for grant under these plans:

|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ---------------- |  | ----------------------- | ---- | ---- |  |  | --------- | --------- | 
|                                                               |       |                      |           | Weighted-        |  | Number of securities   
|                                                               |       |                      |           | average exercise |  | remaining available for
|                                                               |       | Number of securities |           | price of         |  | future issuance under  
|                                                               |       | to be issued upon    |           | outstanding      |  | equity compensation    
|                                                               |       | exercise of          |           | options,         |  | plans (excluding       
|                                                               |       | outstanding options, |           | warrants and     |  | securities reflected in
|Plan Category                                                  |       | warrants and rights  |           | rights           |  | the first column)      
|                                                               |       |                      |           |                  |  |                        
|Equity compensation plans approved by security
    holders     |       |                      | 1,113,000 |                  |  | $                       | 2.33 |      |  |  | 2,416,153 |          
|Equity compensation plans not approved by
    security holders |       |                      | (1       | )                |  |                         | (1  | )    |  |  | (1       | )        
|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |          
|                                                               | Total |                      |           | 1,113,000        |  |                         | $    | 2.33 |  |  |           | 2,416,153 | 
|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |          



| |     |                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------
| | (1) | All the Companys equity compensation plans
    have been approved by the Companys shareholders.

19



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##### Table of Contents






Item 6.     Selected
Financial Data

|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |     |         | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | --- | ------- | - | ------- | --- | ------- | - | ------- | --- | ------- | 
|                                                                                       |                                                                       | 2002                                          |         | 2001 |         | 2000 |         | 1999 |         | 1998
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |     
|                                                                                       |                                                                       |                                              
|                                                                                       |                                                                       | (Dollars in thousands, except per share data)
|Insurance premiums                                                                     |                                                                       | $                                             | 154,499 |      |         | $    | 145,589 |      |         | $    | 133,497 |     |         | $ | 107,594 |     |         | $ | 91,292  |    
|Investment income                                                                      |                                                                       |                                               | 14,011  |      |         |      | 14,317  |      |         |      | 15,552  |     |         |   | 12,724  |     |         |   | 11,499  |    
|Other income                                                                           |                                                                       |                                               | 1,148   |      |         |      | 1,694   |      |         |      | 1,287   |     |         |   | 1,172   |     |         |   | 366     |    
|Realized investment gains, net                                                         |                                                                       |                                               | 587     |      |         |      | 1,708   |      |         |      | 1,922   |     |         |   | 2,831   |     |         |   | 2,909   |    
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       |                                                                       | Total revenue                                 |         |      | 170,245 |      |         |      | 163,308 |      |         |     | 152,258 |   |         |     | 124,321 |   |         |     | 106,066 | 
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Insurance benefits and losses incurred                                                 |                                                                       |                                               | 109,109 |      |         |      | 106,896 |      |         |      | 97,628  |     |         |   | 78,162  |     |         |   | 60,845  |    
|Other expenses                                                                         |                                                                       |                                               | 58,033  |      |         |      | 52,159  |      |         |      | 49,874  |     |         |   | 42,237  |     |         |   | 36,518  |    
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       |                                                                       | Total benefits and expenses                   |         |      | 167,142 |      |         |      | 159,055 |      |         |     | 147,502 |   |         |     | 120,399 |   |         |     | 97,363  | 
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Income before income taxes and cumulative effect
    of change in accounting principle |                                                                       |                                               | 3,103   |      |         |      | 4,253   |      |         |      | 4,756   |     |         |   | 3,922   |     |         |   | 8,703   |    
|Income tax (benefit) expense                                                           |                                                                       |                                               | (498    | )    |         |      | 656     |      |         |      | 1,124   |     |         |   | (6,988  | )   |         |   | 145     |    
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Income before cumulative effect of change in
    accounting principle                  |                                                                       |                                               | 3,601   |      |         |      | 3,597   |      |         |      | 3,632   |     |         |   | 10,910  |     |         |   | 8,558   |    
|Cumulative effect of change in accounting
    principle(1)                             |                                                                       |                                               | (15,816 | )    |         |      |        |      |         |      |        |     |         |   |        |     |         |   |        |    
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       |                                                                       | Net income (loss)                             |         | $    | (12,215 | )    |         | $    | 3,597   |      |         | $   | 3,632   |   |         | $   | 10,910  |   |         | $   | 8,558   | 
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Basic earnings (loss) per common share:                                                |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                                               | $       | .10  |         |      | $       | .10  |         |      | $       | .12 |         |   | $       | .48 |         |   | $       | .37 |        
|                                                                                       | Cumulative effect of change in accounting
    principle(1)            |                                               |         | (.74 | )       |      |         |     |         |      |         |    |         |   |         |    |         |   |         |    |        
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       |                                                                       | Net income (loss)                             |         | $    | (.64    | )    |         | $    | .10     |      |         | $   | .12     |   |         | $   | .48     |   |         | $   | .37     | 
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Diluted earnings (loss) per common share:                                              |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                                               | $       | .10  |         |      | $       | .10  |         |      | $       | .12 |         |   | $       | .46 |         |   | $       | .37 |        
|                                                                                       | Cumulative effect of change in accounting
    principle(1)            |                                               |         | (.73 | )       |      |         |     |         |      |         |    |         |   |         |    |         |   |         |    |        
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|                                                                                       | Net income (loss)                                                     |                                               | $       | (.63 | )       |      | $       | .10  |         |      | $       | .12 |         |   | $       | .46 |         |   | $       | .37 |        
|                                                                                       |                                                                       |                                               |         |      |         |      |         |      |         |      |         |     |         |   |         |     |         |   |         |    
|Tangible book value per common share(2)                                                |                                                                       | $                                             | 2.79    |      |         | $    | 2.49    |      |         | $    | 2.26    |     |         | $ | 2.14    |     |         | $ | 3.37    |    
|Common shares outstanding                                                              |                                                                       |                                               | 21,374  |      |         |      | 21,246  |      |         |      | 21,157  |     |         |   | 21,027  |     |         |   | 19,120  |    
|Total assets                                                                           |                                                                       | $                                             | 423,493 |      |         | $    | 412,019 |      |         | $    | 375,777 |     |         | $ | 351,144 |     |         | $ | 273,131 |    
|Total long-term debt                                                                   |                                                                       | $                                             | 49,500  |      |         | $    | 44,000  |      |         | $    | 46,500  |     |         | $ | 51,000  |     |         | $ | 23,600  |    
|Total debt                                                                             |                                                                       | $                                             | 49,500  |      |         | $    | 44,000  |      |         | $    | 46,500  |     |         | $ | 51,000  |     |         | $ | 26,000  |    
|Total shareholders equity                                                             |                                                                       | $                                             | 78,540  |      |         | $    | 87,526  |      |         | $    | 83,240  |     |         | $ | 78,948  |     |         | $ | 82,217  |    



|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents a cumulative effect of change in
    accounting principle with respect to the adoption of Statement
    of Financial Accounting Standards No. 142 regarding
    goodwill.
|   
|(2) | Excludes goodwill.                                                                                                                                                                  

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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following is managements discussion and
analysis of the financial condition and results of operations of
Atlantic American Corporation (Atlantic American or
the Company) and its subsidiaries for each of the
three years in the period ended December 31, 2002. This
discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere herein.

Atlantic American is an insurance holding company
whose operations are conducted through a group of regional
insurance companies: American Southern Insurance Company and
American Safety Insurance Company (together known as
American Southern); Association Casualty Insurance
Company and Association Risk Management General Agency, Inc.
(together known as Association Casualty); Georgia
Casualty & Surety Company (Georgia
Casualty); and Bankers Fidelity Life Insurance Company
(Bankers Fidelity). Each operating company is
managed separately based upon the geographic location or the
type of products it underwrites; although management is in the
process of conforming information systems, policies and
procedures, products, marketing and other functions between
Association Casualty and Georgia Casualty to create a southern
regional property and casualty operation.

Critical Accounting Estimates

The accounting and reporting policies of Atlantic
American Corporation and its subsidiaries are in accordance with
accounting principles generally accepted in the United States
and, in managements belief, conform to general practices
within the insurance industry. The following is an explanation
of the Companys accounting policies and the resultant
estimates considered most significant by management. These
accounting policies inherently require significant judgment and
assumptions and actual results could differ from
managements initial estimates. Atlantic American does not
expect that changes in the estimates determined using these
policies would have a material affect on the Companys
financial condition or liquidity, although changes could have a
material effect on its consolidated results of operations.

Unpaid loss and loss adjustment expensecomprise 43% of the Company
liabilities at December 31, 2002. This obligation includes
an estimate for: 1) unpaid losses on claims reported prior
to December 31, 2002, 2) future development on those
reported claims, 3) unpaid ultimate losses on claims
incurred prior to December 31, 2002 but not yet reported to
the Company and 4) unpaid claims adjustment expense for
reported and unreported claims incurred prior to
December 31, 2002. Quantification of loss estimates for
each of these components involves a significant degree of
judgment and estimates may vary, materially, from period to
period. Estimated unpaid losses on reported claims are developed
based on historical experience with similar claims by the
Company. Future development on reported claims, estimates of
unpaid ultimate losses incurred prior to December 31, 2002
but not yet reported to the Company, and estimates of unpaid
claims adjustment expenses are developed based on the
Companys historical experience using actuarial methods to
assist in the analysis. The Companys actuarial staff
develops ranges of estimated future development on reported and
unreported claims as well as loss adjustment expenses using
various methods including the paid-loss development method, the
reported-loss development method, the paid Bornhuetter-Ferguson
method, the reported Bornhuetter-Ferguson method, the
Berquist-Sherman method and a frequency-severity method. Any
single method used to estimate ultimate losses has inherent
advantages and disadvantages due to the trends and changes
affecting the business environment and the Companys
administrative policies. Further, a variety of external factors,
such as legislative changes, medical inflation, and others may
directly or indirectly impact the relative adequacy of
liabilities for unpaid losses and loss adjustment expense. The
Companys approach is the selection of an estimate of
ultimate losses based on comparing results of a variety of
reserving methods, as opposed to total reliance on any single
method. Unpaid loss and loss adjustment expenses are generally
reviewed quarterly for all lines of business, and when current
results differ from the original assumptions used to develop
such estimates; the amount of the Companys recorded
liability for unpaid claims and claim adjustment expenses is
adjusted.

Future policy benefitscomprise 14% of the Companys
total liabilities at December 31, 2002. These liabilities
relate to life insurance products, and are based upon assumed
future investment yields, mortality

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##### Table of Contents



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. If actual results differ from the initial
assumptions, the amount of the Companys recorded liability
could require adjustment.


Deferred acquisition costscomprise 6% of the Companys
total assets at December 31, 2002. Deferred acquisition
costs are commissions, premium taxes, and other costs that vary
with and are primarily related to the acquisition of new and
renewal business and are generally deferred and amortized. The
deferred amounts are recorded as an asset on the balance sheet
and amortized to income in a systematic manner. 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 the related liability
for policy benefit reserves. The deferred acquisition costs for
property and casualty insurance 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
future premiums (for traditional life and long-duration health
insurance) and from the related unearned premiums and investment
income (for property and casualty and short-duration health
insurance). Assessments of recoverability for property and
casualty and short-duration health insurance are extremely
sensitive to the estimates of a subsequent years projected
losses related to the unearned premiums. Projected loss
estimates for a current block of business for which unearned
premiums remain to be earned may vary significantly from the
indicated losses incurred in any given calendar year.

Receivablesare
amounts due from reinsurers, insureds and agents and comprise
22% of the Companys total assets at December 31,
2002. Allowances for uncollectible amounts are established, as
and when a loss has been determined probable, against the
related receivable. Annually, the Company and/or its reinsurance
broker perform an analysis of the credit worthiness of the
Companys reinsurers. Failure of reinsurers to meet their
obligations due to insolvencies or disputes could result in
uncollectible amounts and losses to the Company. Insured and
agent balances are evaluated periodically for collectibility.
Losses are recognized when determined on a specific account
basis and a general provision for loss is made based on the
Companys historical experience.

Cash and investmentscomprise 69% of the Companys
total assets at December 31, 2002. Significantly all
investments are in bonds and common and preferred stocks, which
are subject to significant market fluctuations. The Company
carries all investments as available for sale and accordingly at
their estimated market values. On occasion, the value of an
investment may decline to a value below its amortized purchase
price and remain for an extended period of time. When an
investments indicated market value has declined below its
cost basis for a period of time, generally, not less than nine
months, the Company, evaluates such investment for other than a
temporary impairment. If an other than a temporary impairment is
deemed to exist, then the Company may write down the amortized
cost basis of the investment to a more appropriate value. While
such write down does not impact the reported value of the
investment in the Companys balance sheet, it is reflected
as a realized investment loss in the Companys Consolidated
Statements of Operations.

Deferred income taxescomprise less than 1% of the
Companys total assets at December 31, 2002. Deferred
income taxes reflect the effect of temporary differences between
assets and liabilities that are recognized for financial
reporting purposes and the amounts that are recognized for tax
purposes. These deferred income taxes are measured by applying
currently enacted tax laws and rates. Valuation allowances are
recognized to reduce the deferred tax assets to the amount that
is more likely than not to be realized. In assessing the
likelihood of realization, management considers estimates of
future taxable income and tax planning strategies.

Refer to Note 1 of Notes to
Consolidated Financial Statements for details regarding
all of the Companys significant accounting policies.

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##### Table of Contents



Overall Corporate Results

|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |        |        | 
|------------------------------------------------------------------------------------- | -------------------- | --------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------ | 
|                                                                                      |                      | 2002                        |         | 2001   |         | 2000
|                                                                                      |                      |                             |         |        |         |     
|                                                                                      |                      |                            
|                                                                                      |                      | (Dollars in thousands)     
|Revenues                                                                              |                      |                             |         |        |         |      |         |        |         |   |         |       
|Property and Casualty:                                                                |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | American Southern    |                             | $       | 44,353 |         |      | $       | 43,779 |         |   | $       | 42,487 |       
|                                                                                      | Association Casualty |                             |         | 26,619 |         |      |         | 29,668 |         |   |         | 23,290 |       
|                                                                                      | Georgia Casualty     |                             |         | 33,093 |         |      |         | 28,515 |         |   |         | 32,048 |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      |                      | Total property and casualty |         |        | 104,065 |      |         |        | 101,962 |   |         |        | 97,825 | 
|Life and Health:                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | Bankers Fidelity     |                             |         | 65,276 |         |      |         | 60,244 |         |   |         | 53,587 |       
|Corporate and Other                                                                   |                      |                             | 904     |        |         |      | 1,102   |        |         |   | 846     |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Total Revenues                                                                        |                      | $                           | 170,245 |        |         | $    | 163,308 |        |         | $ | 152,258 |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Income before taxes and cumulative effect of
    change in accounting principle       |                      |                             |         |        |         |      |         |        |         |   |         |       
|Property and Casualty:                                                                |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | American Southern    |                             | $       | 6,621  |         |      | $       | 6,796  |         |   | $       | 6,130  |       
|                                                                                      | Association Casualty |                             |         | (1,981 | )       |      |         | (2,925 | )       |   |         | 256    |       
|                                                                                      | Georgia Casualty     |                             |         | (178   | )       |      |         | 2,106  |         |   |         | (1,084 | )     
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      |                      | Total property and casualty |         |        | 4,462   |      |         |        | 5,977   |   |         |        | 5,302  | 
|Life and Health:                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | Bankers Fidelity     |                             |         | 4,065  |         |      |         | 3,370  |         |   |         | 4,371  |       
|Corporate and Other                                                                   |                      |                             | (5,424  | )      |         |      | (5,094  | )      |         |   | (4,917  | )     
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Total income before taxes and cumulative effect
    of change in accounting principle |                      | $                           | 3,103   |        |         | $    | 4,253   |        |         | $ | 4,756   |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       

On a consolidated basis the Company had a net
loss for 2002 of $12.2 million, or $.63 per diluted share.
Net income was $3.6 million ($.10 per diluted share) in
2001 and $3.6 million ($.12 per diluted share) in 2000. The
net loss for 2002 was primarily the result of a non-cash charge
of $15.8 million to reflect a change in accounting for
goodwill. Reducing the reported net loss was a $1.3 million
deferred income tax benefit related to a reduction of the
Companys tax net operating loss valuation allowance
compared to a similar $0.8 million deferred income tax
benefit in 2001 and $0.5 million benefit in 2000. The
reduction of the valuation allowance is primarily the result of
reassessments as to the realization of certain net operating
loss carry forwards. Pre-tax income excluding charges related to
accounting for goodwill, decreased from $5.1 million in
2001 to $3.1 million in 2002. The decline in pre-tax income
for 2002 was primarily due to adverse development on prior
years claims as well as a significant increase in the
second injury trust fund and insolvency assessments, both in the
casualty division.

A more detailed analysis of the individual
operating entities and other corporate activities is provided in
the following discussion.

23



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##### Table of Contents



Underwriting Results



| |                  
| | -----------------
| | American Southern

The following table summarizes American
Southerns premiums and underwriting ratios (dollars in
thousands):

|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2002 |        | 2001 |  | 2000
|                                        |  |      |        |      |  |     
|Gross written premiums                  |  | $    | 48,713 |      |  | $    | 45,490 |   |  | $ | 47,643 |  
|Ceded premiums                          |  |      | (6,878 | )    |  |      | (5,931 | ) |  |   | (4,603 | )
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Net written premiums                    |  | $    | 41,835 |      |  | $    | 39,559 |   |  | $ | 43,040 |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Net earned premiums                     |  | $    | 39,914 |      |  | $    | 39,023 |   |  | $ | 37,172 |  
|Net losses and loss adjustment expenses |  |      | 26,353 |      |  |      | 26,069 |   |  |   | 26,185 |  
|Underwriting expenses                   |  |      | 11,379 |      |  |      | 10,914 |   |  |   | 10,172 |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Underwriting income                     |  | $    | 2,182  |      |  | $    | 2,040  |   |  | $ | 815    |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Loss ratio                              |  |      | 66.0   | %    |  |      | 66.8   | % |  |   | 70.4   | %
|Expense ratio                           |  |      | 28.5   | %    |  |      | 28.0   | % |  |   | 27.4   | %
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Combined ratio                          |  |      | 94.5   | %    |  |      | 94.8   | % |  |   | 97.8   | %
|                                        |  |      |        |      |  |      |        |   |  |   |        |  

Gross written premiums at American Southern
increased 7.1% or $3.2 million during 2002. The increase in
premiums is primarily attributable to significant rate
increases, new business generated by established agents as well
as premiums provided by new agency appointments. Also, in 2002,
American Southern added one new state contract that contributed
$1.1 million in written premiums. Offsetting this increase
in gross written premiums was the loss of one of its state
contracts in July, 2001, which had contributed approximately
$2.0 million in written premiums during 2001. The loss of
this particular contract resulted in a reduction in annualized
premium for 2002 of approximately $4.0 million.

Ceded premiums increased $0.9 million, or
16.0% during 2002. In 2002, American Southern experienced higher
reinsurance rates; however, the increase in reinsurance is also
due to several factors other than pricing. As American Southern
premiums are determined and ceded as a percentage of earned
premiums, an increase in ceded premiums occurs when earned
premiums increase. Further, included in 2001 was a state
contract that accounted for $2.0 million in written
premiums during 2001 for which there was no reinsurance. The
contract was not renewed in 2002. Accordingly in 2002, there was
a higher effective percent of premiums ceded to premiums written
than in 2001.

Gross written premiums at American Southern
decreased $2.2 million, or 4.5% during 2001 primarily as a
result of the loss of one of its state contracts discussed
previously. In addition, the American Auto Club Insurance Agency
(the Agency) produced lower than expected gross
written premiums during 2001. The Agency is a joint venture
between American Southern and the AAA of the Carolinas motor
club. American Southern holds a 50% interest in the joint
venture and underwrites the majority of the standard automobile
business written by the Agency. The Agency was formed in 1998 to
market personal automobile insurance to members of the auto
club. This program, which began writing business in 1999, had
gross written premiums of approximately $6.1 million for
2001, a decrease of $1.1 million or 15.3% from 2000.

Ceded premiums at American Southern increased
$1.3 million, or 28.9%, during 2001. The increase in ceded
premiums was due to several factors. First, the pricing charged
by reinsurance companies increased approximately 10% over 2000.
In addition, American Southerns premiums are determined
and ceded as a percentage of earned premiums as opposed to
written premiums, which resulted in an increase in ceded
premiums during 2001. Lastly, the company accrued and paid
$0.4 million in penalty premiums from a specific
reinsurance agreement (the Reinsurance Agreement) to
the reinsurer. The Reinsurance Agreement is related to certain
program business and provides for additional penalty premiums
based on

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##### Table of Contents



losses. During 2000, there were no penalty
premiums accrued by American Southern and, as a result, ceded
premiums increased in 2001 over ceded premiums in 2000.


In addition to the business written through the
Agency, American Southern produces much of its business through
contracts with various states and municipalities, some of which
represent significant amounts of revenue for American Southern.
These contracts are periodically subject to competitive renewal
quotes and the loss of a significant contract could have a
material adverse effect on the business or financial condition
of American Southern and of the Company. During 2000, American
Southern renewed one of its larger accounts. Although this
contract was renewed through a competitive bidding process, one
of the parties bidding for this particular contract contested
the award of this business to American Southern and filed a
claim to nullify the contract. During the fourth quarter of
2000, American Southern received an unfavorable judgment and
appealed the ruling. The contract, which accounts for
approximately 10% of annualized premium revenue of Atlantic
American, remained in effect pending the appeal. On
March 4, 2003 the South Carolina Court of Appeals reversed
the lower court ruling and remanded the case back to the
Procurement Review Panel to determine if American Southern is
entitled to vendor preference. The contract subject to dispute
contractually terminates on April 30, 2003. While
management at this time cannot predict the potential outcome in
this case, or quantify the actual impact of any future decisions
or determinations, an adverse outcome may have a material
adverse affect on the companys financial position or
results of operations. In an effort to increase the number of
programs underwritten by American Southern and to insulate it
from the loss of any one program, American Southern is
continually evaluating new underwriting programs. There can be
no assurance, however, that new programs or new accounts will
offset lost business resulting from non-renewals of that
contract or of other accounts.

The following table summarizes, for the periods
indicated, American Southerns earned premiums by line of
business (dollars in thousands):

|                           |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                           |  | 2002 |        | 2001 |  | 2000
|                           |  |      |        |      |  |     
|Automobile liability       |  | $    | 22,748 |      |  | $    | 23,677 |  |  | $ | 22,795 | 
|Automobile physical damage |  |      | 9,829  |      |  |      | 8,732  |  |  |   | 7,397  | 
|General liability          |  |      | 3,647  |      |  |      | 3,161  |  |  |   | 3,536  | 
|Property                   |  |      | 3,627  |      |  |      | 3,386  |  |  |   | 3,383  | 
|Surety                     |  |      | 63     |      |  |      | 67     |  |  |   | 61     | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium       |  | $    | 39,914 |      |  | $    | 39,023 |  |  | $ | 37,172 | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 

Net earned premiums for 2002 increased
$0.9 million or 2.3% over 2001 primarily due to the factors
discussed previously. In 2001, net earned premiums increased by
5.0% or 1.9 million. The increase in net earned premiums
for 2001 was primarily attributable to higher gross written
premium in 2000.

The performance of an insurance company is often
measured by the combined ratio. The combined ratio represents
the percentage of losses, loss adjustment expenses and other
expenses that are incurred for each dollar of premium earned by
the company. A combined ratio of under 100% represents an
underwriting profit while a combined ratio of over 100%
indicates an underwriting loss. The combined ratio is divided
into two components, the loss ratio (the ratio of losses and
loss adjustment expenses incurred to premiums earned) and the
expense ratio (the ratio of expenses incurred to premiums
earned).

The combined ratio for American Southern
decreased from 94.8% in 2001 to a combined ratio of 94.5% in
2002. The loss ratio decreased to 66.0% in 2002 from 66.8% in
2001. During 2001, American Southern released approximately
$1.4 million of redundant reserves related to certain
program business that favorably impacted the loss ratio for
2001. Excluding the impact of the reserve redundancy recognized
in 2001, the loss ratio in 2002 improved significantly over 2001
primarily due to lower than anticipated losses on the personal
and commercial automobile lines of business. The expense ratio
for 2002 increased slightly to 28.5% from 28.0% in 2001. The
increase in the expense ratio in 2002 is a direct result of
American Southerns business structure. The majority of
American Southerns business is structured in such a way
that the agents are rewarded or penalized based upon the loss
ratio of the business they

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submit. By structuring its business in this
manner, American Southern provides its agents with an economic
incentive to place profitable business with American Southern.
As a result of this arrangement, in periods where losses and the
loss ratio decrease, commission and underwriting expenses
increase.


The combined ratio for American Southern
decreased from 97.8% in 2000 to a combined ratio of 94.8% in
2001. The loss ratio decreased from 70.4% in 2000 to 66.8% in
2001. American Southern released approximately $1.4 million
of redundant reserves related to certain program business that
favorably impacted the loss ratio for 2001. The increase in the
expense ratio for 2001 to 28.0% from 27.4% in 2000 is a function
of American Southerns contractual arrangements that
compensate the companys agents in relation to the loss
ratios of the business they write.

Association
Casualty

The following table summarizes Association
Casualtys premiums and losses (dollars in thousands):

|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ----
|                                        |  | 2002 |        | 2001 |  | 2000
|                                        |  |      |        |      |  |     
|Gross written premiums                  |  | $    | 26,786 |      |  | $    | 34,648 |      |  | $ | 24,967 |     
|Ceded premiums                          |  |      | (4,166 | )    |  |      | (3,692 | )    |  |   | (2,314 | )   
|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|Net written premiums                    |  | $    | 22,620 |      |  | $    | 30,956 |      |  | $ | 22,653 |     
|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|Net earned premiums                     |  | $    | 24,244 |      |  | $    | 25,711 |      |  | $ | 20,110 |     
|Net losses and loss adjustment expenses |  |      | 20,402 |      |  |      | 23,613 |      |  |   | 15,799 |     
|Underwriting expenses                   |  |      | 8,198  |      |  |      | 8,155  | (1)  |  |   | 6,410  | (1) 
|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|Underwriting loss                       |  | $    | (4,356 | )    |  | $    | (6,057 | )    |  | $ | (2,099 | )   
|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|Loss ratio                              |  |      | 84.2   | %    |  |      | 91.8   | %    |  |   | 78.5   | %   
|Expense ratio                           |  |      | 33.8   | %    |  |      | 31.7   | %(1) |  |   | 31.9   | %(1)
|                                        |  |      |        |      |  |      |        |      |  |   |        |     
|Combined ratio                          |  |      | 118.0  | %    |  |      | 123.5  | %    |  |   | 110.4  | %   
|                                        |  |      |        |      |  |      |        |      |  |   |        |     



|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes the interest expense on an intercompany
    surplus note associated with the acquisition of Association
    Casualty.

Gross written premiums at Association Casualty
decreased $7.9 million, or 22.7% during 2002. The primary
reasons for this decline were as follows: a cessation of writing
accident and health policies in the first quarter of 2002
resulting in a $1.0 million decline in 2002 as compared to
2001; a $3.0 million decline in 2002 as a result of the
companys change late in 2000 and throughout 2001 in
recognizing written premiums on an annualized basis instead of
the installment method and; an extensive re-underwriting of the
workers compensation book of business, which even after
significant rate increases resulted in a decline in 2002
premiums. Association Casualty continues to increase rates on
renewal business (approximately 17% in 2002) in addition to
diversifying into commercial lines other than workers
compensation such as general liability, property and automobile.

Ceded premiums at Association Casualty increased
$0.5 million, or 12.8% during 2002. While Association
Casualty has historically specialized in workers
compensation insurance in the state of Texas, it continues its
transition to a commercial lines carrier. Association Casualty
had net earned premiums in 2002 of $24.2 million, of which
78.2% was workers compensation compared to 88.6% during
2001. As Association Casualty diversifies into commercial lines
other than workers compensation, ceded premiums have
increased significantly primarily due to the higher reinsurance
costs associated with these new lines of business.

In 2001, gross written premiums at Association
Casualty increased $9.7 million, or 38.8%. During the fourth
quarter of 2000, Association Casualty began recognizing written
premiums on an annualized basis instead of using the installment
method, resulting in a significant increase in gross written
premiums. The impact to earned premiums was not significant. In
addition, Association Casualty aggressively increased

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rates on renewal business, in some cases up to
30%. Association Casualty also increased business writings for
general liability, property, automobile, and other commercial
coverage to compliment its existing book of business


The following table summarizes, for the periods
indicated, Association Casualtys earned premiums by line
of business (dollars in thousands):

|                          |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                          |  | 2002 |        | 2001 |  | 2000
|                          |  |      |        |      |  |     
|Workers compensation     |  | $    | 18,950 |      |  | $    | 22,784 |  |  | $ | 19,051 | 
|Business automobile       |  |      | 1,811  |      |  |      | 671    |  |  |   | 64     | 
|General liability         |  |      | 221    |      |  |      | 117    |  |  |   | 5      | 
|Property                  |  |      | 3,080  |      |  |      | 1,001  |  |  |   | 81     | 
|Group accident and health |  |      | 182    |      |  |      | 1,138  |  |  |   | 909    | 
|                          |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium      |  | $    | 24,244 |      |  | $    | 25,711 |  |  | $ | 20,110 | 
|                          |  |      |        |      |  |      |        |  |  |   |        | 

The combined ratio for Association Casualty
decreased from 123.5% in 2001 to 118.0% in 2002. The loss ratio
decreased from 91.8% in 2001 to 84.2% in 2002. The decrease in
the loss ratio is primarily attributable to the benefits of
significant premium rate increases in addition to benefits from
non-renewing its non-profitable workers compensation
business as discussed previously. Association Casualty continues
to be adversely impacted by the liberal interpretation of the
workers compensation laws in the state of Texas. As the
law has evolved, interpretive changes in the application of
life time medical and impairment rating
provisions have resulted in increased medical costs and the need
to provide for additional reserves. In 2002, Association
Casualty strengthened its liabilities for losses and claims by
$2.9 million compared to $1.8 million in 2001.
Association Casualty continues to increase pricing and
strengthen underwriting criteria to mitigate these, as well as
other, costs. The expense ratio increased to 33.8% in 2002 from
31.7% in 2001, primarily as a result of the change in the book
of business and the decline in earned premiums.

The combined ratio for Association Casualty
increased to 123.5% in 2001 from a combined ratio of 110.4% in
2000. The loss ratio increased to 91.8% in 2001 from 78.5% in
2000. The primary reason for the increase was attributable to
adverse development on prior year losses, specifically accident
year 2000. Additionally, loss reserves were reviewed and
increased to levels deemed more appropriate by management. The
expense ratio decreased from 31.9% in 2000 to 31.7% in 2001. The
decline in the expense ratio is primarily attributable to the
increase in earned premiums and only a moderate increase in
fixed expenses.

Georgia
Casualty

The following table summarizes Georgia
Casualtys premiums and losses (dollars in thousands):

|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|--------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                        |  | 2002 |         | 2001 |  | 2000
|                                        |  |      |         |      |  |     
|Gross written premiums                  |  | $    | 52,406  |      |  | $    | 40,966  |   |  | $ | 35,031 |  
|Ceded premiums                          |  |      | (17,889 | )    |  |      | (15,702 | ) |  |   | (3,925 | )
|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|Net written premiums                    |  | $    | 34,517  |      |  | $    | 25,264  |   |  | $ | 31,106 |  
|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|Net earned premiums                     |  | $    | 29,744  |      |  | $    | 25,579  |   |  | $ | 28,576 |  
|Net losses and loss adjustment expenses |  |      | 19,950  |      |  |      | 17,644  |   |  |   | 22,192 |  
|Underwriting expenses                   |  |      | 13,321  |      |  |      | 8,765   |   |  |   | 10,940 |  
|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|Underwriting loss                       |  | $    | (3,527  | )    |  | $    | (830    | ) |  | $ | (4,556 | )
|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|Loss ratio                              |  |      | 67.1    | %    |  |      | 69.0    | % |  |   | 77.7   | %
|Expense ratio                           |  |      | 44.8    | %    |  |      | 34.3    | % |  |   | 38.3   | %
|                                        |  |      |         |      |  |      |         |   |  |   |        |  
|Combined ratio                          |  |      | 111.9   | %    |  |      | 103.3   | % |  |   | 116.0  | %
|                                        |  |      |         |      |  |      |         |   |  |   |        |  

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Gross written premiums at Georgia Casualty
increased $11.4 million, or 27.9%, in 2002. The increase in
premiums is primarily attributable to rate increases on renewal
business of approximately 16% coupled with new business produced
by existing agents. The majority of the growth occurred in the
package policies, while the workers compensation line of
business experienced a modest growth.

Ceded premiums at Georgia Casualty increased
$2.2 million, or 13.9%, in 2002. The increase in ceded
premiums is primarily due to an overall increase in rates
charged to reinsure the business as well as the growth
experienced by the company. The 40% quota share reinsurance
agreement that Georgia Casualty incepted in 2001 for premium
growth and surplus protection was reduced to a 30% quota share
on January 1, 2002. From this initiative, premiums ceded
under the quota share agreement decreased $3.4 million
during 2002 also resulting in a lower effective percent of
premium ceded to premium written.

Gross written premiums at Georgia Casualty
increased $5.9 million, or 16.9%, in 2001 as compared to
2000. The increase in gross written premiums was attributable to
significant rate increases, new business with established agents
in addition to the premiums generated from new agency
appointments.

The increase in ceded premiums of
$11.8 million during 2001 was the result of a 40% quota
share reinsurance agreement that the company put into place in
2001. This reinsurance contract was terminated on
December 31, 2002.

The following table summarizes, for the periods
indicated, Georgia Casualtys earned premiums by line of
business (dollars in thousands):

|                      |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                      |  | 2002 |        | 2001 |  | 2000
|                      |  |      |        |      |  |     
|Workers compensation |  | $    | 10,592 |      |  | $    | 10,744 |  |  | $ | 16,741 | 
|Business automobile   |  |      | 7,388  |      |  |      | 5,412  |  |  |   | 4,918  | 
|General liability     |  |      | 1,761  |      |  |      | 2,610  |  |  |   | 2,531  | 
|Property              |  |      | 10,003 |      |  |      | 6,813  |  |  |   | 4,386  | 
|                      |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium  |  | $    | 29,744 |      |  | $    | 25,579 |  |  | $ | 28,576 | 
|                      |  |      |        |      |  |      |        |  |  |   |        | 

Net earned premiums increased $4.2 million,
or 16.3%, during 2002 primarily due to the factors discussed
previously. Partially offsetting the increase in net earned
premiums for 2002 was an increase in ceded earned premiums under
the quota share agreement. While the cession for the quota share
has been reduced from 40% in 2001 to 30% in 2002, the bulk of
the written premiums ceded under this agreement during 2001 were
recognized in 2002. As presented in the table above, Georgia
Casualty continues to diversify its book of business into
commercial lines other than workers compensation,
repositioning the company as a onestop commercial lines
carrier. Furthermore, the company is attempting to spread its
geographical exposure by reducing it concentration in Georgia
and expanding in other key southeastern states such as
Tennessee, Kentucky and North Carolina.

Net earned premiums declined $3.0 million,
or 10.5%, during 2001 as compared to 2000 primarily due to the
quota share reinsurance agreement.

The combined ratio for Georgia Casualty increased
to 111.9% in 2002 from 103.3% in 2001. The loss ratio decreased
slightly from 69.0% in 2001 to 67.1% in 2002. The decrease in
the loss ratio is attributable to rate increases, continued
focus on underwriting actions, and strong partnerships within
the Georgia Casualty agency force. The expense ratio increased
to 44.8% in 2002 from 34.3% in 2001 primarily due to an overall
increase in operating expenses resulting from significant
business growth in addition to state assessments, specifically
second injury trust fund and insolvency assessments. In 2002 the
company expensed $2.2 million for such assessments compared
to $0.9 million in 2001.

In 2001, the combined ratio for Georgia Casualty
decreased from 116.0% in 2000 to 103.3%. The loss ratio declined
from 77.7% in 2000 to 69.0% in 2001. During 2000, a
comprehensive review of all loss reserves and open claims was
performed, which resulted in reserve adjustments and
consequently, an unusually high loss ratio for 2000. In
addition, the decrease was also attributable to the benefits of
significant premium rate increases. The expense ratio decreased
from 38.3% in 2000 to 34.3% in 2001

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primarily as a result of the ceding commission
the company is receiving from the quota share contract put into
place during 2001.


Bankers
Fidelity

The following summarizes, for the periods
indicated, Bankers Fidelitys premiums and operating
expenses (dollars in thousands):

|                              |  |      |        |      |  |      |        |  |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                              |  | 2002 |        | 2001 |  | 2000
|                              |  |      |        |      |  |     
|Medicare supplement           |  | $    | 42,298 |      |  | $    | 38,268 |  |  | $ | 31,295 | 
|Other health products         |  |      | 2,878  |      |  |      | 2,912  |  |  |   | 2,899  | 
|Life insurance                |  |      | 15,421 |      |  |      | 14,096 |  |  |   | 13,445 | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium          |  | $    | 60,597 |      |  | $    | 55,276 |  |  | $ | 47,639 | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 
|Insurance benefits and losses |  | $    | 42,404 |      |  | $    | 39,570 |  |  | $ | 33,452 | 
|Underwriting expenses         |  |      | 18,807 |      |  |      | 17,304 |  |  |   | 15,764 | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 
|Total expenses                |  | $    | 61,211 |      |  | $    | 56,874 |  |  | $ | 49,216 | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 

Premium revenue at Bankers Fidelity increased
$5.3 million, or 9.6%, during 2002. The most significant
increase in premium was in the Medicare supplement line of
business, which increased $4.0 million, or 10.5%. Bankers
Fidelity has continued to expand its market presence throughout
the Southeast, the Mid-Atlantic, particularly Pennsylvania, and
in the western United States. During 2002, Bankers Fidelity
generated additional Medicare supplement premium revenue in the
state of Pennsylvania of approximately $1.7 million. In
addition, in both 2002 and 2001, rate increases have been
implemented in varying amounts by state and type of plan.
Significant rate increases in 2001 have resulted in increased
revenue and profitability in 2002, thereby requiring smaller
rate increases in 2002 than those experienced in 2001.
Additionally, the Life insurance line of business increased
$1.3 million or 9.4% primarily due to $1.2 million in
single premium life sales. Bankers Fidelity, in an agreement
with the UFCW Health and Welfare Fund will provide varying
amounts of whole life insurance to certain former Cub Food
workers.

Premium revenue at Bankers Fidelity for 2001
increased $7.6 million, or 16.0%, over 2000 results. The
most significant increase in premiums arose in the Medicare
supplement line of business, which increased 22.3% during 2001.
During 2000 and 2001, Bankers Fidelity implemented rate
increases on the Medicare supplement product, in some cases up
to 30%, which were reflected in the 2001 increases for premium
revenues.

The increase in both benefits and
losses and underwriting expenses during 2002
and 2001 is primarily attributable to the increase in premiums
for those periods. As a percentage of premiums, benefits and
losses were 70.0% in 2002 compared to 71.6% in 2001 and 70.2% in
2000. The increase in the loss ratio in 2001 was primarily due
to continued aging of the life business and higher medical costs
than expected for the health business. Rate increases
implemented by the company on the Medicare supplement line of
business have helped to mitigate the impact of higher medical
costs.

Bankers Fidelity has been reasonably successful
in controlling operating costs, while continuing to add new
business. As a percentage of premiums, commissions and
underwriting expenses were 31.0% in 2002 compared to 31.3% in
2001 and 33.1% in 2000.

Investment Income and Realized Gains

Investment income for 2002 of $14.0 million
decreased $0.3 million, or 2.1%, from 2001. The decrease in
investment income during 2002 is primarily attributable to
decreased interest rates. During both years, the decline in
interest rates resulted in several of the Companys higher
yielding callable fixed income securities being redeemed by the
issuers prior to maturity. The proceeds received from the early
redemptions of these fixed income securities were reinvested at
a lower yield, and as a result, investment income decreased
during 2002. In addition, the Companys equity investment
in its joint venture with

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AAA of the Carolinas was reduced by
$0.4 million in 2002 to reflect lower than expected premium
production and higher expenses compared to a decrease of
$0.2 million in the equity investment during 2001.


Investment income for 2001 of $14.3 million
decreased $1.2 million, or 7.9%, from 2000. The decrease in
investment income was primarily due to decreasing interest rates
discussed previously. Also contributing to the decrease in 2001
was a significant gain in a real estate partnership the Company
benefited from during 2000. The investment, which is accounted
for under the equity method, sold several pieces of property
resulting in income of approximately $0.4 million.

Realized investment gains were $0.6 million
in 2002, $1.7 million in 2001, and $1.9 million in
2000. Management is continually evaluating the Companys
investment portfolio and will periodically divest appreciated
investments as deemed appropriate.

Interest Expense

In 2002, interest expense decreased
$0.7 million to $2.6 million from $3.2 million in
2001. The decrease in interest expense is primarily due to a
decline in interest rates. The base interest rate during 2002,
which is three-month LIBOR, decreased from prevailing
three-month LIBOR rates in 2001. The interest rates on the
Companys debt generally are variable and tied to LIBOR.
Additionally, the Companys average debt levels during 2002
were lower as compared to 2001. The reduction in average debt
levels, along with decreasing interest rates, accounts for the
decrease in 2002.

Interest expense decreased from $4.4 million
in 2000 to $3.2 million in 2001. During 2000, and in the
first nine months of 2001, the Company paid down
$7.0 million on its $30.0 million revolving credit
facility, leaving $19.0 million outstanding under this
facility at December 31, 2001. This debt, coupled with the
$25.0 million in variable rate demand bonds issued during
the second quarter of 1999, brought the total debt to
$44.0 million at December 31, 2001, down from
$50.0 million at the end of 2000. In addition, the base
interest rate in 2001, three-month LIBOR, decreased from
prevailing three-month LIBOR rates in 2000. The interest rate on
a portion of the revolver and the bonds is variable and is tied
to LIBOR. The reduction in debt, along with decreasing interest
rates accounts for the decrease in 2001. On March 21, 2001,
the Company entered into an interest rate swap agreement for a
notional principal amount of $15.0 million to hedge its
interest rate risk on a portion of its outstanding borrowings.
The interest rate swap was effective on April 2, 2001 and
matures on June 30, 2004. The Company has agreed to pay a
fixed rate of 5.1% and receive 3-month LIBOR until maturity.

Other Expenses

Other expenses (commissions, underwriting
expenses, and other expenses) increased $6.5 million, or
13.4%, in 2002, primarily due to a significant increase in
acquisition costs related to new business. In addition, the
Company experienced an overall increase in operating expenses,
specifically in salaries and state assessments both of which
increased $1.3 million as compared to 2001. Also
contributing to the increase in other expenses was a decrease of
$1.4 million in the ceding commission Georgia Casualty is
receiving from the quota share contract, which was reduced from
a 40% quota share reinsurance agreement to a 30% quota share
reinsurance agreement on January 1, 2002. On a consolidated
basis, as a percentage of earned premiums, other expenses
increased to 35.9% in 2002 from 33.6% in 2001.

Other expenses (commissions, underwriting
expenses, and other expenses) increased $3.5 million or
7.6% in 2001. The increase in other expenses was primarily due
to the following factors. First, beginning in the fourth quarter
of 2000, Association Casualty began recognizing written premiums
on an annualized basis instead of using the installment method
thus increasing reported commissions and premium taxes in
conjunction with written premiums. In 2001, Association Casualty
also experienced an increase in overall operating expenses as it
sought to diversify into commercial lines of business other than
workers compensation. In addition, Bankers Fidelitys
commissions increased significantly as a result of additional
premium from new business. Lastly, during 2000, the bad debt
reserve was reduced by $0.5 million due to projected
improvements on the collectibility of certain receivables.
Partially offsetting this increase in other

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expenses was a significant reduction in
commission expense American Southern paid on one of its larger
accounts in addition to the ceding commission Georgia Casualty
is receiving from the quota share contract. On a consolidated
basis, as a percentage of earned premiums, other expenses
decreased from 34.1% in 2000 to 33.6% in 2001.


Liquidity and Capital Resources

The major cash needs of the Company are for the
payment of claims and operating expenses, maintaining adequate
statutory capital and surplus levels, and meeting debt service
requirements. The Companys primary sources of cash are
written premiums, investment income and the sale and maturity of
invested assets. The Company believes that, within each
subsidiary, total invested assets will be sufficient to satisfy
all policy liabilities. Cash flows at the parent company are
derived from dividends, management fees, and tax sharing
payments from the subsidiaries. The cash needs of the parent
company are for the payment of operating expenses, the
acquisition of capital assets and debt service requirements.

Dividend payments to the Company by its insurance
subsidiaries are subject to annual limitations and are
restricted to the greater of 10% of statutory surplus or
statutory earnings before recognizing realized investment gains
of the individual insurance subsidiaries. At December 31,
2002, the Companys insurance subsidiaries had statutory
surplus of $94.7 million.

The Company provides certain administrative,
purchasing and other services for each of its subsidiaries. The
amount charged to and paid by the subsidiaries was
$8.7 million, $8.4 million, and $7.6 million in
2002, 2001, and 2000, respectively. In addition, the Company has
a formal tax-sharing agreement with each of its insurance
subsidiaries. A net total of $2.8 million, $1.3 million and
$1.0 million was paid to the Company under the tax sharing
agreement in 2002, 2001, and 2000, respectively. Dividends were
paid to Atlantic American by one of its subsidiaries totaling
$5.1 million in 2002, $4.6 million in 2001, and
$3.6 million in 2000. As a result of the Companys tax
loss carryforwards, which totaled approximately
$21.1 million at December 31, 2002, it is anticipated
that the tax sharing agreement will provide the Company with
additional funds with which to meet its cash flow obligations.

At December 31, 2001, the Companys
$44.0 million of borrowings consisted of $19.0 million
outstanding on a revolving credit facility (the Revolving
Credit Facility) with Wachovia Bank, N.A.
(Wachovia) and $25.0 million outstanding of
Series 1999, Variable Rate Demand Bonds (the
Bonds). The Revolving Credit Facility provided for
borrowings up to $30.0 million with an interest rate fixed,
at the Companys option, for a period of one, three, six or
twelve months and based upon the London Interbank Offered Rate
(LIBOR) plus an applicable margin. Interest was
payable quarterly and all outstanding principal due on
June 30, 2004 with no principal payments required prior to
that time. The interest rate at December 31, 2001,
including the applicable margin of 2.50%, was 6.35%. The Bonds
due July 1, 2009, were redeemable at the Companys
option and provided for interest at a variable rate that
approximated 30-day LIBOR. The Bonds were backed by a letter of
credit issued by Wachovia. The cost of the letter of credit and
its associated fees were 2.50%, making the effective rate on the
Bonds LIBOR plus 2.5%. The interest on the Bonds was payable
monthly and the letter of credit fees were payable quarterly.
The effective interest rate on the Bonds, along with the related
fees, at December 31, 2001 was 4.63%.

On April 2, 2002, in accordance with a
December 31, 2001 amendment to the Revolving Credit
Facility with Wachovia, the Company consolidated amounts
outstanding on its Revolving Credit Facility and the Bonds into
a single term loan (Term Loan), which will mature on
June 30, 2004. The Company is required to repay the
principal of the Term Loan in annual installments in the amount
of $2.0 million on or before each of December 31 of
2002 and 2003, together with one final installment at maturity
in 2004. The Term Loan requires the Company to maintain certain
covenants including, among others, ratios that relate funded
debt, as defined in the loan agreement, to total capitalization
and interest coverage. The Company must also comply with
limitations on capital expenditures and additional debt
obligations.

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On December 4, 2002, the Company
participated in a pooled private placement offering of trust
preferred securities. In that offering, the Company issued to a
Connecticut statutory trust, which was created and is controlled
by the Company (the Trust), approximately
$18.0 million in thirty year subordinated debentures, and
the Trust sold $17.5 million of trust preferred securities
to third party investors. The trust preferred securities have an
interest rate equivalent to the three-month LIBOR rate plus
4.00%, which was 5.42% at December 31, 2002; and interest
is payable quarterly in arrears. Of the $17.0 million in
net proceeds, $12.0 million was used to reduce the balance
on the Term Loan and approximately $4.7 million was
contributed to certain of the Companys subsidiaries in the
form of capital contributions and settlement of intercompany tax
obligations. The trust preferred securities have a maturity of
thirty years and are callable, in whole or in part, only at the
option of the Company, after five years and then quarterly
thereafter. The principal asset of the Trust is
$18.0 million of the Parent Companys subordinated
debentures with identical rates of interest and maturities as
the trust preferred securities. The obligations of the Parent
Company with respect to the issuance of the trust preferred
securities represent a full and unconditional guarantee by the
Parent Company of the Trusts obligations with respect to
the trust preferred securities. Subject to certain exceptions
and limitations, the Parent Company may elect from time to time
to defer subordinated debenture interest payments, which would
result in a deferral of distribution payment on the related
trust preferred securities. In connection with the offering of
the trust preferred securities, the Term Loan was modified to
provide for the issuance of such securities.

As of December 31, 2002, the Company had
approximately $32.0 million in outstanding borrowings under
the Term Loan, which matures on June 30, 2004. The Company
intends to pay its obligations under the Term Loan and the trust
preferred securities using dividend and tax sharing payments
from its subsidiaries, or from potential future financing
arrangements. In addition, the Company believes that, if
necessary, at maturity, the Term Loan can be refinanced with the
current lender, although there can be no assurance of the terms
or conditions of such a refinancing.

The Company also has outstanding
$15.9 million of preferred stock issued to affiliates. The
preferred stock accrues a dividend of 9.0% per year, and at
December 31, 2002 the Company had accrued but unpaid
dividends on the preferred stock totaling $8.4 million.

Net cash provided by operating activities totaled
$13.8 million in 2002, $15.8 million in 2001 and
$16.7 million in 2000. Cash and short-term investments at
December 31, 2002 were $41.6 million and are believed
to be more than sufficient to meet the Companys near-term
needs.

The Company believes that the cash flows it
receives from its subsidiaries and, if needed, additional
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.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 provides guidance on
the financial accounting and reporting for acquired goodwill and
other intangible assets. The Company adopted SFAS 142 on
January 1, 2002 and accordingly goodwill and indefinite
lived intangible assets are no longer amortized but are subject
to impairment tests in accordance with the statement. Intangible
assets with finite lives continue to be amortized over their
useful lives, which is no longer limited to a maximum of forty
years. The criteria for recognizing an intangible asset have
also been revised. SFAS 142 requires that goodwill be
tested for impairment at least annually. The goodwill impairment
test requires goodwill to be allocated to reporting units. The
fair value of the reporting unit is then compared to the
carrying value of the reporting unit. If the fair value of the
reporting unit is less than the carrying value of the reporting
unit, a goodwill impairment may exist. The implied fair value of
the goodwill is then compared to the carrying value of the
goodwill and an impairment loss is recognized to the extent that
the carrying value of the goodwill exceeds the implied fair

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value of the goodwill. The impact of adopting
SFAS 142 resulted in an impairment loss of $15,816 in the
casualty division; and such loss was reflected as a cumulative
effect of change in accounting principle in the Companys
2002 results of operations. The following presents the impact on
net income (loss) and net income per share had
SFAS 142 been in effect for 2001 and 2000 (dollars in
thousands except per share amounts).


|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|------------------------------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                             |  |             
|                                                             |  | December 31,
|                                                             |  |             
|                                                             |  | 2002         |         | 2001 |  | 2000
|                                                             |  |              |         |      |  |     
|Net income (loss)                                            |  | $            | (12,215 | )    |  | $    | 3,597 |  |  | $ | 3,632 | 
|Add back: Impairment loss                                    |  |              | 15,816  |      |  |      |      |  |  |   |      | 
|Add back: Goodwill amortization                              |  |              |        |      |  |      | 802   |  |  |   | 798   | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|Adjusted net income                                          |  | $            | 3,601   |      |  | $    | 4,399 |  |  | $ | 4,430 | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|Adjusted net income per common share (basic and
    diluted) |  | $            | .10     |      |  | $    | 14    |  |  | $ | .15   | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This standard
provides the financial accounting and reporting for the cost of
legal obligations associated with the retirement of tangible
long lived assets and is effective for fiscal periods commencing
after June 15, 2002. In accordance with SFAS 143,
asset retirement obligations will be recorded at fair value in
the period they are incurred if a reasonable estimate can be
made. The Company believes that the adoption of SFAS 143
will not have a material effect on the Companys financial
condition or results of operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144).
SFAS 144 supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long Lived-Assets to
be Disposed of (SFAS 121), and the
accounting and reporting provisions for the disposal of a
segment of a business contained in APB Opinion No. 30
Reporting the Effects of a Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions. SFAS 144 establishes
criteria beyond that previously specified in SFAS 121 to
determine when a long-lived asset is to be considered as held
for sale and broadens the presentation of discontinued
operations. The Company adopted SFAS 144 on January 1,
2002. The adoption did not have a material effect on the
Companys financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses significant
issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted
for pursuant to the guidance that the Emerging Issues Task Force
(EITF) set forth in EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)
(EITF 94-3). The scope of SFAS 146 also
includes (1) costs related to terminating a contract that
is not a capital lease, (2) termination benefits that
employees who are involuntarily terminated receive under the
terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation
contract and (3) costs to consolidate facilities or
relocate employees. SFAS 146 is effective for exit and
disposal activities initiated after December 31, 2002. The
Company believes that the adoption of SFAS 146 will not have a
material effect on the Companys financial condition or
results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure
(SFAS 148). SFAS 148 amends FASB Statement
No. 123, Accounting for Stock-Based
Compensation (SFAS 123), to provide
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method
of accounting for stock-based employee

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compensation and the effect of the method used on
reported results. The adoption of SFAS 148 did not have a
material effect on the Companys financial condition or
results of operations.


The FASB has also issued FASB Interpretation
Nos. 45 and 46, which address Guarantors Accounting
and Disclosure Requirements for Guarantees and Consolidation of
Variable Interest Entities, respectively. The Company believes
that the adoption of these Interpretations will not have a
material effect on the Companys financial condition or
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.






|          |                                                               
|--------- | --------------------------------------------------------------
|Item  7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Interest Rate and Market Risk

Due to the nature of the Companys business
it is exposed to both interest rate and market risk. Changes in
interest rates, which represent the largest risk factor
affecting the Company, may result in changes in the fair value
of the Companys investments, cash flows and interest
income and expense. To manage this risk, the Company invests in
high quality bonds and monitors levels of investments in
securities that are directly linked to loans or mortgages.

The Company is also subject to risk from changes
in equity prices. Atlantic American owned $16.1 million of
common stock of Wachovia Corporation at December 31, 2002.
A 10% decrease in the share price of the common stock of
Wachovia Corporation would result in a decrease of approximately
$1.0 million to shareholders equity.

The interest rate on the Companys debt is
tied to LIBOR. During 2001, the Company entered into an interest
rate swap agreement with Wachovia Bank, N.A. to hedge its
interest rate risk on a portion of its outstanding borrowings.
(See Note 7 of Notes to Consolidated Financial Statements).
A 100 basis point increase in the LIBOR would result in an
additional $0.3 million in interest expense.

The table below summarizes the estimated fair
values that might result from changes in interest rates of the
Companys bond portfolio:

|                  |  |                        |         |        |  |            |         |        |  |        |         |  |  |   |         |  |  |   |         | 
|----------------- |  | ---------------------- | ------- | ------ |  | ---------- | ------- | ------ |  | ------ | ------- |  |  | - | ------- |  |  | - | ------- | 
|                  |  | +200bp                 |         | +100bp |  | Fair value |         | -100bp |  | -200bp
|                  |  |                        |         |        |  |            |         |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2002 |  | $                      | 169,123 |        |  | $          | 179,311 |        |  | $      | 181,830 |  |  | $ | 190,992 |  |  | $ | 195,996 | 
|December 31, 2001 |  | $                      | 122,347 |        |  | $          | 128,168 |        |  | $      | 133,470 |  |  | $ | 138,642 |  |  | $ | 141,788 | 

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The Company is also subject to risk from changes
in equity prices. The table below summarizes the effect that a
change in share price would have on the value of the
Companys equity portfolio, including the Companys
single largest equity holding.

|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | +20%                   |        | +10% |  | Fair Value |        | -10% |  | -20%
|                                   |  |                        |        |      |  |            |        |      |  |     
|                                   |  |                       
|                                   |  | (Dollars in thousands)
|December 31, 2002                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 19,354 |      |  | $          | 17,741 |      |  | $    | 16,128 |  |  | $ | 14,515 |  |  | $ | 12,902 | 
|Other equity holdings              |  |                        | 49,336 |      |  |            | 45,225 |      |  |      | 41,114 |  |  |   | 37,003 |  |  |   | 32,892 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 68,690 |      |  | $          | 62,966 |      |  | $    | 57,242 |  |  | $ | 51,518 |  |  | $ | 45,794 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|December 31, 2001                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 17,220 |      |  | $          | 15,785 |      |  | $    | 14,350 |  |  | $ | 12,915 |  |  | $ | 11,480 | 
|Other equity holdings              |  |                        | 48,334 |      |  |            | 44,306 |      |  |      | 40,278 |  |  |   | 36,250 |  |  |   | 32,222 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 65,554 |      |  | $          | 60,091 |      |  | $    | 54,628 |  |  | $ | 49,165 |  |  | $ | 43,702 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 

The interest rate on the Companys debt is
variable and tied to LIBOR. The table below summarizes the
effect that changes in interest rates would have on the
Companys interest expense. The impact of the changes in
interest rates at December 31, 2002 includes the impact of
the interest rate swap agreement the Company entered into on
March 21, 2001, discussed previously.

|                  |  |                        |     |        |  |                  |     |        |  |        |        |  |  |   |      |   |  |   |      |  
|----------------- |  | ---------------------- | --- | ------ |  | ---------------- | --- | ------ |  | ------ | ------ |  |  | - | ---- | - |  | - | ---- | -
|                  |  |                        |     |        |  |                 
|                  |  | Interest Expense       |     |        |  | Interest Expense
|                  |  |                        |     |        |  |                 
|                  |  | +200bp                 |     | +100bp |  | Debt             |     | -100bp |  | -200bp
|                  |  |                        |     |        |  |                  |     |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2002 |  | $                      | 690 |        |  | $                | 345 |        |  | $      | 49,500 |  |  | $ | (345 | ) |  | $ | (690 | )
|December 31, 2001 |  | $                      | 580 |        |  | $                | 290 |        |  | $      | 44,000 |  |  | $ | (290 | ) |  | $ | (580 | )

Deferred Taxes

At December 31, 2002, the Company had a net
deferred tax asset of $0.7 million, comprised of a deferred
tax asset of $18.4 million, a deferred tax liability of
$13.9 million and a valuation allowance of
$3.8 million. The valuation allowance was established
against deferred income tax benefits relating primarily to net
operating loss carryforwards that may not be realized. Since the
Companys ability to generate taxable income from
operations and utilize available tax-planning strategies in the
near term is dependent upon various factors, many of which are
beyond managements control, management believes that the
deferred income tax benefits relating to these carryforwards may
not be realized. However, realization of the remaining deferred
income tax benefits will be assessed periodically based on the
Companys current and anticipated results of operations and
amounts could increase or decrease in the near term if estimates
of future taxable income change. The Company has a formal
tax-sharing agreement and files a consolidated income tax return
with its subsidiaries.

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Item 8.     Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                          |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                          |  | Page
|                                                                                                                          |  |     
|ATLANTIC AMERICAN CORPORATION                                                                                             |  |      |    | 
|Report of Independent Public Accountants                                                                                  |  |      | 37 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                          |  |      | 39 | 
|Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2002               |  |      | 40 | 
|Consolidated Statements of Shareholders
    Equity for each of the three years in the period ended
    December 31, 2002 |  |      | 41 | 
|Consolidated Statements of Cash Flows for each of
    three years in the period ended December 31, 2002                   |  |      | 42 | 
|Notes to Consolidated Financial Statements                                                                                |  |      | 43 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of

Atlantic American Corporation:


We have audited the accompanying consolidated
balance sheet of ATLANTIC AMERICAN CORPORATIONand
subsidiaries (the Company) as of December 31,
2002, and the related consolidated statements of operations,
shareholders equity, and cash flows for the year then
ended. Our audit also included the 2002 financial statement
schedules listed in the index at Item 15(a). These
financial statements and financial statement schedules are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the 2002 financial
statements and financial statement schedules based on our audit.
The financial statements and financial statement schedules of
the Company as of December 31, 2001, and for each of the
years in the two-year period then ended, before the inclusion of
the disclosures discussed in Note 1 to the consolidated
financial statements, were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified
opinion on those consolidated financial statements and stated
that such 2001 and 2000 financial statement schedules, when
considered in relation to the 2001 and 2000 basic financial
statements taken as a whole, fairly state, in all material
respects the financial data required to be set forth therein, in
their report dated March 25, 2002.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. 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 audit
provides a reasonable basis for our opinion.

In our opinion the 2002 consolidated financial
statements present fairly, in all material respects, the
financial position of ATLANTIC AMERICAN CORPORATION and
subsidiaries at December 31, 2002, and the results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the 2002
financial statement schedules, when considered in relation to
the 2002 basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information
set forth therein.

As discussed in Note 1 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets to conform
to Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of
January 1, 2002.

As discussed above, the financial statements of
ATLANTIC AMERICAN CORPORATION and subsidiaries as of
December 31, 2001 and for each of the years in the two-year
period then ended, were audited by other auditors who have
ceased operations. As described in Note 1, those financial
statements have been revised to include pro forma disclosures
required by SFAS No. 142. We audited the transitional SFAS
No. 142 disclosures as described in Note 1. Our
procedures included proving the arithmetic accuracy of adjusted
net income and adjusted net income per common share (basic and
diluted) as included within the pro forma disclosures. In our
opinion, such adjustments and disclosures are appropriate and
have been properly applied. However, we were not engaged to
audit, review, or apply any procedures to the 2001 and 2000
consolidated financial statements of the Company other than with
respect to such adjustments and disclosures and, accordingly, we
do not express an opinion or any other form of assurance on the
2001 and 2000 consolidated financial statements taken as a whole.

DELOITTE & TOUCHE LLP

Atlanta, Georgia

March 26, 2003


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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Atlantic American Corporation:

We have audited the accompanying consolidated
balance sheets of ATLANTIC AMERICAN CORPORATION (a
Georgia corporation) and subsidiaries (the Company)
as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders equity
and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements and the
schedules referred to below are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits.

We conducted our audit in accordance with
auditing standards generally accepted in the United States.
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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Atlantic American
Corporation and subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States.

Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The Schedules I, II, III, IV and VI listed in Part IV,
Item 14 are presented for purposes of complying with the
Securities and Exchange Commissions rules and are not part
of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements, and in our opinion, fairly state in
all material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia

March 25, 2002


THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY
ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH ATLANTIC
AMERICAN CORPORATIONS FILING ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT
BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS
FILING ON FORM 10-K.

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |        |         |         | 
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                      
|                                                                                                                      |                                                                                                                                                                                                                                                | December 31,                                                                                         
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                      
|                                                                                                                      |                                                                                                                                                                                                                                                | 2002                                                                                                  |                                            | 2001   
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |        
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                      
|                                                                                                                      |                                                                                                                                                                                                                                                | (Dollars in thousands,                                                                               
|                                                                                                                      |                                                                                                                                                                                                                                                | except share and per                                                                                 
|                                                                                                                      |                                                                                                                                                                                                                                                | share data)                                                                                          
|ASSETS                                                                                                               
|Cash and cash equivalents, including short-term
    investments of $21,487 and $39,151 in 2002 and 2001, respectively |                                                                                                                                                                                                                                                | $                                                                                                     | 41,638                                     |         |         | $       | 68,846  |       
|Investments                                                                                                           |                                                                                                                                                                                                                                                |                                                                                                       | 249,842                                    |         |         |         | 199,132 |       
|Receivables:                                                                                                          |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      |                                                                                                                                                                                                                                                | Reinsurance                                                                                           |                                            |         | 49,875  |         |         |        | 48,946  |        
|                                                                                                                      |                                                                                                                                                                                                                                                | Other, net of allowance for doubtful accounts of
    $1,121 and $1,119 in 2002 and 2001, respectively |                                            |         | 42,897  |         |         |        | 39,055  |        
|Deferred income taxes, net                                                                                            |                                                                                                                                                                                                                                                |                                                                                                       | 667                                        |         |         |         | 2,294   |       
|Deferred acquisition costs                                                                                            |                                                                                                                                                                                                                                                |                                                                                                       | 25,922                                     |         |         |         | 24,681  |       
|Other assets                                                                                                          |                                                                                                                                                                                                                                                |                                                                                                       | 9,644                                      |         |         |         | 10,241  |       
|Goodwill                                                                                                              |                                                                                                                                                                                                                                                |                                                                                                       | 3,008                                      |         |         |         | 18,824  |       
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      |                                                                                                                                                                                                                                                | Total assets                                                                                          |                                            | $       | 423,493 |         |         | $      | 412,019 |        
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                             
|Insurance reserves and policyholder funds                                                                             |                                                                                                                                                                                                                                                | $                                                                                                     | 256,646                                    |         |         | $       | 243,199 |       
|Accounts payable and accrued expenses                                                                                 |                                                                                                                                                                                                                                                |                                                                                                       | 38,807                                     |         |         |         | 37,294  |       
|Debt payable                                                                                                          |                                                                                                                                                                                                                                                |                                                                                                       | 49,500                                     |         |         |         | 44,000  |       
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      |                                                                                                                                                                                                                                                | Total liabilities                                                                                     |                                            |         | 344,953 |         |         |        | 324,493 |        
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|Commitments and contingencies (Note 8)                                                                                |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|Shareholders equity:                                                                                                 |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      | Preferred stock, $1 par, 4,000,000 shares
    authorized;                                                                                                                                                                                      |                                                                                                       |                                            |         |         |         |         |        |        
|                                                                                                                      |                                                                                                                                                                                                                                                | Series B preferred, 134,000 shares issued
    and outstanding, $13,400 redemption value               |                                            |         | 134     |         |         |        | 134     |        
|                                                                                                                      |                                                                                                                                                                                                                                                | Series C preferred, 25,000 shares issued and
    outstanding, $2,500 redemption value                 |                                            |         | 25      |         |         |        | 25      |        
|                                                                                                                      | Common stock, $1 par, 50,000,000 shares
    authorized in 2002 and 30,000,000 shares authorized in 2001;
    21,412,138 shares issued in 2002 and 2001 and 21,374,370 shares
    outstanding in 2002 and 21,245,711 shares outstanding in 2001 |                                                                                                       |                                            | 21,412  |         |         |         | 21,412 |        
|                                                                                                                      | Additional paid-in capital                                                                                                                                                                                                                     |                                                                                                       |                                            | 55,204  |         |         |         | 56,606 |        
|                                                                                                                      | Retained earnings (accumulated deficit)                                                                                                                                                                                                        |                                                                                                       |                                            | (11,270 | )       |         |         | 1,097  |        
|                                                                                                                      | Unearned compensation                                                                                                                                                                                                                          |                                                                                                       |                                            | (30     | )       |         |         |       |        
|                                                                                                                      | Accumulated other comprehensive income                                                                                                                                                                                                         |                                                                                                       |                                            | 13,143  |         |         |         | 8,748  |        
|                                                                                                                      | Treasury stock, at cost, 37,768 shares in 2002
    and 166,427 shares in 2001                                                                                                                                                                  |                                                                                                       |                                            | (78     | )       |         |         | (496   | )      
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      |                                                                                                                                                                                                                                                | Total shareholders equity                                                                            |                                            |         | 78,540  |         |         |        | 87,526  |        
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       | Total liabilities and shareholders equity |         | $       | 423,493 |         |        | $       | 412,019 | 
|                                                                                                                      |                                                                                                                                                                                                                                                |                                                                                                       |                                            |         |         |         |         |       

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

39



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##### Table of Contents



ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |         |     |         | 
|--------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------- | ---- | ------- | ------ | ------- | --- | ------- | ------ | ------- | --- | ------- | 
|                                                                      |                                        |                                                                      
|                                                                      |                                        | Year Ended December 31,                                              
|                                                                      |                                        |                                                                      
|                                                                      |                                        | 2002                                                                  |                                                                                        | 2001    |      | 2000   
|                                                                      |                                        |                                                                       |                                                                                        |         |      |        
|                                                                      |                                        |                                                                      
|                                                                      |                                        | (Dollars in thousands,                                               
|                                                                      |                                        | except per share data)                                               
|Revenue:                                                              |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      | Insurance premiums                     |                                                                       | $                                                                                      | 154,499 |      |         | $      | 145,589 |     |         | $      | 133,497 |    
|                                                                      | Investment income                      |                                                                       |                                                                                        | 14,011  |      |         |        | 14,317  |     |         |        | 15,552  |    
|                                                                      | Other income                           |                                                                       |                                                                                        | 1,148   |      |         |        | 1,694   |     |         |        | 1,287   |    
|                                                                      | Realized investment gains, net         |                                                                       |                                                                                        | 587     |      |         |        | 1,708   |     |         |        | 1,922   |    
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Total revenue                                                                          |         |      | 170,245 |        |         |     | 163,308 |        |         |     | 152,258 | 
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|Benefits and expenses:                                                |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      | Insurance benefits and losses incurred |                                                                       |                                                                                        | 109,109 |      |         |        | 106,896 |     |         |        | 97,628  |    
|                                                                      | Commissions and underwriting expenses  |                                                                       |                                                                                        | 43,757  |      |         |        | 37,317  |     |         |        | 36,677  |    
|                                                                      | Interest expense                       |                                                                       |                                                                                        | 2,562   |      |         |        | 3,234   |     |         |        | 4,408   |    
|                                                                      | Other                                  |                                                                       |                                                                                        | 11,714  |      |         |        | 11,608  |     |         |        | 8,789   |    
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Total benefits and expenses                                                            |         |      | 167,142 |        |         |     | 159,055 |        |         |     | 147,502 | 
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Income before income taxes and cumulative effect
    of change in accounting principle |         |      | 3,103   |        |         |     | 4,253   |        |         |     | 4,756   | 
|Income tax (benefit) expense                                          |                                        |                                                                       | (498                                                                                   | )       |      |         | 656    |         |     |         | 1,124  |        
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|Income before cumulative effect of change in
    accounting principle |                                        |                                                                       | 3,601                                                                                  |         |      |         | 3,597  |         |     |         | 3,632  |        
|Cumulative effect of change in accounting
    principle               |                                        |                                                                       | (15,816                                                                                | )       |      |         |       |         |     |         |       |        
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|Net income (loss)                                                     |                                        |                                                                       | (12,215                                                                                | )       |      |         | 3,597  |         |     |         | 3,632  |        
|Preferred stock dividends                                             |                                        |                                                                       | (1,431                                                                                 | )       |      |         | (1,431 | )       |     |         | (1,206 | )      
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Net income (loss) applicable to common stock                                           |         | $    | (13,646 | )      |         | $   | 2,166   |        |         | $   | 2,426   | 
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|Basic earnings (loss) per common share:                               |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        | Income before cumulative effect of change in
    accounting principle |                                                                                        | $       | .10  |         |        | $       | .10 |         |        | $       | .12 |        
|                                                                      |                                        | Cumulative effect of change in accounting
    principle               |                                                                                        |         | (.74 | )       |        |         |    |         |        |         |    |        
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Net income (loss)                                                                      |         | $    | (.64    | )      |         | $   | .10     |        |         | $   | .12     | 
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|Diluted earnings (loss) per common share:                             |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        | Income before cumulative effect of change in
    accounting principle |                                                                                        | $       | .10  |         |        | $       | .10 |         |        | $       | .12 |        
|                                                                      |                                        | Cumulative effect of change in accounting
    principle               |                                                                                        |         | (.73 | )       |        |         |    |         |        |         |    |        
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        
|                                                                      |                                        |                                                                       | Net income (loss)                                                                      |         | $    | (.63    | )      |         | $   | .10     |        |         | $   | .12     | 
|                                                                      |                                        |                                                                       |                                                                                        |         |      |         |        |         |     |         |        |        

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

40



---



##### Table of Contents



ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |   |         |  
|--------------------------------------------------------------------------- | --------------------- | ------------------------------------------------------------------ | --- | ------ | - | ---------- | ------ | ------------ | - | ------------ | ------ | ------------- | - | -------- | ------- | ----- | ------- | - | --- | - | - | - | ------ |  | ------ | - | ------ | - | - | - | ------ | - | ------- | -
|                                                                            |                       |                                                                    |     |        |   |            |        | Retained     |   |              |        | Accumulated   |   |          |         |      
|                                                                            |                       |                                                                    |     |        |   | Additional |        | Earnings     |   |              |        | Other         |   |          |         |      
|                                                                            |                       | Preferred                                                          |     | Common |   | Paid-In    |        | (Accumulated |   | Unearned     |        | Comprehensive |   | Treasury |         |      
|                                                                            |                       | Stock                                                              |     | Stock  |   | Capital    |        | Deficit)     |   | Compensation |        | Income        |   | Stock    |         | Total
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |      
|                                                                            |                       |                                                                   
|                                                                            |                       | (Dollars in thousands, except share data)                         
|Balance, December 31, 1999                                                  |                       | $                                                                  | 134 |        |   | $          | 21,412 |              |   | $            | 55,677 |               |   | $        | (4,558  | )     |         | $ |    |   |   | $ | 7,836  |  |        | $ | (1,553 | ) |   | $ | 78,948 |  
|                                                                            | Comprehensive income: |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |   |        
|                                                                            |                       | Net income                                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       | 3,632   |   |     |   |  |   |        |  |       |   |        |   |  |   |        |   | 3,632   |  
|                                                                            |                       | Decrease in unrealized investment gains                            |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (1,563 | ) |        |   |  |   |        |   | (1,563  | )
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive loss   |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 547    |   |        |   |  |   |        |   | 547     |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|                                                                            |                       | Total comprehensive income                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |        |   |  |   |        |   | 2,616   |  
|Issuance of 25,000 shares of preferred stock                                |                       |                                                                    | 25  |        |   |            |       |              |   |              | 2,475  |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | 2,500  |  
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (1,206 | )             |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | (1,206 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 51     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | 51     |  
|Purchase of 33,206 shares for treasury                                      |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (79    | ) |   |   | (79    | )
|Issuance of 163,670 shares for employee benefit
    plans and stock options |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          | (322    | )     |         |   |    |   |   |   |       |  |        |   | 732    |   |   |   | 410    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|Balance, December 31, 2000                                                  |                       |                                                                    | 159 |        |   |            | 21,412 |              |   |              | 56,997 |               |   |          | (1,248  | )     |         |   |    |   |   |   | 6,820  |  |        |   | (900   | ) |   |   | 83,240 |  
|                                                                            | Comprehensive income: |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |   |        
|                                                                            |                       | Net income                                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       | 3,597   |   |     |   |  |   |        |  |       |   |        |   |  |   |        |   | 3,597   |  
|                                                                            |                       | Increase in unrealized investment gain                             |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 3,498  |   |        |   |  |   |        |   | 3,498   |  
|                                                                            |                       | Fair value adjustment to interest rate swap                        |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (532   | ) |        |   |  |   |        |   | (532    | )
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive income |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (1,038 | ) |        |   |  |   |        |   | (1,038  | )
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|                                                                            |                       | Total comprehensive income                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |        |   |  |   |        |   | 5,525   |  
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (436   | )             |   |          | (995    | )     |         |   |    |   |   |   |       |  |        |   |       |   |   |   | (1,431 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 45     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | 45     |  
|Purchase of 5,999 shares for treasury                                       |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (11    | ) |   |   | (11    | )
|Issuance of 94,460 shares for employee benefit
    plans and stock options  |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          | (257    | )     |         |   |    |   |   |   |       |  |        |   | 415    |   |   |   | 158    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|Balance, December 31, 2001                                                  |                       |                                                                    | 159 |        |   |            | 21,412 |              |   |              | 56,606 |               |   |          | 1,097   |       |         |   |    |   |   |   | 8,748  |  |        |   | (496   | ) |   |   | 87,526 |  
|                                                                            | Comprehensive loss:   |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |   |        
|                                                                            |                       | Net loss                                                           |     |        |  |            |        |              |  |              |        |               |  |          |         |       | (12,215 | ) |     |   |  |   |        |  |       |   |        |   |  |   |        |   | (12,215 | )
|                                                                            |                       | Increase in unrealized investment gains                            |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 7,144  |   |        |   |  |   |        |   | 7,144   |  
|                                                                            |                       | Fair value adjustment to interest rate swap                        |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (382   | ) |        |   |  |   |        |   | (382    | )
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive income |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (2,367 | ) |        |   |  |   |        |   | (2,367  | )
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|                                                                            |                       | Total comprehensive loss                                           |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |        |   |  |   |        |   | (7,820  | )
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (1,431 | )             |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | (1,431 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 41     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |       |   |   |   | 41     |  
|Restricted stock grants                                                     |                       |                                                                    |    |        |   |            |       |              |   |              | (12    | )             |   |          |        |       |         |   | (66 | ) |   |   |       |  |        |   | 78     |   |   |   |       |  
|Amortization of unearned compensation                                       |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   | 36  |   |   |   |       |  |        |   |       |   |   |   | 36     |  
|Purchase of 23,736 shares for treasury                                      |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (44    | ) |   |   | (44    | )
|Issuance of 152,395 shares for employee benefit
    plans and stock options |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          | (152    | )     |         |   |    |   |   |   |       |  |        |   | 384    |   |   |   | 232    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  
|Balance, December 31, 2002                                                  |                       | $                                                                  | 159 |        |   | $          | 21,412 |              |   | $            | 55,204 |               |   | $        | (11,270 | )     |         | $ | (30 | ) |   | $ | 13,143 |  |        | $ | (78    | ) |   | $ | 78,540 |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |        |   |   |   |        |  

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

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |         |        |  
|------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | -------- | ------- | ---- | ------ | -------- | ------ |  | ------- | ------- | ------ | -
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | Year Ended December 31,                                 
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | 2002                                                     |         | 2001     |         | 2000
|                                                        |                                                                                              |                                                          |         |          |         |     
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | (Dollars in thousands)                                  
|Cash flows from operating
    activities:               |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Net income (loss)                                                                            |                                                          | $       | (12,215  | )       |      | $      | 3,597    |        |  | $       | 3,632   |       
|                                                        | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                          |         |          |         |      |        |          |        |  |         |         |       
|                                                        | Cumulative effect of change in accounting
    principle                                      |                                                          |         | 15,816   |         |      |        |         |        |  |         |        |       
|                                                        | Amortization of deferred acquisition costs                                                   |                                                          |         | 17,610   |         |      |        | 16,892   |        |  |         | 15,804  |       
|                                                        | Acquisition costs deferred                                                                   |                                                          |         | (18,851  | )       |      |        | (18,175  | )      |  |         | (18,804 | )     
|                                                        | Realized investment gains, net                                                               |                                                          |         | (587     | )       |      |        | (1,708   | )      |  |         | (1,922  | )     
|                                                        | Increase in insurance reserves and policyholder
    funds                                    |                                                          |         | 13,447   |         |      |        | 18,035   |        |  |         | 20,019  |       
|                                                        | Compensation expense related to share awards                                                 |                                                          |         | 77       |         |      |        | 45       |        |  |         | 51      |       
|                                                        | Depreciation and amortization                                                                |                                                          |         | 924      |         |      |        | 1,680    |        |  |         | 1,744   |       
|                                                        | Deferred income tax (benefit) expense                                                        |                                                          |         | (621     | )       |      |        | 507      |        |  |         | 1,007   |       
|                                                        | Increase in receivables, net                                                                 |                                                          |         | (4,226   | )       |      |        | (12,402  | )      |  |         | (8,584  | )     
|                                                        | Increase in other liabilities                                                                |                                                          |         | 1,926    |         |      |        | 12,681   |        |  |         | 3,617   |       
|                                                        | Other, net                                                                                   |                                                          |         | 477      |         |      |        | (5,305   | )      |  |         | 142     |       
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Net cash provided by operating activities               |                                                                                              |                                                          | 13,777  |          |         |      | 15,847 |          |        |  | 16,706  |        
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Cash flows from investing
    activities:               |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Proceeds from investments sold                                                               |                                                          |         | 7,282    |         |      |        | 39,122   |        |  |         | 3,447   |       
|                                                        | Proceeds from investments matured, called or
    redeemed                                    |                                                          |         | 54,838   |         |      |        | 94,098   |        |  |         | 11,877  |       
|                                                        | Investments purchased                                                                        |                                                          |         | (107,371 | )       |      |        | (109,249 | )      |  |         | (31,290 | )     
|                                                        | Additions to property and equipment                                                          |                                                          |         | (452     | )       |      |        | (930     | )      |  |         | (619    | )     
|                                                        | Acquisition of Association Casualty                                                          |                                                          |         |         |         |      |        | (128     | )      |  |         | (94     | )     
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Net cash (used in) provided by investing
    activities |                                                                                              |                                                          | (45,703 | )        |         |      | 22,913 |          |        |  | (16,679 | )      
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Cash flows from financing
    activities:               |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Net proceeds from issuance of trust preferred
    securities                                 |                                                          |         | 16,974   |         |      |        |         |        |  |         |        |       
|                                                        | Proceeds from issuance of Series C Preferred
    Stock                                       |                                                          |         |         |         |      |        | 750      |        |  |         | 1,750   |       
|                                                        | Preferred stock dividends                                                                    |                                                          |         | (225     | )       |      |        | (225     | )      |  |         |        |       
|                                                        | Proceeds from exercise of stock options                                                      |                                                          |         | 13       |         |      |        | 158      |        |  |         | 410     |       
|                                                        | Purchase of treasury shares                                                                  |                                                          |         | (44      | )       |      |        | (11      | )      |  |         | (79     | )     
|                                                        | Repayments of debt                                                                           |                                                          |         | (12,000  | )       |      |        | (2,500   | )      |  |         | (4,500  | )     
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Net cash provided by (used in) financing
    activities |                                                                                              |                                                          | 4,718   |          |         |      | (1,828 | )        |        |  | (2,419  | )      
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        |                                                                                              | Net (decrease) increase in cash and cash
    equivalents |         |          | (27,208 | )    |        |          | 36,932 |  |         |         | (2,392 | )
|                                                        | Cash and cash equivalents at beginning of year                                               |                                                          |         | 68,846   |         |      |        | 31,914   |        |  |         | 34,306  |       
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Cash and cash equivalents at end of year                                                     |                                                          | $       | 41,638   |         |      | $      | 68,846   |        |  | $       | 31,914  |       
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|Supplemental cash flow information:                     |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Cash paid for interest                                                                       |                                                          | $       | 2,282    |         |      | $      | 3,394    |        |  | $       | 4,170   |       
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        
|                                                        | Cash paid for income taxes                                                                   |                                                          | $       | 113      |         |      | $      | 176      |        |  | $       | 166     |       
|                                                        |                                                                                              |                                                          |         |          |         |      |        |          |        |  |         |        

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

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands, except per share
amounts)


Note 1.     Summary
of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements have been prepared in conformity with accounting
principles generally accepted in the United States
(GAAP) which, as to insurance companies, differ from
the statutory accounting practices prescribed or permitted by
regulatory authorities. These financial statements include the
accounts of Atlantic American Corporation (the
Company) and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.

At December 31, 2002, the Company had five
insurance subsidiaries, including Bankers Fidelity Life
Insurance Company (Bankers Fidelity), American
Southern Insurance Company and its wholly-owned subsidiary,
American Safety Insurance Company (together known as
American Southern), Association Casualty Insurance
Company and Georgia Casualty & Surety Company
(Georgia Casualty), in addition to three
non-insurance subsidiaries, Association Risk Management General
Agency, Inc., Self-Insurance Administrators, Inc. (SIA,
Inc.) and Atlantic American Statutory Trust I
(Trust). Association Casualty Insurance Company and
Association Risk Management General Agency, Inc. are
collectively known as Association Casualty.



| |                                         
| | ----------------------------------------
| | Premium Revenue and Cost
    Recognition

Life insurance premiums are recognized as
revenues when due; accident and health premiums are recognized
over the premium paying period and property and casualty
insurance premiums are recognized as revenue ratably over the
contract period. Benefits and expenses are associated with
premiums as they are earned so as to result in recognition of
profits over the lives of the contracts. For traditional life
insurance and long-duration health insurance, 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, deferred policy acquisition
costs (principally commissions, premium taxes, and other
expenses of issuing policies). 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 Company provides for
insurance benefits and losses on accident, health, and casualty
claims based upon estimates of projected ultimate losses. The
deferred policy acquisition costs for property and casualty
insurance 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 future premiums (for traditional life
and long-duration health insurance) and from the related
unearned premiums and investment income (for property and
casualty and short-duration health insurance).



| |         
| | --------
| | Goodwill

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 provides guidance on
the financial accounting and reporting for acquired goodwill and
other intangible assets. The Company adopted SFAS 142 on
January 1, 2002 and accordingly goodwill and indefinite
lived intangible assets are no longer amortized but are subject
to impairment tests in accordance with the statement. Intangible
assets with finite lives continue to be amortized over their
useful lives, which is no longer limited to a maximum of forty
years. The criteria for recognizing an intangible asset have
also been revised. SFAS 142 requires that goodwill be
tested for impairment at least annually. The goodwill impairment
test requires goodwill to be allocated to reporting units. The
fair value of the reporting unit is then compared to the
carrying value of the reporting unit. If the fair value of the
reporting unit is less than the carrying value of the reporting
unit, a goodwill impairment may exist. The

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implied fair value of the goodwill is then
compared to the carrying value of the goodwill and an impairment
loss is recognized to the extent that the carrying value of the
goodwill exceeds the implied fair value of the goodwill. The
impact of adopting SFAS 142 resulted in an impairment loss
of $15,816 in the casualty division; and such loss was reflected
as a cumulative effect of change in accounting principle in the
Companys 2002 results of operations. The following
presents the impact on net income (loss) and net income per
share had SFAS 142 been in effect for 2001 and 2000.


|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|------------------------------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                             |  |             
|                                                             |  | December 31,
|                                                             |  |             
|                                                             |  | 2002         |         | 2001 |  | 2000
|                                                             |  |              |         |      |  |     
|Net income (loss)                                            |  | $            | (12,215 | )    |  | $    | 3,597 |  |  | $ | 3,632 | 
|Add back: Impairment loss                                    |  |              | 15,816  |      |  |      |      |  |  |   |      | 
|Add back: Goodwill amortization                              |  |              |        |      |  |      | 802   |  |  |   | 798   | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|Adjusted net income                                          |  | $            | 3,601   |      |  | $    | 4,399 |  |  | $ | 4,430 | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 
|Adjusted net income per common share (basic and
    diluted) |  | $            | .10     |      |  | $    | .14   |  |  | $ | .15   | 
|                                                             |  |              |         |      |  |      |       |  |  |   |       | 



| |            
| | -----------
| | 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. Other invested
assets are comprised of investments in limited partnerships,
limited liability companies, and real estate joint ventures;
those which are publicly traded are carried at estimated market
value and those for which the Company has the ability to
exercise significant influence (equity investees)
are accounted for using the equity method. If the value of a
common stock, preferred stock, other invested asset, or publicly
traded bond declines below its cost or amortized cost, and the
decline 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. In evaluating impairment, the Company considers,
among other factors, the expected holding period, the nature of
the investment and the prospects for the company and its
industry. Premiums and discounts related to investments are
amortized or accreted over the life of the related investment as
an adjustment to yield using the effective interest method.
Dividends and interest income are recognized when earned or
declared. The cost of securities sold is based on specific
identification. Unrealized gains (losses) in the value of
invested assets, are accounted for as a direct increase
(decrease) in accumulated other comprehensive income in
shareholders equity, net of deferred tax 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 due related to
the current year, plus the change in deferred taxes during the
year. A valuation allowance is recognized if, based on
managements assessment of the relevant facts, it is more
likely than not that some portion of the deferred tax asset will
not be realized.



| |                          
| | -------------------------
| | Earnings Per Common Share

Basic earnings per common 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 and
share awards outstanding using the treasury stock method and
assumed conversion of the Series B and C Preferred Stock,
if dilutive. Unless otherwise indicated, earnings per common
share amounts are presented on a diluted basis.

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| |              
| | -------------
| | Stock Options

Stock options are reported under the recognition
and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees instead of the fair
value approach recommended in Statement No. 123
Accounting for Stock-Based Compensation
(SFAS 123). Accordingly, no stock-based
employee compensation cost is reflected in net income, as all
stock options granted have an exercise price equal to the market
value of the underlying common stock on the date of grant. In
December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148).
SFAS 148 amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the
effect of the method used on reported results. If the Company
had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation, the
Companys net income (loss) and earnings
(loss) per share would have been as follows:

|                                          |             |         |   |         |  |         |   |         |   |  |   |       |  |  |   |       | 
|----------------------------------------- | ----------- | ------- | - | ------- |  | ------- | - | ------- | - |  | - | ----- |  |  | - | ----- | 
|                                          |             | 2002(1) |   | 2002(2) |  | 2001(2) |   | 2000(2)
|                                          |             |         |   |         |  |         |   |        
|Income (loss):                            |             |         |   |         |  |         |   |         |   |  |   |       |  |  |   |      
|                                          | As reported |         | $ | 3,601   |  |         | $ | (12,215 | ) |  | $ | 3,597 |  |  | $ | 3,632 | 
|                                          | Pro forma   |         |   | 3,331   |  |         |   | (12,485 | ) |  |   | 3,398 |  |  |   | 3,480 | 
|Basic earnings (loss) per common share:   |             |         |   |         |  |         |   |         |   |  |   |       |  |  |   |      
|                                          | As reported |         | $ | .10     |  |         | $ | (.64    | ) |  | $ | .10   |  |  | $ | .12   | 
|                                          | Pro forma   |         |   | .09     |  |         |   | (.65    | ) |  |   | .09   |  |  |   | .11   | 
|Diluted earnings (loss) per common share: |             |         |   |         |  |         |   |         |   |  |   |       |  |  |   |      
|                                          | As reported |         | $ | .10     |  |         | $ | (.63    | ) |  | $ | .10   |  |  | $ | .12   | 
|                                          | Pro forma   |         |   | .09     |  |         |   | (.64    | ) |  |   | .09   |  |  |   | .11   | 



|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Based on income before cumulative effect of
    change in accounting principle.
|   
|(2) | Based on net income (loss).                                                    

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



| |                          
| | -------------------------
| | 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

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This standard
provides the financial accounting and reporting for the cost of
legal obligations associated with the retirement of tangible
long lived assets and is effective for fiscal periods commencing
after June 15, 2002. In accordance with SFAS 143,
asset retirement obligations will be recorded at fair value in
the period they are incurred if a reasonable estimate can be
made. The Company believes that the adoption of SFAS 143
will not have a material effect on the Companys financial
condition or results of operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144).
SFAS 144 supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long Lived-Assets to
be Disposed of (SFAS 121), and the
accounting and reporting provisions for the disposal of a
segment of a business contained in APB Opinion No. 30
Reporting the Effects of a Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions. SFAS 144 establishes
criteria beyond that previously

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specified in SFAS 121 to determine when a
long-lived asset is to be considered as held for sale and
broadens the presentation of discontinued operations. The
Company adopted SFAS 144 on January 1, 2002. The
adoption did not have a material effect on the Companys
financial condition or results of operations.


In June 2002, the FASB issued SFAS No. 146,
Accounting for Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses significant
issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted
for pursuant to the guidance that the Emerging Issues Task Force
(EITF) set forth in EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)
(EITF 94-3). The scope of SFAS 146 also
includes (1) costs related to terminating a contract that
is not a capital lease, (2) termination benefits that
employees who are involuntarily terminated receive under the
terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation
contract and (3) costs to consolidate facilities or
relocate employees. SFAS 146 is effective for exit and disposal
activities initiated after December 31, 2002. The Company
believes that the adoption of SFAS 146 will not have a material
effect on the Companys financial condition or results of
operations.

The FASB has also issued FASB Interpretation
Nos. 45 and 46, which address Guarantors Accounting
and Disclosure Requirements for Guarantees and Consolidation of
Variable Interest Entities, respectively. The Company believes
that the adoption of these interpretations will not have a
material effect on the Companys financial condition or the
results of operations.



| |                                                                
| | ---------------------------------------------------------------
| | Use of Estimates in the Preparation of
    Financial Statements

The preparation of financial statements and
related disclosures 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 revenues and expenses during the reporting period.
Significant estimates and assumptions are used in developing and
evaluating deferred income taxes, deferred acquisition costs and
insurance reserves, among others, and actual results could
differ from managements estimates.

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Note 2.     Investments

Investments are comprised of the following:

|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |         | 
|----------------------------------------------- | ------------------------------------------------------------------------------------------- | -------- | ------- | ---------- |  | ---------- | ------ | --------- |  |  | --- | ----- |  |  | ------- | ------- | 
|                                                |                                                                                             |         
|                                                |                                                                                             | 2002    
|                                                |                                                                                             |         
|                                                |                                                                                             |          |         | Gross      |  | Gross      |        |          
|                                                |                                                                                             | Carrying |         | Unrealized |  | Unrealized |        | Amortized
|                                                |                                                                                             | Value    |         | Gains      |  | Losses     |        | Cost     
|                                                |                                                                                             |          |         |            |  |            |        |          
|Bonds:                                          |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |        
|                                                | U. S. Treasury Securities and Obligations of
    U. S. Government Corporations and Agencies |          | $       | 114,307    |  |            | $      | 3,753     |  |  | $   |      |  |  | $       | 110,554 | 
|                                                | Obligations of states and political subdivisions                                            |          |         | 3,064      |  |            |        | 121       |  |  |     |      |  |  |         | 2,943   | 
|                                                | Corporate securities                                                                        |          |         | 58,418     |  |            |        | 2,996     |  |  |     | 977   |  |  |         | 56,399  | 
|                                                | Mortgage-backed securities (government guaranteed)                                          |          |         | 6,041      |  |            |        | 265       |  |  |     |      |  |  |         | 5,776   | 
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |        
|                                                |                                                                                             |          | 181,830 |            |  |            | 7,135  |           |  |  | 977 |       |  |  | 175,672 |        
|Common and preferred stocks                     |                                                                                             |          | 57,242  |            |  |            | 15,987 |           |  |  | 787 |       |  |  | 42,042  |        
|Other invested assets                           |                                                                                             |          | 5,031   |            |  |            |       |           |  |  | 224 |       |  |  | 5,255   |        
|Mortgage loans (estimated fair value of $4,127) |                                                                                             |          | 3,330   |            |  |            |       |           |  |  |    |       |  |  | 3,330   |        
|Policy and student loans                        |                                                                                             |          | 2,409   |            |  |            |       |           |  |  |    |       |  |  | 2,409   |        
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |        
|                                                | Investments                                                                                 |          |         | 249,842    |  |            |        | 23,122    |  |  |     | 1,988 |  |  |         | 228,708 | 
|Short-term investments                          |                                                                                             |          | 21,487  |            |  |            |       |           |  |  |    |       |  |  | 21,487  |        
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |        
|                                                | Total investments                                                                           |          | $       | 271,329    |  |            | $      | 23,122    |  |  | $   | 1,988 |  |  | $       | 250,195 | 
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |     |       |  |  |         |        

|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |         | 
|----------------------------------------------- | ------------------------------------------------------------------------------------------- | -------- | ------- | ---------- |  | ---------- | ------ | --------- |  |  | ----- | ----- |  |  | ------- | ------- | 
|                                                |                                                                                             |         
|                                                |                                                                                             | 2001    
|                                                |                                                                                             |         
|                                                |                                                                                             |          |         | Gross      |  | Gross      |        |          
|                                                |                                                                                             | Carrying |         | Unrealized |  | Unrealized |        | Amortized
|                                                |                                                                                             | Value    |         | Gains      |  | Losses     |        | Cost     
|                                                |                                                                                             |          |         |            |  |            |        |          
|Bonds:                                          |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | U. S. Treasury Securities and Obligations of
    U. S. Government Corporations and Agencies |          | $       | 72,875     |  |            | $      | 1,164     |  |  | $     | 136   |  |  | $       | 71,847  | 
|                                                | Obligations of states and political subdivisions                                            |          |         | 4,317      |  |            |        | 71        |  |  |       | 57    |  |  |         | 4,303   | 
|                                                | Corporate securities                                                                        |          |         | 47,713     |  |            |        | 790       |  |  |       | 802   |  |  |         | 47,725  | 
|                                                | Mortgage-backed securities (government guaranteed)                                          |          |         | 8,565      |  |            |        | 198       |  |  |       |      |  |  |         | 8,367   | 
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                |                                                                                             |          | 133,470 |            |  |            | 2,223  |           |  |  | 995   |       |  |  | 132,242 |        
|Common and preferred stocks                     |                                                                                             |          | 54,628  |            |  |            | 14,640 |           |  |  | 1,670 |       |  |  | 41,658  |        
|Other invested assets                           |                                                                                             |          | 4,854   |            |  |            |       |           |  |  | 208   |       |  |  | 5,062   |        
|Mortgage loans (estimated fair value of $4,126) |                                                                                             |          | 3,421   |            |  |            |       |           |  |  |      |       |  |  | 3,421   |        
|Policy and student loans                        |                                                                                             |          | 2,713   |            |  |            |       |           |  |  |      |       |  |  | 2,713   |        
|Real estate                                     |                                                                                             |          | 46      |            |  |            |       |           |  |  |      |       |  |  | 46      |        
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | Investments                                                                                 |          |         | 199,132    |  |            |        | 16,863    |  |  |       | 2,873 |  |  |         | 185,142 | 
|Short-term investments                          |                                                                                             |          | 39,151  |            |  |            |       |           |  |  |      |       |  |  | 39,151  |        
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | Total investments                                                                           |          | $       | 238,283    |  |            | $      | 16,863    |  |  | $     | 2,873 |  |  | $       | 224,293 | 
|                                                |                                                                                             |          |         |            |  |            |        |           |  |  |       |       |  |  |         |        

Bonds and short-term investments having an
amortized cost of $16,166 and $15,925 were on deposit with
insurance regulatory authorities at December 31, 2002 and
2001, respectively, in accordance with statutory requirements.

47



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The amortized cost and carrying value of bonds
and short-term investments at December 31, 2002 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                |        | $        | 31,711  |           |  | $ | 31,561  |        
|Due after one year through five years  |        |          | 21,587  |           |  |   | 20,393  |        
|Due after five years through ten years |        |          | 33,044  |           |  |   | 31,122  |        
|Due after ten years                    |        |          | 110,934 |           |  |   | 108,307 |        
|Varying maturities                     |        |          | 6,041   |           |  |   | 5,776   |        
|                                       |        |          |         |           |  |   |         |        
|                                       | Totals |          | $       | 203,317   |  |   | $       | 197,159 | 
|                                       |        |          |         |           |  |   |         |        

Investment income was earned from the following
sources:

|                            |                          |                       |        |        |        |      |        |        |        |   |        |        |        | 
|--------------------------- | ------------------------ | --------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                            |                          | 2002                  |        | 2001   |        | 2000
|                            |                          |                       |        |        |        |     
|Bonds                       |                          | $                     | 10,111 |        |        | $    | 10,530 |        |        | $ | 10,882 |       
|Common and preferred stocks |                          |                       | 3,001  |        |        |      | 2,438  |        |        |   | 2,470  |       
|Mortgage loans              |                          |                       | 311    |        |        |      | 323    |        |        |   | 333    |       
|Short-term investments      |                          |                       | 458    |        |        |      | 1,071  |        |        |   | 849    |       
|Other                       |                          |                       | 130    |        |        |      | (45    | )      |        |   | 1,018  |       
|                            |                          |                       |        |        |        |      |        |        |        |   |        |       
|                            | Total investment income  |                       |        | 14,011 |        |      |        | 14,317 |        |   |        | 15,552 |       
|                            | Less investment expenses |                       |        | (218   | )      |      |        | (176   | )      |   |        | (232   | )     
|                            |                          |                       |        |        |        |      |        |        |        |   |        |       
|                            |                          | Net investment income |        | $      | 13,793 |      |        | $      | 14,141 |   |        | $      | 15,320 | 
|                            |                          |                       |        |        |        |      |        |        |        |   |        |       

A summary of realized investment gains
(losses) follows:

|                                             |  |        |      |       |  |                 |     |       |  |   |   |  |  |   |      |  
|-------------------------------------------- |  | ------ | ---- | ----- |  | --------------- | --- | ----- |  | - | - |  |  | - | ---- | -
|                                             |  |       
|                                             |  | 2002  
|                                             |  |       
|                                             |  |        |      | Other |  |                
|                                             |  | Stocks |      | Bonds |  | Invested Assets |     | Total
|                                             |  |        |      |       |  |                 |     |      
|Gains                                        |  | $      | 565  |       |  | $               | 293 |       |  | $ | 5 |  |  | $ | 863  |  
|Losses                                       |  |        | (270 | )     |  |                 | (6  | )     |  |   |  |  |  |   | (276 | )
|                                             |  |        |      |       |  |                 |     |       |  |   |   |  |  |   |      |  
|Total realized investment gains (losses) net |  | $      | 295  |       |  | $               | 287 |       |  | $ | 5 |  |  | $ | 587  |  
|                                             |  |        |      |       |  |                 |     |       |  |   |   |  |  |   |      |  

|                                             |  |        |       |       |  |                 |     |       |  |   |     |   |  |   |       |  
|-------------------------------------------- |  | ------ | ----- | ----- |  | --------------- | --- | ----- |  | - | --- | - |  | - | ----- | -
|                                             |  |       
|                                             |  | 2001  
|                                             |  |       
|                                             |  |        |       | Other |  |                
|                                             |  | Stocks |       | Bonds |  | Invested Assets |     | Total
|                                             |  |        |       |       |  |                 |     |      
|Gains                                        |  | $      | 1,189 |       |  | $               | 927 |       |  | $ |    |   |  | $ | 2,116 |  
|Losses                                       |  |        | (289  | )     |  |                 | (27 | )     |  |   | (92 | ) |  |   | (408  | )
|                                             |  |        |       |       |  |                 |     |       |  |   |     |   |  |   |       |  
|Total realized investment gains (losses) net |  | $      | 900   |       |  |                 | 900 |       |  | $ | (92 | ) |  | $ | 1,708 |  
|                                             |  |        |       |       |  |                 |     |       |  |   |     |   |  |   |       |  

|                                             |  |        |       |       |  |                 |     |       |  |   |   |  |  |   |       |  
|-------------------------------------------- |  | ------ | ----- | ----- |  | --------------- | --- | ----- |  | - | - |  |  | - | ----- | -
|                                             |  |       
|                                             |  | 2000  
|                                             |  |       
|                                             |  |        |       | Other |  |                
|                                             |  | Stocks |       | Bonds |  | Invested Assets |     | Total
|                                             |  |        |       |       |  |                 |     |      
|Gains                                        |  | $      | 1,907 |       |  | $               | 52  |       |  | $ |  |  |  | $ | 1,959 |  
|Losses                                       |  |        | (11   | )     |  |                 | (26 | )     |  |   |  |  |  |   | (37   | )
|                                             |  |        |       |       |  |                 |     |       |  |   |   |  |  |   |       |  
|Total realized investment gains (losses) net |  | $      | 1,896 |       |  | $               | 26  |       |  | $ |  |  |  | $ | 1,922 |  
|                                             |  |        |       |       |  |                 |     |       |  |   |   |  |  |   |       |  

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

|                            |                |      |       |       |  |      |        |        |  |   |       |       | 
|--------------------------- | -------------- | ---- | ----- | ----- |  | ---- | ------ | ------ |  | - | ----- | ----- | 
|                            |                | 2002 |       | 2001  |  | 2000
|                            |                |      |       |       |  |     
|Common and preferred stocks |                | $    | 1,369 |       |  | $    | 18,194 |        |  | $ | 2,595 |      
|Bonds                       |                |      | 5,057 |       |  |      | 19,717 |        |  |   |      |      
|Student loans               |                |      | 304   |       |  |      | 385    |        |  |   | 651   |      
|Other investments           |                |      | 552   |       |  |      | 826    |        |  |   | 201   |      
|                            |                |      |       |       |  |      |        |        |  |   |       |      
|                            | Total proceeds |      | $     | 7,282 |  |      | $      | 39,122 |  |   | $     | 3,447 | 
|                            |                |      |       |       |  |      |        |        |  |   |       |      

The Companys investment in the common stock
of Wachovia Corporation exceeds 10% of shareholders equity
at December 31, 2002. The carrying value of this investment
at December 31, 2002 was $16,128 with a cost basis of
$3,470.

The Companys bond portfolio included 99%
investment grade securities at December 31, 2002 as defined
by the National Association of Insurance Commissioners
(NAIC).

Note 3.     Insurance
Reserves and Policyholder Funds

The following table presents the Companys
reserves for life, accident, health and property and casualty
losses as well as loss adjustment expenses.

|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------------- | ------------------------ | ---- | ------- | ------- |  | ------------------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |                          |      |         |         |  |                    
|                                       |                          |      |         |         |  | Amount of Insurance
|                                       |                          |      |         |         |  | in Force           
|                                       |                          |      |         |         |  |                    
|                                       |                          | 2002 |         | 2001    |  | 2002                |         | 2001   
|                                       |                          |      |         |         |  |                     |         |        
|Future policy benefits                 |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Life insurance policies:               |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Ordinary                 |      | $       | 37,407  |  |                     | $       | 34,213  |  |   | $       | 266,682 |  |   | $       | 262,891 | 
|                                       | Mass market              |      |         | 6,669   |  |                     |         | 7,102   |  |   |         | 11,974  |  |   |         | 13,146  | 
|                                       | Individual annuities     |      |         | 821     |  |                     |         | 843     |  |   |         |        |  |   |         |        | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 44,897  |         |  |                     | 42,158  |         |  | $ | 278,656 |         |  | $ | 276,037 |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Accident and health insurance policies |                          |      | 2,381   |         |  |                     | 2,197   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 47,278  |         |  |                     | 44,355  |         |  |   |         |         |  |   |         |        
|Unearned premiums                      |                          |      | 55,900  |         |  |                     | 51,025  |         |  |   |         |         |  |   |         |        
|Losses and claims                      |                          |      | 148,691 |         |  |                     | 143,515 |         |  |   |         |         |  |   |         |        
|Other policy liabilities               |                          |      | 4,777   |         |  |                     | 4,304   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Total policy liabilities |      | $       | 256,646 |  |                     | $       | 243,199 |  |   |         |         |  |   |         |         | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        

Annualized premiums for accident and health
insurance policies were $48,360 and $44,763 at December 31,
2002 and 2001, 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) 5% to
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

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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 updated with changes to the estimated liability
recorded in the statement of operations in the year in which
such changes are known.


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

|                               |              |                |         |         |         |      |         |         |         |   |         |         |        | 
|------------------------------ | ------------ | -------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                               |              | 2002           |         | 2001    |         | 2000
|                               |              |                |         |         |         |     
|Balance at January 1           |              | $              | 143,515 |         |         | $    | 133,220 |         |         | $ | 126,556 |        
|Less: Reinsurance recoverables |              |                | (47,729 | )       |         |      | (38,851 | )       |         |   | (38,759 | )      
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|Net balance at January 1       |              |                | 95,786  |         |         |      | 94,369  |         |         |   | 87,797  |        
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|Incurred related to:           |              |                |         |         |         |      |         |         |         |   |         |        
|                               | Current year |                |         | 104,724 |         |      |         | 108,068 |         |   |         | 102,336 |       
|                               | Prior years  |                |         | (57     | )       |      |         | (2,415  | )       |   |         | (6,085  | )     
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|                               |              | Total incurred |         |         | 104,667 |      |         |         | 105,653 |   |         |         | 96,251 | 
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|Paid related to:               |              |                |         |         |         |      |         |         |         |   |         |        
|                               | Current year |                |         | 52,253  |         |      |         | 59,506  |         |   |         | 54,313  |       
|                               | Prior years  |                |         | 38,889  |         |      |         | 44,730  |         |   |         | 35,366  |       
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|                               |              | Total paid     |         |         | 91,142  |      |         |         | 104,236 |   |         |         | 89,679 | 
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|Net balance at December 31     |              |                | 109,311 |         |         |      | 95,786  |         |         |   | 94,369  |        
|Plus: Reinsurance recoverables |              |                | 39,380  |         |         |      | 47,729  |         |         |   | 38,851  |        
|                               |              |                |         |         |         |      |         |         |         |   |         |        
|Balance at December 31         |              | $              | 148,691 |         |         | $    | 143,515 |         |         | $ | 133,220 |        
|                               |              |                |         |         |         |      |         |         |         |   |         |        

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

|                                            |                                              |      |         |         |  |      |         |         |  |   |        |        | 
|------------------------------------------- | -------------------------------------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------ | ------ | 
|                                            |                                              | 2002 |         | 2001    |  | 2000
|                                            |                                              |      |         |         |  |     
|Total incurred claims                       |                                              | $    | 104,667 |         |  | $    | 105,653 |         |  | $ | 96,251 |       
|State residual pool adjustments             |                                              |      | 29      |         |  |      | (150    | )       |  |   | (59    | )     
|Cash surrender value and matured endowments |                                              |      | 1,490   |         |  |      | 1,393   |         |  |   | 1,436  |       
|Benefit reserve                             |                                              |      | 2,923   |         |  |      |        |         |  |   |       |       
|                                            |                                              |      |         |         |  |      |         |         |  |   |        |       
|                                            | Total insurance benefits and losses incurred |      | $       | 109,109 |  |      | $       | 106,896 |  |   | $      | 97,628 | 
|                                            |                                              |      |         |         |  |      |         |         |  |   |        |       

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 liable with respect to reinsurance ceded should
any reinsurer be unable to meet its obligations. Approximately
91% of the reinsurance receivables are due from four reinsurers
as of December 31, 2002. Reinsurance receivables of $18,945
are with General Reinsurance Corporation, rated AAA
by Standard & Poors and A++ (Superior) by
A.M. Best, $2,215 are with First Colony Life Insurance Company,
rated AA by Standard & Poors and
A++ (Superior) by A.M. Best, $17,778 are with
Pennsylvania Manufacturers Association Insurance Company, rated
A- (Excellent) by A.M. Best and $6,328 are with
Swiss Reinsurance Corporation, rated AA by Standard
& Poors and A++ (Superior) by A.M. Best.
Allowances for uncollectible amounts are established against
reinsurance receivables, if appropriate. Premiums assumed of
$20,410, $22,708, and $25,439 in 2002, 2001, and 2000
respectively, include a state contract with premiums of $14,309,
$14,054, and $17,198. The contract premiums represent 9.3%, 9.7%
and 12.9% of net premiums earned for the years ended 2002, 2001,
and 2000, respectively. The following

50



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##### Table of Contents



table reconciles premiums written to premiums
earned and summarizes the components of insurance benefits and
losses incurred.


|                                           |                                 |      |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------ | ------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                           |                                 | 2002 |         | 2001    |   | 2000
|                                           |                                 |      |         |         |   |     
|Direct premiums written                    |                                 | $    | 168,500 |         |   | $    | 153,743 |         |   | $ | 130,089 |        
|Plus  premiums assumed                    |                                 |      | 20,410  |         |   |      | 22,708  |         |   |   | 25,439  |        
|Less  premiums ceded                      |                                 |      | (28,993 | )       |   |      | (25,399 | )       |   |   | (10,916 | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Net premiums written                       |                                 |      | 159,917 |         |   |      | 151,052 |         |   |   | 144,612 |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Change in unearned premiums                |                                 |      | (4,875  | )       |   |      | (11,889 | )       |   |   | (11,408 | )      
|Change in unearned premiums ceded          |                                 |      | (543    | )       |   |      | 6,426   |         |   |   | 293     |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net change in unearned premiums |      |         | (5,418  | ) |      |         | (5,463  | ) |   |         | (11,115 | )
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net premiums earned             |      | $       | 154,499 |   |      | $       | 145,589 |   |   | $       | 133,497 |  
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Provision for benefits and losses incurred |                                 | $    | 132,567 |         |   | $    | 132,724 |         |   | $ | 107,340 |        
|Reinsurance loss recoveries                |                                 |      | (23,458 | )       |   |      | (25,828 | )       |   |   | (9,712  | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Insurance benefits and losses incurred     |                                 | $    | 109,109 |         |   | $    | 106,896 |         |   | $ | 97,628  |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        

Components of reinsurance receivables are as
follows:

|                                                 |  |      |         |      |  |   |        | 
|------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------ | 
|                                                 |  | 2002 |         | 2001
|                                                 |  |      |         |     
|Receivable on unpaid losses                      |  | $    | 39,380  |      |  | $ | 47,729 | 
|Receivable on paid losses                        |  |      | 2,939   |      |  |   | 1,217  | 
|Receivable from reinsurance contract termination |  |      | 7,556(1 | )    |  |   |       | 
|                                                 |  |      |         |      |  |   |        | 
|                                                 |  | $    | 49,875  |      |  | $ | 48,946 | 
|                                                 |  |      |         |      |  |   |        | 



|    |                        
|--- | -----------------------
|(1) | Collected in March 2003

Note 5.     Income
Taxes

A reconciliation of the differences between
income taxes computed at the federal statutory income tax rate
and the (benefit) expense for income taxes is as follows:

|                                                          |                                                                         |                                          |       |        |      |      |       |      |     |   |       |      |       | 
|--------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------- | ----- | ------ | ---- | ---- | ----- | ---- | --- | - | ----- | ---- | ----- | 
|                                                          |                                                                         | 2002                                     |       | 2001   |      | 2000
|                                                          |                                                                         |                                          |       |        |      |     
|Federal income tax provision at statutory rate of
    35% |                                                                         | $                                        | 1,086 |        |      | $    | 1,489 |      |     | $ | 1,665 |     
|Tax exempt interest and dividends received
    deductions |                                                                         |                                          | (628  | )      |      |      | (469  | )    |     |   | (484  | )   
|Other permanent differences                               |                                                                         |                                          | 170   |        |      |      | 314   |      |     |   | 363   |     
|Change in asset valuation allowance due to:               |                                                                         |                                          |       |        |      |      |       |      |     |   |       |     
|                                                          | Change in judgment relating to realizability of
    deferred tax assets |                                          |       | (1,786 | )    |      |       | (827 | )   |   |       | (537 | )    
|                                                          | Prior years taxes                                                      |                                          |       | 537    |      |      |       |     |     |   |       |     |      
|State income taxes                                        |                                                                         |                                          | 123   |        |      |      | 81    |      |     |   |      |     
|Alternative minimum tax                                   |                                                                         |                                          |      |        |      |      | 68    |      |     |   | 117   |     
|                                                          |                                                                         |                                          |       |        |      |      |       |      |     |   |       |     
|                                                          |                                                                         | Total (benefit) expense for income taxes |       | $      | (498 | )    |       | $    | 656 |   |       | $    | 1,124 | 
|                                                          |                                                                         |                                          |       |        |      |      |       |      |     |   |       |     

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Deferred tax liabilities and assets at
December 31, 2002 and 2001 are comprised of the following:

|                          |                                  |                                |        |        |         |   |        |        |         |  
|------------------------- | -------------------------------- | ------------------------------ | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                          |                                  | 2002                           |        | 2001  
|                          |                                  |                                |        |       
|Deferred tax liabilities: |                                  |                                |        |        |         |   |        |       
|                          | Deferred acquisition costs       |                                | $      | (5,495 | )       |   | $      | (5,506 | )      
|                          | Net unrealized investment gains  |                                |        | (7,397 | )       |   |        | (4,897 | )      
|                          | Deferred and uncollected premium |                                |        | (902   | )       |   |        | (1,321 | )      
|                          | Other                            |                                |        | (118   | )       |   |        | (99    | )      
|                          |                                  |                                |        |        |         |   |        |       
|                          |                                  | Total deferred tax liabilities |        |        | (13,912 | ) |        |        | (11,823 | )
|                          |                                  |                                |        |        |         |   |        |       
|Deferred tax assets:      |                                  |                                |        |        |         |   |        |       
|                          | Net operating loss carryforwards |                                |        | 7,389  |         |   |        | 10,515 |        
|                          | Insurance reserves               |                                |        | 10,173 |         |   |        | 8,587  |        
|                          | Bad debts and other              |                                |        | 841    |         |   |        | 625    |        
|                          |                                  |                                |        |        |         |   |        |       
|                          |                                  | Total deferred tax assets      |        |        | 18,403  |   |        |        | 19,727  |  
|                          |                                  |                                |        |        |         |   |        |       
|Asset valuation allowance |                                  |                                | (3,824 | )      |         |   | (5,610 | )     
|                          |                                  |                                |        |        |         |   |        |       
|Net deferred tax assets   |                                  | $                              | 667    |        |         | $ | 2,294  |       
|                          |                                  |                                |        |        |         |   |        |       

The components of the (benefit) expense are:

|                   |       |      |      |      |   |      |     |     |  |   |       |       | 
|------------------ | ----- | ---- | ---- | ---- | - | ---- | --- | --- |  | - | ----- | ----- | 
|                   |       | 2002 |      | 2001 |   | 2000
|                   |       |      |      |      |   |     
|Current  Federal  |       | $    |     |      |   | $    | 68  |     |  | $ | 117   |      
|Current  State    |       |      | 123  |      |   |      | 81  |     |  |   |      |      
|Deferred  Federal |       |      | (621 | )    |   |      | 507 |     |  |   | 1,007 |      
|                   |       |      |      |      |   |      |     |     |  |   |       |      
|                   | Total |      | $    | (498 | ) |      | $   | 656 |  |   | $     | 1,124 | 
|                   |       |      |      |      |   |      |     |     |  |   |       |      

At December 31, 2002, the Company had
regular federal net operating loss carryforwards of
approximately $21,000 expiring generally between 2006 and 2019.
As of December 31, 2002 and 2001, a valuation allowance of
$3,824 and $5,610, respectively, was established against
deferred income tax benefits relating primarily to net operating
loss carryforwards that may not be realized. In 2002 and 2001,
the decrease of $1,249 and $827, respectively, in the valuation
allowance is due primarily to the utilization of a portion of
these benefits that were previously reserved for. The remaining
decrease in 2002 is due to adjustments for prior years
taxes. Since the Companys ability to generate taxable
income from operations and utilize available tax-planning
strategies in the near term is dependent upon various factors,
many of which are beyond managements control, management
believes that the remaining deferred income tax benefits
relating to the carryforwards may not be realized. However,
realization of the remaining deferred income tax benefits will
be assessed periodically based on the Companys current and
anticipated results of operations and amounts could increase or
decrease in the near term if estimates of future taxable income
change. The Company has formal tax-sharing agreements and files
a consolidated income tax return with its subsidiaries.

Note 6.     Credit
Arrangements

At December 31, 2001, the Companys
$44,000 of borrowings consisted of $19,000 outstanding on a
revolving credit facility (the Revolving Credit
Facility) with Wachovia Bank and $25,000 outstanding on
Series 1999, Variable Rate Demand Bonds (the
Bonds). The Revolving Credit Facility provided for
borrowings up to $30,000 with an interest rate fixed, at the
Companys option, for a period of one, three, six or twelve
months and based upon the London Interbank Offered Rate
(LIBOR) plus an applicable margin. Interest was
payable quarterly and all outstanding principal due on
June 30, 2004 with no principal payments required prior to
that time. The interest rate at December 31, 2001,
including the applicable margin of 2.50%, was 6.35%. The Bonds
were issued through a private placement and were due July 1,

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2009. They were redeemable at the Companys
option and provided for interest at a variable rate that
approximated 30-day LIBOR. The Bonds were backed by a letter of
credit issued by Wachovia. The cost of the letter of credit and
its associated fees were 2.50% making the effective rate on the
Bonds LIBOR plus 2.5%. The interest on the Bonds was payable
monthly and the letter of credit fees were payable quarterly.
The effective interest rate on the Bonds, along with the related
fees, at December 31, 2001 was 4.63%.


On April 2, 2002, in accordance with a
December 31, 2001 amendment to the Revolving Credit
Facility with Wachovia, the Company consolidated outstanding
amounts on its Revolving Credit Facility and the Bonds into a
single term loan (Term Loan), which will mature on
June 30, 2004. The Company must repay the principal of the
Term Loan in annual installments in the amount of $2,000 on or
before December 31 of 2002 and 2003, together with one
final installment at maturity in 2004. The Term Loan requires
the Company to maintain certain covenants including, among
others, ratios that relate funded debt, as defined, to total
capitalization and interest coverage. The Company must also
comply with limitations on capital expenditures and additional
debt obligations.

On December 4, 2002, the Trust, a
Connecticut statutory business trust created by the Company,
issued $17,500 of trust preferred securities in a pooled private
placement. The trust preferred securities have an interest rate
equivalent to the three-month LIBOR rate plus 4.00%, which was
5.42% at December 31, 2002. Of the $16,974 in net proceeds,
$12,000 was used to reduce the balance on the Term Loan and
approximately $4,700 was contributed to certain of the
Companys subsidiaries in the form of capital contributions
and settlement of intercompany tax obligations. The trust
preferred securities have a maturity of thirty years and are
callable, in whole or in part, only at the option of the Company
after five years and quarterly thereafter. The principal asset
of the Trust is $18,043 of subordinated debentures issued by the
Parent Company with identical rates of interest and maturities
as the trust preferred securities. The obligations of the Parent
Company with respect to the issuance of the trust preferred
securities represent a full and unconditional guarantee by the
Parent Company of the Trusts obligations with respect to
the trust preferred securities. Subject to certain exceptions
and limitations, the Parent Company may elect from time to time
to defer subordinated debenture interest payments, which would
result in a deferral of distribution payment on the related
trust preferred securities. In connection with the offering of
the trust preferred securities, the Term Loan was modified to
provide for the issuance of such securities.

Note 7.     Derivative
Financial Instruments

On March 21, 2001, the Company entered into
a $15,000 notional amount interest rate swap agreement with
Wachovia to hedge its interest rate risk on a portion of its
outstanding borrowings. The interest rate swap was effective on
April 2, 2001 and matures on June 30, 2004. The
Company has agreed to pay a fixed rate of 5.1% and receive
3-month LIBOR until maturity. The settlement date and the reset
date will occur every 90 days following April 2, 2001
until maturity.

The estimated fair value and related carrying
value of the Companys interest rate swap agreement at
December 31, 2002 and 2001 was a liability of approximately
$914 and $532, respectively.

Note 8.     Commitments
and Contingencies

Litigation

During 2000, American Southern renewed one of its
larger accounts. Although this contract was renewed through a
competitive bid process, one of the parties bidding for this
particular contract contested the award of this business to
American Southern and filed a claim to nullify the contract.
During the fourth quarter of 2000, American Southern received an
unfavorable judgment relating to this litigation and appealed
the ruling. The contract, which accounts for approximately 10%
of annualized premium revenue of Atlantic American, remained in
effect pending the appeal. On March 4, 2003 the South
Carolina Court of Appeals reversed the lower court ruling and
remanded the case back to the Procurement Review Panel to
determine if American Southern is entitled to vendor preference.
The contract subject to dispute

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contractually terminates on April 30, 2003.
While management at this time cannot predict the potential
outcome in this case, or quantify the actual impact of any
future decisions or determinations, it may have a material
impact on the future results of operations of the Company.


From time to time, the Company and its
subsidiaries are involved in various claims and lawsuits
incidental to and in the ordinary course of their businesses. In
the opinion of management, such claims will not have a material
effect on the business or financial condition of the Company.

Operating
Lease Commitments

The Companys rental expense, including
common area charges, for operating leases was $1,811, $1,732,
and $1,534 in 2002, 2001, and 2000 respectively. The
Companys future minimum lease obligations under
non-cancelable operating leases are as follows:

|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|Year Ending December 31, |       |   |       |      
|2003                     |       | $ | 1,567 |      
|2004                     |       |   | 1,569 |      
|2005                     |       |   | 1,438 |      
|2006                     |       |   | 748   |      
|2007                     |       |   | 756   |      
|Thereafter               |       |   | 2,387 |      
|                         |       |   |       |      
|                         | Total |   | $     | 8,465 | 
|                         |       |   |       |      

Note 9.     Employee
Benefit Plans

Stock
Options

In accordance with the Companys 1992
Incentive Plan, the Board of Directors may grant up to 1,800,000
stock options or share awards. 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 and other stock unit awards;
(e) deferred shares of common stock; or (f) all or any
combination of the foregoing to officers and key employees.
Options granted under this plan expire five or ten years from
the date of grant. Vesting occurs at 50% upon issuance of an
option, and the remaining portion is vested at 25% increments in
each of the following two years. In accordance with the
Companys 1996 Director Stock Option Plan, a maximum of
200,000 stock options may be granted that fully vest six months
after the grant date. As of December 31, 2002, an aggregate
of forty-four employees, officers and directors held options
under the two plans. On May 7, 2002, the shareholders
approved the Atlantic American Corporation 2002 Incentive Plan
(the 2002 Plan), which provides for the Board of
Directors to grant up to an additional 2,000,000 stock options
or share awards. Subject to adjustment as provided in the 2002
Plan, the Board of Directors may grant (a) incentive stock
options; (b) non-qualified stock options; (c) stock
appreciation rights; (d) restricted shares;
(e) deferred shares; and (f) performance shares and/or
performance units. Further, the Board may authorize the granting
to non-employee directors of stock options and/or restricted
shares. On July 30, 2002, a total of 29,997 restricted
shares were issued to the Companys Board of Directors
under the 2002 Plan.

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A summary of the status of the Companys
stock options at December 31, 2002, 2001 and 2000, is as
follows:

|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|-------------------------------------- |  | ------ | --------- | -------------- |  | ------ | ---- | -------------- |  | ------ | --------- | -------------- |  | - | ---- |  |  |  | --------- | - |  | - | ---- | 
|                                       |  |        |           |                |  |       
|                                       |  | 2002   |           | 2001           |  | 2000  
|                                       |  |        |           |                |  |       
|                                       |  |        |           | Weighted       |  |        |      | Weighted       |  |        |           | Weighted      
|                                       |  |        |           | Average        |  |        |      | Average        |  |        |           | Average       
|                                       |  | Shares |           | Exercise Price |  | Shares |      | Exercise Price |  | Shares |           | Exercise Price
|                                       |  |        |           |                |  |        |      |                |  |        |           |               
|Options outstanding, beginning of year |  |        | 1,275,000 |                |  | $      | 2.63 |                |  |        | 1,024,000 |                |  | $ | 3.43 |  |  |  | 1,170,000 |   |  | $ | 3.34 | 
|Options granted                        |  |        | 58,000    |                |  |        | 2.09 |                |  |        | 572,000   |                |  |   | 1.26 |  |  |  | 12,000    |   |  |   | 3.18 | 
|Options exercised                      |  |        | (10,000   | )              |  |        | 1.25 |                |  |        |          |                |  |   |     |  |  |  | (120,000  | ) |  |   | 2.50 | 
|Options canceled or expired            |  |        | (315,000  | )              |  |        | 3.58 |                |  |        | (321,000  | )              |  |   | 2.75 |  |  |  | (38,000   | ) |  |   | 3.63 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options outstanding, end of year       |  |        | 1,008,000 |                |  |        | 2.31 |                |  |        | 1,275,000 |                |  |   | 2.63 |  |  |  | 1,024,000 |   |  |   | 3.43 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options exercisable                    |  |        | 847,375   |                |  |        | 2.49 |                |  |        | 991,250   |                |  |   | 3.02 |  |  |  | 992,125   |   |  |   | 3.41 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options available for future grant     |  |        | 2,416,153 |                |  |        |      |                |  |        | 194,150   |                |  |   |      |  |  |  | 435,150   |   |  |   |      | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 

Data on options outstanding and exercisable at
December 31, 2002 are as follows:

|               |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|-------------- |  | --------- | --------- | ---------------- |  | ---------------- | ----- | --------- |  | ---------------- | ---- |  |  |  | ------- |  |  | - | ---- | 
|               |  |           |           |                  |  |                 
|               |  |           |           | Outstanding      |  | Exercisable     
|               |  |           |           |                  |  |                 
|Range of       |  | Number of |           | Weighted Average |  | Weighted Average |       | Number of |  | Weighted Average
|Exercise Price |  | Options   |           | Remaining Life   |  | Exercise Price   |       | Options   |  | Exercise Price  
|               |  |           |           |                  |  |                  |       |           |  |                 
|$1.00 to $1.50 |  |           | 540,000   |                  |  |                  | 8.79  |           |  | $                | 1.25 |  |  |  | 405,000 |  |  | $ | 1.25 | 
|$1.51 to $2.00 |  |           | 59,500    |                  |  |                  | 8.51  |           |  | $                | 1.98 |  |  |  | 33,875  |  |  | $ | 1.97 | 
|$2.51 to $3.00 |  |           | 15,000    |                  |  |                  | 3.41  |           |  | $                | 2.68 |  |  |  | 15,000  |  |  | $ | 2.68 | 
|$3.51 to $4.00 |  |           | 377,500   |                  |  |                  | 1.05  |           |  | $                | 3.78 |  |  |  | 377,500 |  |  | $ | 3.78 | 
|$4.01 to $4.50 |  |           | 11,000    |                  |  |                  | <1.00 |           |  | $                | 4.27 |  |  |  | 11,000  |  |  | $ | 4.27 | 
|$4.51 to $5.00 |  |           | 5,000     |                  |  |                  | <1.00 |           |  | $                | 4.94 |  |  |  | 5,000   |  |  | $ | 4.94 | 
|               |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|               |  |           | 1,008,000 |                  |  |                  |       |           |  |                  |      |  |  |  | 847,375 |  |  |   |      | 
|               |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 

The weighted average fair value of options
granted is estimated on the date of grant using the
Black-Scholes option pricing model and was $1.62, $.95, and
$1.63 for grants in 2002, 2001, and 2000, respectively. Fair
value determinations were based on expected dividend yields of
zero, expected lives of 5 or 10 years, risk free interest
rates of 3.92%, 4.49%, and 4.99%, and expected volatility of
69.11%, 64.99%, and 52.77%, for the years ended
December 31, 2002, 2001, and 2000, respectively.



| |            
| | -----------
| | 401(k) Plan

The Company initiated an employees savings
plan under Section 401(k) of the Internal Revenue Code in
May 1995. The plan covers substantially all of the
Companys employees, except employees of American Southern.
Under the plan, employees generally may elect to contribute up
to 16% of their compensation to the plan. The Company makes a
matching contribution on behalf of each employee in an amount
equal to 50% of the first 6% of such contributions. The
Companys matching contribution is in Company stock and
with a value of approximately $219, $159, and $155 in 2002,
2001, and 2000, respectively. In 2002, the Board of Directors
approved a discretionary profit sharing contribution of $108 to
be made in cash to those employees who participated in the
Companys 401(k) Plan during 2002 and who were employees as
of December 31, 2002.



| |                              
| | -----------------------------
| | 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.

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Net periodic pension cost for American
Southerns qualified and non-qualified defined benefit
plans for the years ended December 31, 2002, 2001, and 2000
included the following components:

|                               |  |      |      |      |  |      |      |   |  |   |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                               |  | 2002 |      | 2001 |  | 2000
|                               |  |      |      |      |  |     
|Service cost                   |  | $    | 123  |      |  | $    | 136  |   |  | $ | 119  |  
|Interest cost                  |  |      | 250  |      |  |      | 263  |   |  |   | 239  |  
|Expected return on plan assets |  |      | (170 | )    |  |      | (192 | ) |  |   | (209 | )
|Net amortization               |  |      | 41   |      |  |      | 35   |   |  |   | 2    |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  
|                               |  | $    | 244  |      |  | $    | 242  |   |  | $ | 151  |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  

The following assumptions were used to measure
the projected benefit obligation for the benefit plans at
December 31, 2002, 2001, and 2000:

|                                                                                                 |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                                 |  | 2002 |      | 2001 |  | 2000
|                                                                                                 |  |      |      |      |  |     
|Discount rate to determine the projected benefit
    obligation                                  |  |      | 6.50 | %    |  |      | 7.00 | % |  |  | 7.00 | %
|Expected long-term rate of return on plan assets
    used to determine net periodic pension cost |  |      | 7.00 | %    |  |      | 8.00 | % |  |  | 8.00 | %
|Projected annual salary increases                                                                |  |      | 4.50 | %    |  |      | 4.50 | % |  |  | 4.50 | %

The following table sets forth the benefit
plans funded status at December 31, 2002 and 2001:

|                             |                                                |      |   |        |   |  |   |        |  
|---------------------------- | ---------------------------------------------- | ---- | - | ------ | - |  | - | ------ | -
|                             |                                                | 2002 |   | 2001  
|                             |                                                |      |   |       
|Change in Benefit Obligation |                                                |      |   |        |   |  |   |       
|                             | Net benefit obligation at beginning of year    |      | $ | 3,810  |   |  | $ | 3,792  |  
|                             | Service cost                                   |      |   | 123    |   |  |   | 136    |  
|                             | Interest cost                                  |      |   | 250    |   |  |   | 263    |  
|                             | Actuarial loss (gain)                          |      |   | 118    |   |  |   | 73     |  
|                             | Gross benefits paid                            |      |   | (106   | ) |  |   | (454   | )
|                             |                                                |      |   |        |   |  |   |       
|                             | Net benefit obligation at end of year          |      | $ | 4,195  |   |  | $ | 3,810  |  
|                             |                                                |      |   |        |   |  |   |       
|Change in Plan Assets        |                                                |      |   |        |   |  |   |       
|                             | Fair value of plan assets at beginning of year |      | $ | 2,183  |   |  | $ | 2,485  |  
|                             | Employer contributions                         |      |   | 191    |   |  |   | 173    |  
|                             | Actual return on plan assets                   |      |   | (269   | ) |  |   | (21    | )
|                             | Gross benefits paid                            |      |   | (106   | ) |  |   | (454   | )
|                             |                                                |      |   |        |   |  |   |       
|                             | Fair value of plan assets at end of year       |      | $ | 1,999  |   |  | $ | 2,183  |  
|                             |                                                |      |   |        |   |  |   |       
|Funded Status of Plan        |                                                |      |   |        |   |  |   |       
|                             | Funded status at end of year                   |      | $ | (2,196 | ) |  | $ | (1,627 | )
|                             | Unrecognized net actuarial loss                |      |   | 1,492  |   |  |   | 975    |  
|                             | Unrecognized prior service cost                |      |   | (5     | ) |  |   | (5     | )
|                             | Unrecognized net transition obligation         |      |   | 2      |   |  |   | 3      |  
|                             |                                                |      |   |        |   |  |   |       
|                             | Net amount recognized at end of year           |      | $ | (707   | ) |  | $ | (654   | )
|                             |                                                |      |   |        |   |  |   |       

Included in the above is one plan which is
unfunded. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for this plan were
$1,005, $794, and $0, respectively, as of December 31, 2002
and $921, $701, and $0, respectively, as of December 31,
2001.

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Note 10.     Preferred
Stock

The Company has 134,000 shares of Series B
Preferred Stock (Series B Preferred Stock)
outstanding, having a stated value of $100 per share. Annual
dividends on the Series B Preferred Stock are $9.00 per
share and are cumulative. Dividends accrue whether or not
declared by the Board of Directors. 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. As of December 31, 2002 and
2001, the Company had accrued but unpaid dividends on the
Series B Preferred Stock of $8,442 and $7,236,
respectively. For all periods in which the Company had an
accumulated deficit, dividends on the Series B Preferred
Stock were accrued out of additional paid in capital.

The Company has 25,000 shares of Series C
Preferred Stock (Series C Preferred Stock)
outstanding, having a stated value of $100 per share. Annual
dividends are $9.00 per share and are cumulative. The
Series C 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 C
Preferred Stock would be convertible into an aggregate of
approximately 627,000 shares of the common stock at a conversion
price of $3.99 per share. The Series C Preferred Stock is
redeemable at the option of the Company. The Company paid $225
in dividends to the holders of the Series C Preferred Stock
during 2002 and 2001, respectively. For all periods in which the
Company had an accumulated deficit, dividends on the
Series C Preferred Stock were accrued out of additional
paid in capital.

Note 11.     Earnings
Per Common Share

A reconciliation of the numerator and denominator
of the earnings per common share calculations are as follows:

|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |       |  
|------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | --------- | - | ------ | ------ | ------ |  | - | ----- | ----- | -
|                                                                                                        |                                            |                                     
|                                                                                                        |                                            | For the Year Ended December 31, 2002
|                                                                                                        |                                            |                                     
|                                                                                                        |                                            |                                      |         | Per Share
|                                                                                                        |                                            | Income                               |         | Shares    |   | Amount
|                                                                                                        |                                            |                                      |         |           |   |       
|Basic Earnings (Loss) Per Common
    Share                                                              |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|Income before cumulative effect of change in
    accounting principle                                   |                                            | $                                    | 3,601   |           |   |        | 21,307 |        |  |   |       |      
|Less preferred dividends                                                                                |                                            |                                      | (1,431  | )         |   |        |       |        |  |   |       |      
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|Income before cumulative effect of change in
    accounting principle applicable to common shareholders |                                            |                                      | 2,170   |           |   |        | 21,307 |        |  | $ | 0.10  |      
|Cumulative effect of change in accounting
    principle                                                 |                                            |                                      | (15,816 | )         |   |        | 21,307 |        |  |   | (0.74 | )    
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|                                                                                                        | Net loss applicable to common shareholders |                                      | $       | (13,646   | ) |        |        | 21,307 |  |   | $     | (0.64 | )
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|Diluted Earnings (Loss) Per Common
    Share                                                            |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|Income before cumulative effect of change in
    accounting principle applicable to common shareholders |                                            | $                                    | 2,170   |           |   |        | 21,307 |        |  |   |       |      
|Effect of dilutive stock options                                                                        |                                            |                                      |        |           |   |        | 354    |        |  |   |       |      
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|Income before cumulative effect of change in
    accounting principle applicable to common shareholders |                                            |                                      | 2,170   |           |   |        | 21,661 |        |  | $ | 0.10  |      
|Cumulative effect of change in accounting
    principle                                                 |                                            |                                      | (15,816 | )         |   |        | 21,661 |        |  |   | (0.73 | )    
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      
|                                                                                                        | Net loss applicable to common shareholders |                                      | $       | (13,646   | ) |        |        | 21,661 |  |   | $     | (0.63 | )
|                                                                                                        |                                            |                                      |         |           |   |        |        |        |  |   |       |      

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|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |     | 
|------------------------------------------- | -------------------------------------------- | ------------------------------------ | ------ | --------- |  | ------ | ------ | ------ |  |  | - | --- | 
|                                            |                                              |                                     
|                                            |                                              | For the Year Ended December 31, 2001
|                                            |                                              |                                     
|                                            |                                              |                                      |        | Per Share
|                                            |                                              | Income                               |        | Shares    |  | Amount
|                                            |                                              |                                      |        |           |  |       
|Basic Earnings Per Common
    Share         |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Net income before preferred stock dividends |                                              | $                                    | 3,597  |           |  |        | 21,198 |        |  |  |   |    
|Less preferred dividends                    |                                              |                                      | (1,431 | )         |  |        |       |        |  |  |   |    
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income applicable to common shareholders |                                      |        | 2,166     |  |        |        | 21,198 |  |  | $ | .10 | 
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Diluted Earnings Per Common
    Share       |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Effect of dilutive stock options            |                                              |                                      |       |           |  |        | 160    |        |  |  |   |    
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income applicable to common shareholders |                                      | $      | 2,166     |  |        |        | 21,358 |  |  | $ | .10 | 
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    

|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |     | 
|------------------------------------------- | -------------------------------------------- | ------------------------------------ | ------ | --------- |  | ------ | ------ | ------ |  |  | - | --- | 
|                                            |                                              |                                     
|                                            |                                              | For the Year Ended December 31, 2000
|                                            |                                              |                                     
|                                            |                                              |                                      |        | Per Share
|                                            |                                              | Income                               |        | Shares    |  | Amount
|                                            |                                              |                                      |        |           |  |       
|Basic Earnings Per Common
    Share         |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Net income before preferred stock dividends |                                              | $                                    | 3,632  |           |  |        | 21,044 |        |  |  |   |    
|Less preferred dividends                    |                                              |                                      | (1,206 | )         |  |        |       |        |  |  |   |    
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income applicable to common shareholders |                                      |        | 2,426     |  |        |        | 21,044 |  |  | $ | .12 | 
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Diluted Earnings Per Common
    Share       |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|Effect of dilutive stock options            |                                              |                                      |       |           |  |        | 6      |        |  |  |   |    
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income applicable to common shareholders |                                      | $      | 2,426     |  |        |        | 21,050 |  |  | $ | .12 | 
|                                            |                                              |                                      |        |           |  |        |        |        |  |  |   |    

Outstanding stock options of 408,500, 712,500,
and 804,000 were excluded from the earnings per common share
calculation in 2002, 2001, and 2000, respectively, since their
impact was antidilutive. The assumed conversions of the
Series B and Series C Preferred Stock were also
excluded from the earnings per common share calculation for
2002, 2001, and 2000 since their impact was antidilutive.

Note 12.     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 non-admitted 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) the provision that is made for deferred income
taxes is different than under GAAP; (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 Companys insurance
subsidiaries for the years ended December 31 were as
follows:

|                                  |                      |      |        |        |  |      |        |        |  |   |        |        | 
|--------------------------------- | -------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                  |                      | 2002 |        | 2001   |  | 2000
|                                  |                      |      |        |        |  |     
|Life and Health, net income       |                      | $    | 4,002  |        |  | $    | 2,948  |        |  | $ | 2,515  |       
|Property and Casualty, net income |                      |      | 1,270  |        |  |      | 3,539  |        |  |   | 2,420  |       
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|                                  | Statutory net income |      | $      | 5,272  |  |      | $      | 6,487  |  |   | $      | 4,935  | 
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|Life and Health, surplus          |                      | $    | 25,850 |        |  | $    | 22,739 |        |  | $ | 23,726 |       
|Property and Casualty, surplus    |                      |      | 68,869 |        |  |      | 61,922 |        |  |   | 58,206 |       
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|                                  | Statutory surplus    |      | $      | 94,719 |  |      | $      | 84,661 |  |   | $      | 81,932 | 
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       

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Under the insurance code of the state of
jurisdiction under which each insurance subsidiary operates,
dividend payments to the Company by its insurance subsidiaries
are subject to certain limitations without the prior approval of
the Insurance Commissioner. The Company received dividends of
$7,076, $7,099 and $6,082 in 2002, 2001, and 2000, respectively,
from its insurance subsidiaries. In 2003, dividend payments by
insurance subsidiaries in excess of $11,783 would require prior
approval.

Note 13.     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 from time to
time. These transactions include leasing of office space,
investing and financing. A brief description of each of these is
discussed below.

The Company leases approximately 65,489 square
feet of office and covered garage space from an affiliated
company. In the years ended December 31, 2002, 2001, and
2000, the Company paid $987, $961 and $904, respectively, under
the leases.

Financing for the Company has been provided
through affiliates of the Company or its Chairman, in the form
of the Series B Preferred Stock and Series C Preferred
Stock. (See note 10).

The Company has made mortgage loans to finance
properties owned by Leath Furniture, LLC (Leath),
which is owned by an affiliate of the Chairman. At
December 31, 2002 and 2001, the balance of mortgage loans
owed by Leath to the Companys insurance subsidiary was
$3,292 and $3,421, respectively. For 2002, 2001, and 2000,
interest paid by Leath on the mortgage loans totaled $311, $323,
and $333, respectively.

Certain members of management are on the Boards
of Directors of Bull Run Corporation (Bull Run) and
Gray Television, Inc. (Gray). At December 31,
2002, the Company owned 1,311,373 common shares of Bull Run and
376,060 shares of Gray Common Stock Class A and 106,000
shares of Gray Common Stock. The Company also owned 350 shares
of Grays Series C Preferred Stock and 2,000 shares of
Bull Runs Series B Preferred Stock as of
December 31, 2002. At December 31, 2001, the Company
owned 1,116,667 common shares of Bull Run and 354,060 shares of
Grays Series A Common Stock and 6,000 shares of
Grays Series B Common Stock. In addition, the Company
owned 350 shares of Grays Series A Preferred Stock
and 2,000 shares of Bull Runs Series A Preferred
Stock. The Company also held $4,010 in Grays 10.65%
debentures at December 31, 2001. The aggregate carrying
value of Bull Run and Gray investments at December 31, 2002
were $3,219 and $8,990, respectively and at December 31,
2001 were $2,882 and $12,687, respectively.

In 1998, Georgia Casualty began assuming
workers compensation premiums from Delta Fire &
Casualty Insurance Company which is controlled by certain
affiliates of the Company. Premiums assumed and commissions paid
in 2002 were $1,090 and $128, respectively, and in 2001 were
$1,554 and $212, respectively.

In 1998, American Southern formed the American
Auto Insurance Agency (the Agency) in a joint
venture with the AAA of Carolinas motor club to market personal
automobile insurance to the members of the automobile club.
American Southern holds a 50% interest in the joint venture and
underwrites the majority of the standard automobile business
written by the Agency. This program, which began writing
business in 1999, had gross written premiums of approximately
$7,083, $6,084 and $7,200 in 2002, 2001, and 2000, respectively.

Note 14.     Segment
Information

The Companys primary insurance subsidiaries
operate with relative autonomy and each company is evaluated
based on its individual performance. American Southern,
Association Casualty, and Georgia Casualty operate in the
Property and Casualty insurance market, while Bankers Fidelity
operates in the Life and Health insurance market. All segments
derive revenue from the collection of premiums, as well as from
investment income. Substantially all revenue other than those in
the corporate and other segment

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are from external sources. One account at
American Southern, with the State of South Carolina, accounted
for approximately $14,309, $14,054, and $17,198 of total revenue
in 2002, 2001 and 2000, respectively.


|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |         | 
|--------------------------------------------------------------------------------------------- | -------------- | -------- | ------- | -------- |  | -------- | ------- | ----------- |  | --------- | ------- | ------------- |  | ------------ | ------- | ------ |  | - | ------- | ------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                                                              |                | American |         | Georgia  |  | Bankers  |         | Association |  | Corporate |         | Adjustments & |  |             
|                                                                                              |                | Southern |         | Casualty |  | Fidelity |         | Casualty    |  | & Other   |         | Eliminations  |  | Consolidated
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |             
|As of December 31, 2002                                                                       |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance premiums                                                                            |                | $        | 39,914  |          |  | $        | 29,744  |             |  | $         | 60,597  |               |  | $            | 24,244  |        |  | $ |        |        |  | $ |         |        |   | $ | 154,499 |        
|Investment income, including net realized gains                                               |                |          | 4,251   |          |  |          | 3,302   |             |  |           | 4,679   |               |  |              | 2,287   |        |  |   | 200     |        |  |   | (121     | )      |   |   | 14,598  |        
|Other income                                                                                  |                |          | 188     |          |  |          | 47      |             |  |           |        |               |  |              | 88      |        |  |   | 7,529   |        |  |   | (6,704   | )      |   |   | 1,148   |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                                                              | Total revenue  |          |         | 44,353   |  |          |         | 33,093      |  |           |         | 65,276        |  |              |         | 26,619 |  |   |         | 7,729  |  |   |          | (6,825 | ) |   |         | 170,245 | 
|Insurance benefits and losses incurred                                                        |                |          | 26,353  |          |  |          | 19,950  |             |  |           | 42,404  |               |  |              | 20,402  |        |  |   |        |        |  |   |         |        |   |   | 109,109 |        
|Expenses deferred                                                                             |                |          | (5,898  | )        |  |          | (6,591  | )           |  |           | (2,533  | )             |  |              | (3,829  | )      |  |   |        |        |  |   |         |        |   |   | (18,851 | )      
|Amortization expense                                                                          |                |          | 5,826   |          |  |          | 5,935   |             |  |           | 2,383   |               |  |              | 4,390   |        |  |   |        |        |  |   |         |        |   |   | 18,534  |        
|Other expenses                                                                                |                |          | 11,451  |          |  |          | 13,977  |             |  |           | 18,957  |               |  |              | 7,637   |        |  |   | 13,153  |        |  |   | (6,825   | )      |   |   | 58,350  |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                                                              | Total expenses |          |         | 37,732   |  |          |         | 33,271      |  |           |         | 61,211        |  |              |         | 28,600 |  |   |         | 13,153 |  |   |          | (6,825 | ) |   |         | 167,142 | 
|Income (loss) before income taxes and
    cumulative effect of change in accounting principle |                |          | 6,621   |          |  |          | (178    | )           |  |           | 4,065   |               |  |              | (1,981  | )      |  |   | (5,424  | )      |  |   |         |        |   |   | 3,103   |        
|Cumulative effect of change in accounting
    principle                                       |                |          |        |          |  |          |        |             |  |           |        |               |  |              | (15,816 | )      |  |   |        |        |  |   |         |        |   |   | (15,816 | )      
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes                                                             |                | $        | 6,621   |          |  | $        | (178    | )           |  | $         | 4,065   |               |  | $            | (17,797 | )      |  | $ | (5,424  | )      |  | $ |         |        |   | $ | (12,713 | )      
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Total assets                                                                                  |                | $        | 112,337 |          |  | $        | 114,308 |             |  | $         | 117,786 |               |  | $            | 84,773  |        |  | $ | 139,798 |        |  | $ | (145,509 | )      |   | $ | 423,493 |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |               |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        

|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------- | -------- |  | -------- | ------- | ----------- |  | --------- | ------- | ------------- |  | ------------ | ------ | ------ |  | - | ------- | ------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                |                | American |         | Georgia  |  | Bankers  |         | Association |  | Corporate |         | Adjustments & |  |             
|                                                |                | Southern |         | Casualty |  | Fidelity |         | Casualty    |  | & Other   |         | Eliminations  |  | Consolidated
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |             
|As of December 31, 2001                         |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance premiums                              |                | $        | 39,023  |          |  | $        | 25,579  |             |  | $         | 55,276  |               |  | $            | 25,711 |        |  | $ |        |        |  | $ |         |        |   | $ | 145,589 |        
|Investment income, including net realized gains |                |          | 4,630   |          |  |          | 2,907   |             |  |           | 4,968   |               |  |              | 3,462  |        |  |   | 945     |        |  |   | (887     | )      |   |   | 16,025  |        
|Other income                                    |                |          | 126     |          |  |          | 29      |             |  |           |        |               |  |              | 495    |        |  |   | 6,978   |        |  |   | (5,934   | )      |   |   | 1,694   |        
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total revenue  |          |         | 43,779   |  |          |         | 28,515      |  |           |         | 60,244        |  |              |        | 29,668 |  |   |         | 7,923  |  |   |          | (6,821 | ) |   |         | 163,308 | 
|Insurance benefits and losses incurred          |                |          | 26,069  |          |  |          | 17,644  |             |  |           | 39,570  |               |  |              | 23,613 |        |  |   |        |        |  |   |         |        |   |   | 106,896 |        
|Expenses deferred                               |                |          | (4,502  | )        |  |          | (4,876  | )           |  |           | (3,393  | )             |  |              | (5,404 | )      |  |   |        |        |  |   |         |        |   |   | (18,175 | )      
|Amortization expense                            |                |          | 4,651   |          |  |          | 5,122   |             |  |           | 2,478   |               |  |              | 6,181  |        |  |   | 140     |        |  |   |         |        |   |   | 18,572  |        
|Other expenses                                  |                |          | 10,765  |          |  |          | 8,519   |             |  |           | 18,219  |               |  |              | 8,203  |        |  |   | 12,877  |        |  |   | (6,821   | )      |   |   | 51,762  |        
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total expenses |          |         | 36,983   |  |          |         | 26,409      |  |           |         | 56,874        |  |              |        | 32,593 |  |   |         | 13,017 |  |   |          | (6,821 | ) |   |         | 159,055 | 
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes               |                | $        | 6,796   |          |  | $        | 2,106   |             |  | $         | 3,370   |               |  | $            | (2,925 | )      |  | $ | (5,094  | )      |  | $ |         |        |   | $ | 4,253   |        
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Total assets                                    |                | $        | 110,680 |          |  | $        | 103,701 |             |  | $         | 108,604 |               |  | $            | 90,505 |        |  | $ | 140,150 |        |  | $ | (141,621 | )      |   | $ | 412,019 |        
|                                                |                |          |         |          |  |          |         |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        

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|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------- | -------- |  | -------- | ------ | ----------- |  | --------- | ------- | ------------- |  | ------------ | ------ | ------ |  | - | ------- | ------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                |                | American |         | Georgia  |  | Bankers  |        | Association |  | Corporate |         | Adjustments & |  |             
|                                                |                | Southern |         | Casualty |  | Fidelity |        | Casualty    |  | & Other   |         | Eliminations  |  | Consolidated
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |             
|As of December 31, 2000                         |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance premiums                              |                | $        | 37,172  |          |  | $        | 28,576 |             |  | $         | 47,639  |               |  | $            | 20,110 |        |  | $ |        |        |  | $ |         |        |   | $ | 133,497 |        
|Investment income, including net realized gains |                |          | 5,235   |          |  |          | 3,445  |             |  |           | 5,948   |               |  |              | 2,626  |        |  |   | 1,103   |        |  |   | (883     | )      |   |   | 17,474  |        
|Other income                                    |                |          | 80      |          |  |          | 27     |             |  |           |        |               |  |              | 554    |        |  |   | 5,774   |        |  |   | (5,148   | )      |   |   | 1,287   |        
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total revenue  |          |         | 42,487   |  |          |        | 32,048      |  |           |         | 53,587        |  |              |        | 23,290 |  |   |         | 6,877  |  |   |          | (6,031 | ) |   |         | 152,258 | 
|Insurance benefits and losses incurred          |                |          | 26,185  |          |  |          | 22,192 |             |  |           | 33,452  |               |  |              | 15,799 |        |  |   |        |        |  |   |         |        |   |   | 97,628  |        
|Expenses deferred                               |                |          | (5,242  | )        |  |          | (5,918 | )           |  |           | (3,544  | )             |  |              | (4,100 | )      |  |   |        |        |  |   |         |        |   |   | (18,804 | )      
|Amortization expense                            |                |          | 5,224   |          |  |          | 5,699  |             |  |           | 2,177   |               |  |              | 4,308  |        |  |   | 140     |        |  |   |         |        |   |   | 17,548  |        
|Other expenses                                  |                |          | 10,190  |          |  |          | 11,159 |             |  |           | 17,131  |               |  |              | 7,027  |        |  |   | 11,654  |        |  |   | (6,031   | )      |   |   | 51,130  |        
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total expenses |          |         | 36,357   |  |          |        | 33,132      |  |           |         | 49,216        |  |              |        | 23,034 |  |   |         | 11,794 |  |   |          | (6,031 | ) |   |         | 147,502 | 
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes               |                | $        | 6,130   |          |  | $        | (1,084 | )           |  | $         | 4,371   |               |  | $            | 256    |        |  | $ | (4,917  | )      |  | $ |         |        |   | $ | 4,756   |        
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        
|Total assets                                    |                | $        | 109,592 |          |  | $        | 77,237 |             |  | $         | 103,066 |               |  | $            | 80,918 |        |  | $ | 137,334 |        |  | $ | (132,370 | )      |   | $ | 375,777 |        
|                                                |                |          |         |          |  |          |        |             |  |           |         |               |  |              |        |        |  |   |         |        |  |   |          |        |   |   |         |        

Note 15.     Disclosures
About Fair Value of 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.

|             |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|------------ | --------------------------------------------------------------- | -------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|             |                                                                 |          |   |           
|             |                                                                 | 2002     |   | 2001      
|             |                                                                 |          |   |           
|             |                                                                 | Carrying |   | Estimated  |  | Carrying |   | Estimated 
|             |                                                                 | Amount   |   | Fair Value |  | Amount   |   | Fair Value
|             |                                                                 |          |   |            |  |          |   |           
|Assets:      |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Cash and cash equivalents, including short-term
    investments |          | $ | 41,638     |  |          | $ | 41,638     |  |  | $ | 68,846  |  |  | $ | 68,846  | 
|             | Bonds                                                           |          |   | 181,830    |  |          |   | 181,830    |  |  |   | 133,470 |  |  |   | 133,470 | 
|             | Common and preferred stocks                                     |          |   | 57,242     |  |          |   | 57,242     |  |  |   | 54,628  |  |  |   | 54,628  | 
|             | Mortgage loans                                                  |          |   | 3,330      |  |          |   | 4,127      |  |  |   | 3,421   |  |  |   | 4,126   | 
|             | Policy and student loans                                        |          |   | 2,409      |  |          |   | 2,409      |  |  |   | 2,713   |  |  |   | 2,713   | 
|             | Other invested assets                                           |          |   | 5,031      |  |          |   | 5,031      |  |  |   | 4,854   |  |  |   | 4,854   | 
|Liabilities: |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Debt                                                            |          |   | 49,500     |  |          |   | 49,500     |  |  |   | 44,000  |  |  |   | 44,000  | 

The fair value estimates as of December 31,
2002 and 2001 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 and Cash Equivalents, including
    Short-term Investments

The carrying amount approximates fair value due
to the short-term nature of the instruments.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Bonds, Common and Preferred Stocks and
    Publicly Traded Other Invested Assets

The carrying amount is determined in accordance
with methods prescribed by the NAIC, which do not differ
materially from nationally quoted market prices.

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| |                                        
| | ---------------------------------------
| | Non-publicly Traded Invested
    Assets

The fair value of investments in certain limited
partnerships, which are included in other invested assets on the
balance sheet, were determined by officers of those limited
partnerships.



| |               
| | --------------
| | 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.

Note 16.     Reconciliation
of Other Comprehensive Income

The Companys comprehensive income consists
of net income, unrealized gains and losses on securities
available for sale and fair value adjustments to the interest
rate swap, net of applicable income taxes.

Other than net income, the other components of
comprehensive income (loss) for the years ended
December 31, 2002, 2001 and 2000 are as follows:

|                                                          |                                                                                             |              |     |        |   |      |       |        |   |   |       |        |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------ | --- | ------ | - | ---- | ----- | ------ | - | - | ----- | ------ | -
|                                                          |                                                                                             |             
|                                                          |                                                                                             | December 31,
|                                                          |                                                                                             |             
|                                                          |                                                                                             | 2002         |     | 2001   |   | 2000
|                                                          |                                                                                             |              |     |        |   |     
|Gain on the sale of securities included in net
    income |                                                                                             | $            | 587 |        |   | $    | 1,708 |        |   | $ | 1,922 |       
|                                                          |                                                                                             |              |     |        |   |      |       |        |   |   |       |       
|Other comprehensive income (loss):                        |                                                                                             |              |     |        |   |      |       |        |   |   |       |       
|                                                          | Net pre-tax unrealized gains arising during year                                            |              | $   | 7,731  |   |      | $     | 5,206  |   |   | $     | 359    |  
|                                                          | Reclassification adjustment                                                                 |              |     | (587   | ) |      |       | (1,708 | ) |   |       | (1,922 | )
|                                                          |                                                                                             |              |     |        |   |      |       |        |   |   |       |       
|                                                          | Net pre-tax unrealized gains
    (losses) recognized in other comprehensive income (loss)   |              |     | 7,144  |   |      |       | 3,498  |   |   |       | (1,563 | )
|                                                          | Fair value adjustments to interest rate swap                                                |              |     | (382   | ) |      |       | (532   | ) |   |       |       |  
|                                                          | Deferred income tax (expense) benefit
    attributable to other comprehensive income (loss) |              |     | (2,367 | ) |      |       | (1,038 | ) |   |       | 547    |  
|                                                          |                                                                                             |              |     |        |   |      |       |        |   |   |       |       
|                                                          | Net other comprehensive income (loss)                                                       |              | $   | 4,395  |   |      | $     | 1,928  |   |   | $     | (1,016 | )
|                                                          |                                                                                             |              |     |        |   |      |       |        |   |   |       |       

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Note 17.     Quarterly
Financial Information (Unaudited)

The following table sets forth a summary of the
quarterly unaudited results of operations for the two years in
the period ended December 31, 2002:

|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |      |  
|--------------------------------------------------------------------------------------------- | ----------------- | ------- | ------- | ------- | - | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | --- |  | - | ------ | --- |  | - | ------ | ----- |  | - | ------ | ---- | -
|                                                                                              |                   |         |         |        
|                                                                                              |                   | 2002    |         | 2001   
|                                                                                              |                   |         |         |        
|                                                                                              |                   | First   |         | Second  |   | Third   |        | Fourth  |  | First   |        | Second  |  | Third   |        | Fourth 
|                                                                                              |                   | Quarter |         | Quarter |   | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |        
|Revenue                                                                                       |                   | $       | 40,069  |         |   | $       | 43,079 |         |  | $       | 43,151 |         |  | $       | 43,946 |         |  | $ | 40,221 |     |  | $ | 41,060 |     |  | $ | 40,540 |       |  | $ | 41,487 |     
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     
|Income (loss) before income taxes and cumulative
    effect of change in accounting principle |                   | $       | 2,264   |         |   | $       | 1,421  |         |  | $       | (525   | )       |  | $       | (57    | )       |  | $ | 1,599  |     |  | $ | 1,029  |     |  | $ | 1,886  |       |  | $ | (261   | )   
|Income tax expense (benefit)                                                                  |                   |         | 759     |         |   |         | 479    |         |  |         | (1,481 | )       |  |         | (255   | )       |  |   | 609    |     |  |   | 389    |     |  |   | (215   | )     |  |   | (127   | )   
|Cumulative effect of change in accounting
    principle                                       |                   |         | (15,816 | )       |   |         |       |         |  |         |       |         |  |         |       |         |  |   |       |     |  |   |       |     |  |   |       |       |  |   |       |     
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     
|                                                                                              | Net income (loss) |         | $       | (14,311 | ) |         | $      | 942     |  |         | $      | 956     |  |         | $      | 198     |  |   | $      | 990 |  |   | $      | 640 |  |   | $      | 2,101 |  |   | $      | (134 | )
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     
|Per common share data:                                                                        |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     
|Basic net income (loss) per share                                                             |                   | $       | (.69    | )       |   | $       | .03    |         |  | $       | .03    |         |  | $       | (.01   | )       |  | $ | .03    |     |  | $ | .01    |     |  | $ | .08    |       |  | $ | (.02   | )   
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     
|Diluted net income (loss) per share                                                           |                   | $       | (.68    | )       |   | $       | .03    |         |  | $       | .03    |         |  | $       | (.01   | )       |  | $ | .03    |     |  | $ | .01    |     |  | $ | .08    |       |  | $ | (.02   | )   
|                                                                                              |                   |         |         |         |   |         |        |         |  |         |        |         |  |         |        |         |  |   |        |     |  |   |        |     |  |   |        |       |  |   |        |     

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Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

On June 26, 2002, the Audit Committee of the
Board of Directors of Atlantic American Corporation (the
Company) determined to end its engagement of Arthur
Andersen LLP (Andersen) as auditors and voted to
engage the services of Deloitte & Touche LLP to serve
as the Companys auditors for the Companys 2002
fiscal year, effective immediately.

Andersens reports on the Companys
consolidated financial statements for each of the fiscal years
ended December 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31,
2001 and 2000, and through the date hereof, there were no
disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to
Andersens satisfaction, would have caused Andersen to make
reference to the subject matter in connection with its report
with respect to the Companys consolidated financial
statements for such years; and there were no reportable events
as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company provided Andersen with a copy of the
foregoing disclosures. Attached in the 8-K filing dated
June 28, 2002, as Exhibit 16.1, is a copy of
Andersens letter, dated June 28, 2002, stating its
agreement with such statements.

During the fiscal years ended December 31,
2001 and 2000 and through June 26, 2002, the Company did not
consult Deloitte & Touche LLP with respect to the
application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that
might be rendered with respect to the Companys
consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(1)(iv) and
(v) of Regulation S-K.




PART III

With the exception of information relating to the
Executive Officers of the Company, which is provided in
Part I hereof and the information relating to securities
authorized for issuance under equity compensation plans, which
is included in Part II, Item 5, all information
required by Part III (Items 10, 11, 12, and 13) is
incorporated by reference to the sections entitled
Election of Directors, Security Ownership of
Management, Section 16(a) Beneficial Ownership
Compliance, Executive Compensation, and
Certain Relationships and Related Transactions
contained in the Companys definitive proxy statement to be
delivered in connection with the Companys Annual Meeting
of Shareholders to be held on May 6, 2003.




Item 14.     Controls
and Procedures

Within the 90 days prior to the date of this
Form 10-K, an evaluation was performed under the
supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act
of 1934). Based on that evaluation, our management, including
the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were
effective. There have been no significant changes in our
internal controls and procedures or in other factors that could
significantly affect internal controls subsequent to the date
the Company carried out its evaluation.

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PART IV




Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) List of documents filed as part of
this report:

Financial Statement Schedules

|    |  |   |  |                                                                                                                                |  |  |  | 
|--- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|II  |  |  |  | Condensed financial information of Registrant for
    the three years ended December 31, 2002                                  |  |  |  | 
|III |  |  |  | Supplementary Insurance Information for the three
    years ended December 31, 2002                                            |  |  |  | 
|IV  |  |  |  | Reinsurance for the three years ended
    December 31, 2002                                                                    |  |  |  | 
|VI  |  |  |  | Supplemental Information concerning
    property-casualty insurance operations for the three years ended
    December 31, 2002 |  |  |  | 

Schedules other than those listed above are
omitted as they are not required or are not applicable, or the
required information is shown in the financial statements or
notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.

(b) Reports on Form 8-K

Current Report on Form 8-K filed on
November 14, 2002 pursuant to Item 9
(Regulation FD Disclosure) announcing the Form 10Q for
the quarterly period ending September 30, 2002 include the
certifications of the Chief Executive Officer and the Chief
Financial Officer.

Current Report on Form 8-K filed on
December 6, 2002 pursuant to Item 5 (Other Events)
announcing the completed private issuance of $17.5 million
aggregate amount of floating rate capital securities, as a part
of a pooled transaction that involved various other insurance
companies.

(c) Exhibits*:

| |         |  |  |   |  |                                                                                                                                                                                                                                                                                                           
| | ------- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1     |  |  |  |  | Restated Articles of Incorporation of the
    registrant, as amended.                                                                                                                                                                                                                                     
| | 3.2     |  |  |  |  | Bylaws of the registrant [incorporated by
    reference to Exhibit 3.2 to the registrants
    Form 10-K for the year ended December 31, 1993].                                                                                                                                                           
| | 10.01   |  |  |  |  | Lease Contract between registrant and Delta Life
    Insurance Company dated June 1, 1992 [incorporated by
    reference to Exhibit 10.11 to the registrants
    Form 10-K for the year ended December 31, 1992].                                                                                        
| | 10.02   |  |  |  |  | First Amendment to Lease Contract between
    registrant and Delta Life Insurance Company dated June 1,
    1993 [incorporated by reference to Exhibit 10.11.1 to the
    registrants Form 10Q for the quarter ended
    June 30, 1993].                                                                 
| | 10.03   |  |  |  |  | Second Amendment to Lease Contract between
    registrant and Delta Life Insurance Company dated August 1,
    1994 [incorporated by reference to Exhibit 10.11.2 to the
    registrants Form 10Q for the quarter ended
    September 30, 1994].                                                         
| | 10.04   |  |  |  |  | Lease Agreement between Georgia
    Casualty & Surety Company and Delta Life Insurance
    Company dated September 1, 1991 [incorporated by reference
    to Exhibit 10.12 to the registrants Form 10-K
    for the year ended December 31, 1992].                                                       
| | 10.05   |  |  |  |  | First Amendment to Lease Agreement between
    Georgia Casualty & Surety Company and Delta Life Insurance
    Company dated June 1,1992 [incorporated by reference to
    Exhibit 10.12.1 to the registrants Form 10-K for
    the year ended December 31, 1992].                                        
| | 10.06   |  |  |  |  | Management Agreement between registrant and
    Georgia Casualty & Surety Company dated April 1, 1983
    [incorporated by reference to Exhibit 10.16 to the
    registrants Form 10-K for the year ended
    December 31, 1986].                                                                        
| | 10.07** |  |  |  |  | Minutes of Meeting of Board of Directors of
    registrant held February 25, 1992 adopting
    registrants 1992 Incentive Plan together with a copy of
    that plan, as adopted [incorporated by reference to
    Exhibit 10.21 to the registrants Form 10-K for
    the year ended December 31, 1991].

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| |       |  |  |   |  |                                                                                                                                                                                                                                                                                                 
| | ----- |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.08 |  |  |  |  | Loan and Security Agreement dated August 26,
    1991, between registrants three insurance subsidiaries and
    Leath Furniture, Inc. [incorporated by reference to
    Exhibit 10.38 to the registrants Form 10-K for
    the year ended December 31, 1992].                                 
| | 10.09 |  |  |  |  | First amendment to the amended and reissued
    mortgage note dated January 1, 1992, [incorporated by
    reference to Exhibit 10.38.1 to the registrants
    Form 10-K for the year ended December 31, 1992].                                                                                 
| | 10.10 |  |  |  |  | Intercreditor Agreement dated August 26,
    1991, between Leath Furniture, Inc., the registrant and the
    registrants three insurance subsidiaries [incorporated by
    reference to Exhibit 10.39 to the registrants Form
    10-K for the year ended December 31, 1992].                 
| | 10.11 |  |  |  |  | Management Agreement between the registrant and
    Atlantic American Life Insurance Company and Bankers Fidelity
    Life Insurance Company dated July 1, 1993 [incorporated by
    reference to Exhibit 10.41 to the registrants Form
    10-Q for the quarter ended September 30, 1993].    
| | 10.12 |  |  |  |  | Tax allocation agreement dated January 28,
    1994, between registrant and registrants subsidiaries
    [incorporated by reference to Exhibit 10.44 to the
    registrants Form 10-K for the year ended
    December 31, 1993].                                                              
| | 10.13 |  |  |  |  | Indenture of Trust, dated as of June 24,
    1999, by and between Atlantic American Corporation and The Bank
    of New York, as Trustee [incorporated by reference to
    Exhibit 10.1 to the registrants Form 8-K dated
    July 16, 1999].                                                  
| | 10.14 |  |  |  |  | Reimbursement and Security Agreement, dated as of
    June 24, 1999, between Atlantic American Corporation and
    Wachovia Bank of Georgia, N.A. [incorporated by reference to
    Exhibit 10.3 to the registrants Form 8-K dated
    July 16, 1999].                                         
| | 10.15 |  |  |  |  | Revolving Credit Facility, dated as of
    July 1, 1999 between Atlantic American Corporation and
    Wachovia Bank, N.A. [incorporated by reference to
    Exhibit 10.3 to the registrants Form 8-K dated
    July 16, 1999].                                                                 
| | 10.16 |  |  |  |  | First Amendment, dated as of March 24, 2000,
    to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A. [
    incorporated by reference to Exhibit 10.1 to the
    registrants Form 10-Q for the quarter ended
    June 30, 2000].   
| | 10.17 |  |  |  |  | Second Amendment, dated February 9, 2001, to
    Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.18 to the
    registrants Form 10-K for the year ended
    December 31, 2000]      
| | 10.18 |  |  |  |  | Third Amendment, dated as of December 31,
    2001 to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.19 to the
    registrants Form 10-K for the year ended
    December 31, 2001].
| | 10.19 |  |  |  |  | Fourth Amendment, dated November 21, 2002,
    to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.                                                                                                                                 
| | 10.20 |  |  |  |  | Atlantic American Corporation 1992 Incentive Plan
    [ incorporated by reference to Exhibit 4 to the
    registrants Form S-8 filed on November 1, 1999].                                                                                                                                     
| | 10.21 |  |  |  |  | Atlantic American Corporation 1996 Director Stock
    Option Plan [incorporated by reference to Exhibit 4 to the
    registrants Form S-8 filed on November 1, 1999].                                                                                                                          
| | 10.22 |  |  |  |  | Atlantic American Corporation 2002 Stock
    Incentive Plan [incorporated by reference to Exhibit 4.1 to
    the registrants Form S-8 filed on August 2,
    2002].                                                                                                                            
| | 10.23 |  |  |  |  | Summary Terms of Consulting Arrangement between
    Atlantic American Corporation and Samuel E. Hudgins,
    entered into in June, 2002.                                                                                                                                                        
| | 21.1  |  |  |  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                 
| | 23.1  |  |  |  |  | Consent of Deloitte & Touche LLP, Independent
    Public Accountants.                                                                                                                                                                                                                           
| | 99.1  |  |  |  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    



|  |                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The Registrant agrees to furnish to the
    Commission upon request a copy of any instruments defining the
    rights of securityholders of the Registrant that may be omitted
    from filing in accordance with the Commissions rules and
    regulations.



|   |                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Management contract, compensatory plan or
    arrangement required to be filed pursuant to, Part IV,
    Item 14(C) of Form 10-K and Item 601 of
    Regulation S-K.

66



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                           
| | ------------------------------------------
| | (Registrant) ATLANTIC AMERICAN CORPORATION



| |     |                        
| | --- | -----------------------
| | By: | /s/ JOHN G. SAMPLE, JR.

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | John G. Sample, Jr.                                  
| | Senior Vice President and Chief Financial
    Officer

Date: March 28, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                               |  |                                                                                                    |  |               
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                              |  | Date          
|                                               |  |                                                                                                    |  |               
|/s/ J. MACK ROBINSONJ. Mack Robinson           |  | Chairman of the Board                                                                              |  | March 28, 2003
|                                              
|/s/ HILTON H. HOWELL, JR.Hilton H. Howell, Jr. |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                  |  | March 28, 2003
|                                              
|/s/ JOHN G. SAMPLE, JR.John G. Sample, Jr.     |  | Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | March 28, 2003
|                                              
|/s/ EDWARD E. ELSONEdward E. Elson             |  | Director                                                                                           |  | March 28, 2003
|                                              
|/s/ SAMUEL E. HUDGINSSamuel E. Hudgins         |  | Director                                                                                           |  | March 28, 2003
|                                              
|/s/ D. RAYMOND RIDDLED. Raymond Riddle         |  | Director                                                                                           |  | March 28, 2003
|                                              
|/s/ HARRIETT J. ROBINSONHarriett J. Robinson   |  | Director                                                                                           |  | March 28, 2003
|                                              
|/s/ SCOTT G. THOMPSONScott G. Thompson         |  | Director                                                                                           |  | March 28, 2003
|                                              
|/s/ MARK C. WESTMark C. West                   |  | Director                                                                                           |  | March 28, 2003

67



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|                                                   |  |          |  |               
|-------------------------------------------------- |  | -------- |  | --------------
|Signature                                          |  | Title    |  | Date          
|                                                   |  |          |  |               
|                                                  
|/s/ WILLIAM H. WHALEY, M.D.William H. Whaley, M.D. |  | Director |  | March 28, 2003
|                                                  
|/s/ DOM H. WYANTDom H. Wyant                       |  | Director |  | March 28, 2003
|                                                  
|/s/ HAROLD K. FISCHERHarold K. Fischer             |  | Director |  | March 28, 2003

68



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##### Table of Contents



CERTIFICATIONS

I, Hilton H. Howell, Jr., certify that:

1. I have reviewed this annual report on
Form 10-K of Atlantic American Corporation;

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

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

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



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

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



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

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



| |                                          
| | -----------------------------------------
| | /s/ HILTON H. HOWELL, JR.                
| |                                          
| | Hilton H. Howell, Jr.                    
| | President and Chief Executive
    Officer

Date: March 28, 2003

69



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##### Table of Contents



CERTIFICATIONS

I, John G. Sample, Jr., certify that:

1. I have reviewed this annual report on
Form 10-K of Atlantic American Corporation;

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

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

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



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

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



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

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



| |                                                      
| | -----------------------------------------------------
| | /s/ JOHN G. SAMPLE, JR.                              
| |                                                      
| | John G. Sample, Jr.                                  
| | Senior Vice President and Chief Financial
    Officer

Date: March 28, 2003

70



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##### Table of Contents



SCHEDULE II

Page 1 of 3


ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

BALANCE SHEETS

|                                          |              |                |         |         |  |   |         |         | 
|----------------------------------------- | ------------ | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |              |               
|                                          |              | December 31,  
|                                          |              |               
|                                          |              | 2002           |         | 2001   
|                                          |              |                |         |        
|                                          |              |               
|                                          |              | (In thousands)
|ASSETS                                   
|Cash and short-term investments           |              | $              | 1,742   |         |  | $ | 517     |        
|Investment in subsidiaries                |              |                | 135,053 |         |  |   | 135,026 |        
|Deferred tax asset, net                   |              |                |        |         |  |   | 773     |        
|Income taxes receivable from subsidiaries |              |                | 1,359   |         |  |   | 2,041   |        
|Other assets                              |              |                | 2,712   |         |  |   | 2,462   |        
|                                          |              |                |         |         |  |   |         |        
|                                          | Total assets |                | $       | 140,866 |  |   | $       | 140,819 | 
|                                          |              |                |         |         |  |   |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY 
|Deferred tax liability, net               |              | $              | 854     |         |  | $ |        |        
|Other payables                            |              |                | 11,430  |         |  |   | 9,293   |        
|Debt payable to bank                      |              |                | 32,000  |         |  |   | 44,000  |        
|Debt payable to trust                     |              |                | 18,042  |         |  |   |        |        
|                                          |              |                |         |         |  |   |         |        
|Total liabilities                         |              |                | 62,326  |         |  |   | 53,293  |        
|Shareholders equity                      |              |                | 78,540  |         |  |   | 87,526  |        
|                                          |              |                |         |         |  |   |         |        
|                                          |              | $              | 140,866 |         |  | $ | 140,819 |        
|                                          |              |                |         |         |  |   |         |        

71



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SCHEDULE II

Page 2 of 3


ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

STATEMENTS OF OPERATIONS

|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |       |        | 
|------------------------------------------------------------------ | ------------------------------------------------------- | ----------------------- | ------- | ----- | ------- | ---- | ----- | ----- | ------ |  | ----- | ----- | ------ | 
|                                                                   |                                                         |                        
|                                                                   |                                                         | Year Ended December 31,
|                                                                   |                                                         |                        
|                                                                   |                                                         | 2002                    |         | 2001  |         | 2000
|                                                                   |                                                         |                         |         |       |         |     
|                                                                   |                                                         |                        
|                                                                   |                                                         | (In thousands)         
|Revenue                                                            |                                                         |                         |         |       |         |      |       |       |        |  |       |      
|                                                                   | Fees, rentals and interest income from
    subsidiaries |                         | $       | 6,705 |         |      | $     | 5,933 |        |  | $     | 5,148 |       
|                                                                   | Distributed earnings from subsidiaries                  |                         |         | 7,076 |         |      |       | 7,099 |        |  |       | 6,382 |       
|                                                                   | Other                                                   |                         |         | 217   |         |      |       | 1,299 |        |  |       | 1,094 |       
|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |      
|                                                                   |                                                         | Total revenue           |         |       | 13,998  |      |       |       | 14,331 |  |       |       | 12,624 | 
|General and administrative expenses                                |                                                         |                         | 10,162  |       |         |      | 9,318 |       |        |  | 6,991 |      
|Interest expense                                                   |                                                         |                         | 2,564   |       |         |      | 3,234 |       |        |  | 4,408 |      
|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |      
|                                                                   |                                                         |                         | 1,272   |       |         |      | 1,779 |       |        |  | 1,225 |      
|Income tax benefit(1)                                              |                                                         |                         | 2,690   |       |         |      | 1,606 |       |        |  | 1,032 |      
|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |      
|                                                                   |                                                         |                         | 3,962   |       |         |      | 3,385 |       |        |  | 2,257 |      
|Equity in undistributed earnings (losses) of
    subsidiaries, net |                                                         |                         | (361    | )     |         |      | 212   |       |        |  | 1,375 |      
|Equity in cumulative effect of change in
    accounting principle  |                                                         |                         | (15,816 | )     |         |      |      |       |        |  |      |      
|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |      
|                                                                   |                                                         | Net income (loss)       |         | $     | (12,215 | )    |       | $     | 3,597  |  |       | $     | 3,632  | 
|                                                                   |                                                         |                         |         |       |         |      |       |       |        |  |       |      



|    |                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Under the terms of its tax-sharing agreement with
    its subsidiaries, income tax provisions for the individual
    companies are computed on a separate company basis. Accordingly,
    the Companys income tax benefit results from the
    utilization of the parent company separate return loss to reduce
    the consolidated taxable income of the Company and its
    subsidiaries.

72



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SCHEDULE II

Page 3 of 3


ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

STATEMENTS OF CASH FLOWS

|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |        |        |        |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------- | ------ | ------ | --- | ------ | ---- | ------ | ------ | ------ | ------ | ------ | -
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | Year Ended December 31,                                                                                                             
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | 2002                                                                                                                                 |                                                         | 2001    |        | 2000  
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |       
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | (In thousands)                                                                                                                      
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      | Net income (loss)                                                                            |                                                                                                                                      | $                                                       | (12,215 | )      |        | $   | 3,597  |      |        | $      | 3,632  |       
|                                      | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |        |       
|                                      |                                                                                              | Realized investment gains                                                                                                            |                                                         |         | (125   | )      |     |        | (118 | )      |        |        | (270   | )     
|                                      |                                                                                              | Depreciation and amortization                                                                                                        |                                                         |         | 659    |        |     |        | 631  |        |        |        | 620    |       
|                                      |                                                                                              | Compensation expense related to share awards                                                                                         |                                                         |         | 77     |        |     |        | 45   |        |        |        | 51     |       
|                                      |                                                                                              | Equity in undistributed (earnings) loss and
    cumulative effect of change in accounting principle of
    consolidated subsidiaries |                                                         |         | 16,177 |        |     |        | (212 | )      |        |        | (1,375 | )     
|                                      |                                                                                              | Decrease (increase) in intercompany taxes                                                                                            |                                                         |         | 682    |        |     |        | (832 | )      |        |        | (1,212 | )     
|                                      |                                                                                              | Deferred income tax (benefit) expense                                                                                                |                                                         |         | (621   | )      |     |        | 507  |        |        |        | 1,007  |       
|                                      |                                                                                              | Increase (decrease) in other liabilities                                                                                             |                                                         |         | 549    |        |     |        | (296 | )      |        |        | 318    |       
|                                      |                                                                                              | Other, net                                                                                                                           |                                                         |         | 149    |        |     |        | (46  | )      |        |        | (734   | )     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      |                                                                                              |                                                                                                                                      | Net cash provided by operating activities               |         |        | 5,332  |     |        |      | 3,276  |        |        |        | 2,037  |  
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      | Investments purchased                                                                        |                                                                                                                                      |                                                         |        |        |        |     |       |      |        |        | (47    | )     
|                                      | Proceeds from investments sold                                                               |                                                                                                                                      |                                                         | 31      |        |        |     |       |      |        |        |       |       
|                                      | Capitalization of Trust                                                                      |                                                                                                                                      |                                                         | (542    | )      |        |     |       |      |        |        |       |       
|                                      | Acquisition of Association Casualty                                                          |                                                                                                                                      |                                                         |        |        |        |     | (128   | )    |        |        | (94    | )     
|                                      | Capital contribution to subsidiaries                                                         |                                                                                                                                      |                                                         | (8,521  | )      |        |     |       |      |        |        |       |       
|                                      | Additions to property and equipment                                                          |                                                                                                                                      |                                                         | (335    | )      |        |     | (803   | )    |        |        | (507   | )     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      |                                                                                              |                                                                                                                                      | Net cash used in investing activities                   |         |        | (9,367 | )   |        |      | (931   | )      |        |        | (648   | )
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      | Proceeds from preferred trust securities                                                     |                                                                                                                                      |                                                         | 17,516  |        |        |     |       |      |        |        |       |       
|                                      | Preferred stock dividends to affiliated
    shareholders                                     |                                                                                                                                      |                                                         | (225    | )      |        |     | (225   | )    |        |        |       |       
|                                      | Purchase of treasury shares                                                                  |                                                                                                                                      |                                                         | (44     | )      |        |     | (11    | )    |        |        | (79    | )     
|                                      | Repayments of debt                                                                           |                                                                                                                                      |                                                         | (12,000 | )      |        |     | (2,500 | )    |        |        | (4,500 | )     
|                                      | Issuance of preferred stocks                                                                 |                                                                                                                                      |                                                         |        |        |        |     | 750    |      |        |        | 1,750  |       
|                                      | Proceeds from exercise of stock options                                                      |                                                                                                                                      |                                                         | 13      |        |        |     | 158    |      |        |        | 410    |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      |                                                                                              |                                                                                                                                      | Net cash provided by (used in) financing
    activities |         |        | 5,260  |     |        |      | (1,828 | )      |        |        | (2,419 | )
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|Net increase (decrease) in cash       |                                                                                              |                                                                                                                                      | 1,225                                                   |         |        |        | 517 |        |      |        | (1,030 | )     
|Cash at beginning of year             |                                                                                              |                                                                                                                                      | 517                                                     |         |        |        |    |        |      |        | 1,030  |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|Cash at end of year                   |                                                                                              | $                                                                                                                                    | 1,742                                                   |         |        | $      | 517 |        |      | $      |       |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|Supplemental disclosure:              |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      | Cash paid for interest                                                                       |                                                                                                                                      | $                                                       | 2,282   |        |        | $   | 3,394  |      |        | $      | 4,170  |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       
|                                      | Cash paid for income taxes                                                                   |                                                                                                                                      | $                                                       | 113     |        |        | $   | 100    |      |        | $      | 166    |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |     |        |      |        |        |       

73



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##### Table of Contents



SCHEDULE III


Page 1 of 2


ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |       | 
|------------------ | -------------------- | ----------------- | ------ | ----------------- |  | -------- | ------- | ---------------- |  | - | ------ | ------ |  | - | ----- | ----- | 
|                   |                      |                   |        | Future Policy     |  |          |         |                 
|                   |                      |                   |        | Benefits, Losses, |  |          |         | Other Policy    
|                   |                      | Deferred          |        | Claims and Loss   |  | Unearned |         | Claims and      
|Segment            |                      | Acquisition Costs |        | Reserves          |  | Premiums |         | Benefits Payable
|                   |                      |                   |        |                   |  |          |         |                 
|                   |                      |                  
|                   |                      | (In thousands)   
|December 31, 2002: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,934            |  |          | $       | 56,167           |  |   | $      | 3,566  |  |   | $     | 2,395 | 
|                   | American Southern    |                   |        | 2,327             |  |          |         | 44,428           |  |   |        | 20,519 |  |   |       | 2,382 | 
|                   | Association Casualty |                   |        | 1,470             |  |          |         | 41,669           |  |   |        | 10,147 |  |   |       | -0-   | 
|                   | Georgia Casualty     |                   |        | 3,191             |  |          |         | 53,705           |  |   |        | 21,668 |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 25,922 |                   |  | $        | 195,969 | (1)              |  | $ | 55,900 |        |  | $ | 4,777 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 2001: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,554            |  |          | $       | 51,932           |  |   | $      | 3,219  |  |   | $     | 2,153 | 
|                   | American Southern    |                   |        | 2,024             |  |          |         | 46,235           |  |   |        | 18,598 |  |   |       | 2,151 | 
|                   | Association Casualty |                   |        | 1,799             |  |          |         | 38,489           |  |   |        | 11,590 |  |   |       | -0-   | 
|                   | Georgia Casualty     |                   |        | 2,304             |  |          |         | 51,214           |  |   |        | 17,618 |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 24,681 |                   |  | $        | 187,870 | (2)              |  | $ | 51,025 |        |  | $ | 4,304 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 2000: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 17,333            |  |          | $       | 49,078           |  |   | $      | 3,221  |  |   | $     | 2,370 | 
|                   | American Southern    |                   |        | 1,805             |  |          |         | 48,340           |  |   |        | 18,063 |  |   |       | 2,047 | 
|                   | Association Casualty |                   |        | 1,929             |  |          |         | 31,175           |  |   |        | 11,854 |  |   |       | -0-   | 
|                   | Georgia Casualty     |                   |        | 2,331             |  |          |         | 46,733           |  |   |        | 12,283 |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 23,398 |                   |  | $        | 175,326 | (3)              |  | $ | 45,421 |        |  | $ | 4,417 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | Includes future policy benefits of $47,278 and
    losses and claims of $148,691.
|   
|(2) | Includes future policy benefits of $44,355 and
    losses and claims of $143,515.
|   
|(3) | Includes future policy benefits of $42,106 and
    losses and claims of $133,220.

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##### Table of Contents



SCHEDULE III


Page 2 of 2


ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |        | 
|------------------ | -------------------- | -------------- | ------- | ---------- |  | -------------- | ------ | ------------ |  | --------- | ------- | -------- |  | - | ------ | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                   |                      |                |         |            |  | Benefits, of   |        | Amortization |  |           |         |         
|                   |                      |                |         | Net        |  | Claims, Losses |        | of Deferred  |  | Other     |         | Casualty
|                   |                      | Premium        |         | Investment |  | and Settlement |        | Acquisition  |  | Operating |         | Premiums
|Segment            |                      | Revenue        |         | Income     |  | Expenses       |        | Costs        |  | Expenses  |         | Written 
|                   |                      |                |         |            |  |                |        |              |  |           |         |         
|                   |                      |               
|                   |                      | (In thousands)
|December 31, 2002: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 60,597     |  |                | $      | 4,664        |  |           | $       | 42,404   |  |   | $      | 2,152 |  |   | $      | 16,655 |  |   | $      |       | 
|                   | American Southern    |                |         | 39,914     |  |                |        | 4,125        |  |           |         | 26,353   |  |   |        | 5,595 |  |   |        | 5,784  |  |   |        | 41,835 | 
|                   | Association Casualty |                |         | 24,244     |  |                |        | 2,183        |  |           |         | 20,402   |  |   |        | 4,159 |  |   |        | 4,039  |  |   |        | 22,620 | 
|                   | Georgia Casualty     |                |         | 29,744     |  |                |        | 2,819        |  |           |         | 19,950   |  |   |        | 5,704 |  |   |        | 7,617  |  |   |        | 34,517 | 
|                   | Other                |                |         |           |  |                |        | 2            |  |           |         |         |  |   |        |      |  |   |        | 6,328  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 154,499 |            |  | $              | 13,793 |              |  | $         | 109,109 |          |  | $ | 17,610 |       |  | $ | 40,423 |        |  | $ | 98,972 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 2001: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 55,276     |  |                | $      | 4,318        |  |           | $       | 39,570   |  |   | $      | 2,173 |  |   | $      | 15,131 |  |   | $      |       | 
|                   | American Southern    |                |         | 39,023     |  |                |        | 4,590        |  |           |         | 26,069   |  |   |        | 4,282 |  |   |        | 6,632  |  |   |        | 39,558 | 
|                   | Association Casualty |                |         | 25,711     |  |                |        | 2,591        |  |           |         | 23,613   |  |   |        | 5,534 |  |   |        | 3,446  |  |   |        | 30,956 | 
|                   | Georgia Casualty     |                |         | 25,579     |  |                |        | 2,639        |  |           |         | 17,644   |  |   |        | 4,903 |  |   |        | 3,862  |  |   |        | 25,264 | 
|                   | Other                |                |         |           |  |                |        | 3            |  |           |         |         |  |   |        |      |  |   |        | 6,196  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 145,589 |            |  | $              | 14,141 |              |  | $         | 106,896 |          |  | $ | 16,892 |       |  | $ | 35,267 |        |  | $ | 95,778 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 2000: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 47,639     |  |                | $      | 4,886        |  |           | $       | 33,452   |  |   | $      | 1,854 |  |   | $      | 13,910 |  |   | $      |       | 
|                   | American Southern    |                |         | 37,172     |  |                |        | 5,205        |  |           |         | 26,185   |  |   |        | 4,838 |  |   |        | 5,334  |  |   |        | 43,040 | 
|                   | Association Casualty |                |         | 20,110     |  |                |        | 2,510        |  |           |         | 15,799   |  |   |        | 3,650 |  |   |        | 3,585  |  |   |        | 22,653 | 
|                   | Georgia Casualty     |                |         | 28,576     |  |                |        | 2,710        |  |           |         | 22,192   |  |   |        | 5,462 |  |   |        | 5,478  |  |   |        | 31,106 | 
|                   | Other                |                |         |           |  |                |        | 9            |  |           |         |         |  |   |        |      |  |   |        | 5,763  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 133,497 |            |  | $              | 15,320 |              |  | $         | 97,628  |          |  | $ | 15,804 |       |  | $ | 34,070 |        |  | $ | 96,799 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       

75



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##### Table of Contents



SCHEDULE IV

ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

REINSURANCE

|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|----------------------------- |  | -------------- | ------- | --------- |  | ---------- | ------- | ------- |  | -------------- | ------ |  |  | - | ------- |  |  |  | ---- | -
|                              |  |                |         | Ceded to  |  | Assumed    |         |         |  | Percentage of 
|                              |  | Direct         |         | Other     |  | From Other |         | Net     |  | Amount Assumed
|                              |  | Amount         |         | Companies |  | Companies  |         | Amounts |  | to Net        
|                              |  |                |         |           |  |            |         |         |  |               
|                              |  |               
|                              |  | (In thousands)
|Year ended December 31, 2002: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 310,874 |           |  | $          | (32,218 | )       |  | $              |       |  |  | $ | 278,656 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 60,056  |           |  | $          | (59     | )       |  | $              | 600    |  |  | $ | 60,597  |  |  |  | 1.0  | %
|American Southern             |  |                | 27,501  |           |  |            | (6,877  | )       |  |                | 19,290 |  |  |   | 39,914  |  |  |  | 48.3 | %
|Association Casualty          |  |                | 28,230  |           |  |            | (3,986  | )       |  |                |       |  |  |   | 24,244  |  |  |  |     |  
|Georgia Casualty              |  |                | 37,851  |           |  |            | (18,612 | )       |  |                | 10,505 |  |  |   | 29,744  |  |  |  | 35.3 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 153,638 |           |  | $          | (29,534 | )       |  | $              | 30,395 |  |  | $ | 154,499 |  |  |  | 19.7 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 2001: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 305,952 |           |  | $          | (29,915 | )       |  | $              |       |  |  | $ | 276,037 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 54,591  |           |  | $          | (72     | )       |  | $              | 757    |  |  | $ | 55,276  |  |  |  | 1.4  | %
|American Southern             |  |                | 24,101  |           |  |            | (5,929  | )       |  |                | 20,851 |  |  |   | 39,023  |  |  |  | 53.4 | %
|Association Casualty          |  |                | 28,626  |           |  |            | (2,915  | )       |  |                |       |  |  |   | 25,711  |  |  |  |     |  
|Georgia Casualty              |  |                | 29,746  |           |  |            | (10,053 | )       |  |                | 5,886  |  |  |   | 25,579  |  |  |  | 23.0 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 137,064 |           |  | $          | (18,969 | )       |  | $              | 27,494 |  |  | $ | 145,589 |  |  |  | 18.9 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 2000: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 293,632 |           |  | $          | (27,661 | )       |  | $              |       |  |  | $ | 265,971 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 46,792  |           |  | $          | (73     | )       |  | $              | 920    |  |  | $ | 47,639  |  |  |  | 1.9  | %
|American Southern             |  |                | 21,167  |           |  |            | (4,453  | )       |  |                | 20,458 |  |  |   | 37,172  |  |  |  | 55.0 | %
|Association Casualty          |  |                | 22,074  |           |  |            | (1,964  | )       |  |                |       |  |  |   | 20,110  |  |  |  |     |  
|Georgia Casualty              |  |                | 29,373  |           |  |            | (3,944  | )       |  |                | 3,147  |  |  |   | 28,576  |  |  |  | 11.0 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 119,406 |           |  | $          | (10,434 | )       |  | $              | 24,525 |  |  | $ | 133,497 |  |  |  | 18.4 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  

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##### Table of Contents



SCHEDULE VI


ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTAL INFORMATION CONCERNING

PROPERTY-CASUALTY INSURANCE
OPERATIONS


|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|----------------- |  | -------------- | ----- | -------- |  | -------- | ------- | ------- |  | ---------- | ------ | ------------------- |  | ------------ | ------ | ----------- |  | ---------- | ------ | -------- |  | - | ------ |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Claims and Claim    |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Adjustment Expenses |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Incurred Related To |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  | Amortization |        | Paid Claims |  |           
|                  |  | Deferred       |       |          |  |          |         |         |  | Net        |        |                     |  | of Deferred  |        | and Claim   |  |           
|                  |  | Policy         |       |          |  | Unearned |         | Earned  |  | Investment |        | Current             |  | Prior        |        | Acquisition |  | Adjustment |        | Premiums
|Year Ended        |  | Acquisition    |       | Reserves |  | Premium  |         | Premium |  | Income     |        | Year                |  | Years        |        | Costs       |  | Expenses   |        | Written 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |         
|                  |  |               
|                  |  | (In thousands)
|December 31, 2002 |  | $              | 6,988 |          |  | $        | 139,802 |         |  | $          | 52,334 |                     |  | $            | 93,902 |             |  | $          | 9,127  |          |  | $ | 67,053 |  |  | $ | (377   | ) |  | $ | 15,458 |  |  | $ | 54,463 |  |  | $ | 98,972 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 2001 |  | $              | 6,127 |          |  | $        | 135,938 |         |  | $          | 47,806 |                     |  | $            | 90,313 |             |  | $          | 9,757  |          |  | $ | 70,250 |  |  | $ | (2,774 | ) |  | $ | 14,719 |  |  | $ | 66,665 |  |  | $ | 95,778 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 2000 |  | $              | 6,065 |          |  | $        | 126,248 |         |  | $          | 42,200 |                     |  | $            | 85,858 |             |  | $          | 10,425 |          |  | $ | 69,839 |  |  | $ | (5,604 | ) |  | $ | 13,950 |  |  | $ | 58,301 |  |  | $ | 96,798 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 

77