##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year Ended December 31, 2005                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-3722





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)





o þ


o þ


þ o


S-K 10-K 10-K. þ


non-accelerated 12b-2


o o þ


12b-2 o þ










DOCUMENTS INCORPORATED BY REFERENCE


10-K.










---



##### 










TABLE OF CONTENTS


|                                                      |  |                                                                                                                      |  |      |    | 
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                      |  |                                                                                                                      |  | Page |   
|                                                      |  |                                                                                                                      |  |      |   
|PART I                                               
|Item 1.                                               |  | Business                                                                                                             |  |      | 2  | 
|                                                      |  | The Company                                                                                                          |  |      | 2  | 
|                                                      |  | Marketing                                                                                                            |  |      | 4  | 
|                                                      |  | Underwriting                                                                                                         |  |      | 6  | 
|                                                      |  | Policyholder and Claims
    Services                                                                                 |  |      | 6  | 
|                                                      |  | Reserves                                                                                                             |  |      | 8  | 
|                                                      |  | Reinsurance                                                                                                          |  |      | 12 | 
|                                                      |  | Competition                                                                                                          |  |      | 13 | 
|                                                      |  | Ratings                                                                                                              |  |      | 14 | 
|                                                      |  | Regulation                                                                                                           |  |      | 14 | 
|                                                      |  | NAIC Ratios                                                                                                          |  |      | 15 | 
|                                                      |  | Risk-Based Capital                                                                                                   |  |      | 15 | 
|                                                      |  | Investments                                                                                                          |  |      | 16 | 
|                                                      |  | Employees                                                                                                            |  |      | 17 | 
|                                                      |  | Financial Information by
    Industry Segment                                                                        |  |      | 17 | 
|                                                      |  | Available Information                                                                                                |  |      | 17 | 
|                                                      |  | Executive Officers of the
    Registrant                                                                             |  |      | 17 | 
|                                                      |  | Forward-Looking Statements                                                                                           |  |      | 18 | 
|Item 1A.                                              |  | Risk Factors                                                                                                         |  |      | 18 | 
|Item 1B.                                              |  | Unresolved Staff Comments                                                                                            |  |      | 23 | 
|Item 2.                                               |  | Properties                                                                                                           |  |      | 23 | 
|Item 3.                                               |  | Legal Proceedings                                                                                                    |  |      | 23 | 
|Item 4.                                               |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 23 | 
|                                                      |  | PART II                                                                                                              |  |      |    | 
|Item 5.                                               |  | Market for Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities |  |      | 24 | 
|Item 6.                                               |  | Selected Financial Data                                                                                              |  |      | 26 | 
|Item 7.                                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 27 | 
|Item 7A.                                              |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 43 | 
|Item 8.                                               |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 45 | 
|Item 9.                                               |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 74 | 
|Item 9A.                                              |  | Controls and Procedures                                                                                              |  |      | 74 | 
|Item 9B.                                              |  | Other Information                                                                                                    |  |      | 74 | 
|                                                      |  | PART III                                                                                                             |  |      |    | 
|Item 10.                                              |  | Directors and Executive Officers of the Registrant                                                                   |  |      | 74 | 
|Item 11.                                              |  | Executive Compensation                                                                                               |  |      | 74 | 
|Item 12.                                              |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Shareholder Matters                   |  |      | 74 | 
|Item 13.                                              |  | Certain Relationships and Related Transactions                                                                       |  |      | 74 | 
|Item 14.                                              |  | Principal Accountant Fees and Services                                                                               |  |      | 74 | 
|                                                      |  | PART IV                                                                                                              |  |      |    | 
|Item 15.                                              |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 75 | 
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT               
|EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP             
|EX-31.1 SECTION 302, CERTIFICATION OF THE PEO        
|EX-31.2 SECTION 302, CERTIFICATION OF THE PFO        
|EX-32.1 SECTION 906, CERTIFICATION OF THE PEO AND PFO



1



---



##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business




The Company








| |                                 
| | --------------------------------
| | Property and Casualty Operations





| |                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Workers Compensation Insurance policies
    provide indemnity and medical benefits to insured workers for
    injuries sustained in the course of their employment.                                                                                                                                                                                     
|
| | Business Automobile Insurance policies provide
    bodily injury and/or property damage liability coverage,
    uninsured motorists coverage and physical damage coverage to
    commercial accounts.                                                                                                                                                    
|
| | General Liability Insurance policies cover bodily
    injury and property damage liability for both premises and
    completed operations exposures for general classes of business.                                                                                                                                                                     
|
| | Property Insurance policies provide for payment of
    losses on real and personal property caused by fire or other
    multiple perils.                                                                                                                                                                                                                 
|
| | Personal Automobile Insurance policies provide
    bodily injury and/or property damage liability coverage,
    uninsured motorists coverage and physical damage coverage to
    individuals.                                                                                                                                                            
|
| | Surety Bonds are contracts under which one party,
    the insurance company issuing the surety bond, guarantees to a
    third party, that the primary party will fulfill an obligation
    in accordance with a contractual agreement. This obligation may
    involve meeting a contractual commitment, paying a debt or
    performing certain duties.

American Southern.


2



---



##### Table of Contents







|                           |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |        | 
|-------------------------- | ----- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                           |       | Year Ended December 31, |       
|                           |       |                         |       
|                           |       | 2005                    |        |        | 2004 |   |        | 2003   |  |   | 2002   |        |  | 2001 |       
|                           |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       
|                           |       | (In thousands)          |       
|Automobile liability       |       | $                       | 16,723 |        |      | $ | 18,944 |        |  | $ | 17,947 |        |  | $    | 22,748 |        |  | $ | 23,677 |       
|Automobile physical damage |       |                         | 11,002 |        |      |   | 11,187 |        |  |   | 9,451  |        |  |      | 9,829  |        |  |   | 8,732  |       
|General liability          |       |                         | 11,767 |        |      |   | 10,102 |        |  |   | 5,777  |        |  |      | 3,647  |        |  |   | 3,161  |       
|Property                   |       |                         | 3,692  |        |      |   | 3,862  |        |  |   | 3,819  |        |  |      | 3,627  |        |  |   | 3,386  |       
|Surety                     |       |                         | 8,263  |        |      |   | 3,967  |        |  |   | 364    |        |  |      | 63     |        |  |   | 67     |       
|                           |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       
|                           | Total |                         | $      | 51,447 |      |   | $      | 48,062 |  |   | $      | 37,358 |  |      | $      | 39,914 |  |   | $      | 39,023 | 
|                           |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       

Georgia Casualty.




|                      |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |        | 
|--------------------- | ----- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                      |       | Year Ended December 31, |       
|                      |       |                         |       
|                      |       | 2005                    |        |        | 2004 |   |        | 2003   |  |   | 2002   |        |  | 2001 |       
|                      |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       
|                      |       | (In thousands)          |       
|Workers compensation |       | $                       | 12,909 |        |      | $ | 11,608 |        |  | $ | 11,071 |        |  | $    | 10,592 |        |  | $ | 10,744 |       
|Business automobile   |       |                         | 11,026 |        |      |   | 9,470  |        |  |   | 8,767  |        |  |      | 7,388  |        |  |   | 5,412  |       
|General liability     |       |                         | 434    |        |      |   | 351    |        |  |   | 2,272  |        |  |      | 1,761  |        |  |   | 2,610  |       
|Property              |       |                         | 14,901 |        |      |   | 13,246 |        |  |   | 12,209 |        |  |      | 10,003 |        |  |   | 6,813  |       
|                      |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       
|                      | Total |                         | $      | 39,270 |      |   | $      | 34,675 |  |   | $      | 34,319 |  |      | $      | 29,744 |  |   | $      | 25,579 | 
|                      |       |                         |        |        |      |   |        |        |  |   |        |        |  |      |       

Association Casualty.


3



---



##### Table of Contents





|                          |       |                         |       |        |      |   |        |        |  |   |        |        |  |      |        |        |  |   |        |        | 
|------------------------- | ----- | ----------------------- | ----- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                          |       | Year Ended December 31, |      
|                          |       |                         |      
|                          |       | 2005                    |       |        | 2004 |   |        | 2003   |  |   | 2002   |        |  | 2001 |       
|                          |       |                         |       |        |      |   |        |        |  |   |        |        |  |      |       
|                          |       | (In thousands)          |      
|Workers compensation     |       | $                       | 9,613 |        |      | $ | 11,357 |        |  | $ | 13,196 |        |  | $    | 18,950 |        |  | $ | 22,784 |       
|Business automobile       |       |                         | 4,265 |        |      |   | 4,119  |        |  |   | 2,307  |        |  |      | 1,811  |        |  |   | 671    |       
|General liability         |       |                         | 350   |        |      |   | 558    |        |  |   | 385    |        |  |      | 221    |        |  |   | 117    |       
|Property                  |       |                         | 6,744 |        |      |   | 6,647  |        |  |   | 4,464  |        |  |      | 3,080  |        |  |   | 1,001  |       
|Group accident and health |       |                         |      |        |      |   |       |        |  |   |       |        |  |      | 182    |        |  |   | 1,138  |       
|                          |       |                         |       |        |      |   |        |        |  |   |        |        |  |      |       
|                          | Total |                         | $     | 20,972 |      |   | $      | 22,681 |  |   | $      | 20,352 |  |      | $      | 24,244 |  |   | $      | 25,711 | 
|                          |       |                         |       |        |      |   |        |        |  |   |        |        |  |      |       



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

Bankers Fidelity.




|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |        |        |        |   |        |        |        | 
|--------------------------------- | ------------ | ----------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                  |              | Year Ended December 31, |       
|                                  |              |                         |       
|                                  |              | 2005                    |        |        | 2004   |   |        | 2003   |        |   | 2002   |        |        | 2001 |       
|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |       
|                                  |              | (In thousands)          |       
|Life insurance                    |              | $                       | 11,600 |        |        | $ | 12,934 |        |        | $ | 13,541 |        |        | $    | 15,421 |        |        | $ | 14,096 |       
|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |       
|Medicare supplement               |              |                         | 51,414 |        |        |   | 49,575 |        |        |   | 46,190 |        |        |      | 42,298 |        |        |   | 38,268 |       
|Cancer, accident and other health |              |                         | 2,890  |        |        |   | 2,933  |        |        |   | 2,952  |        |        |      | 2,878  |        |        |   | 2,912  |       
|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |       
|                                  | Total health |                         |        | 54,304 |        |   |        | 52,508 |        |   |        | 49,142 |        |      |        | 45,176 |        |   |        | 41,180 |       
|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |       
|                                  |              | Total                   |        | $      | 65,904 |   |        | $      | 65,442 |   |        | $      | 62,683 |      |        | $      | 60,597 |   |        | $      | 55,276 | 
|                                  |              |                         |        |        |        |   |        |        |        |   |        |        |        |      |       

Life Insurance


Medicare Supplement Insurance


Cancer, Accident & Other Health Insurance





Marketing




| |                                 
| | --------------------------------
| | Property and Casualty Operations

American Southern.


4



---



##### Table of Contents





Association Casualty.


Georgia Casualty.




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

Bankers Fidelity.








5



---



##### Table of Contents










Underwriting




| |                                 
| | --------------------------------
| | Property and Casualty Operations







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








Policyholder and Claims Services




6



---



##### Table of Contents



24-hour state-of






| |                                 
| | --------------------------------
| | Property and Casualty Operations

on-site




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



7



---



##### Table of Contents






Reserves




|                               |                          |                         |         |         |         |   |         |         |         |   |         |         |        | 
|------------------------------ | ------------------------ | ----------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                               |                          | Year Ended December 31, |        
|                               |                          |                         |        
|                               |                          | 2005                    |         |         | 2004    |   |         | 2003    |        
|                               |                          |                         |         |         |         |   |         |         |        
|                               |                          | (In thousands)          |        
|Balance at January 1           |                          | $                       | 167,133 |         |         | $ | 150,092 |         |         | $ | 148,691 |        
|Less: Reinsurance recoverables |                          |                         | (57,429 | )       |         |   | (41,752 | )       |         |   | (39,380 | )      
|                               |                          |                         |         |         |         |   |         |         |        
|                               | Net balance at January 1 |                         |         | 109,704 |         |   |         | 108,340 |         |   |         | 109,311 |       
|                               |                          |                         |         |         |         |   |         |         |        
|Incurred related to:           |                          |                         |         |         |         |   |         |         |         |   |         |        
|                               | Current year             |                         |         | 119,455 |         |   |         | 111,220 |         |   |         | 98,536  |       
|                               | Prior years              |                         |         | (6,708  | )       |   |         | (1,899  | )       |   |         | 139     |       
|                               |                          |                         |         |         |         |   |         |         |        
|                               |                          | Total incurred          |         |         | 112,747 |   |         |         | 109,321 |   |         |         | 98,675 | 
|                               |                          |                         |         |         |         |   |         |         |        
|Paid related to:               |                          |                         |         |         |         |   |         |         |         |   |         |        
|                               | Current year             |                         |         | 68,792  |         |   |         | 67,020  |         |   |         | 56,229  |       
|                               | Prior years              |                         |         | 38,309  |         |   |         | 41,867  |         |   |         | 43,417  |       
|                               |                          |                         |         |         |         |   |         |         |        
|                               |                          | Total paid              |         |         | 107,101 |   |         |         | 108,887 |   |         |         | 99,646 | 
|                               |                          |                         |         |         |         |   |         |         |        
|Acquired reserves(1)           |                          |                         | (85     | )       |         |   | 930     |         |         |   |        |        
|                               |                          |                         |         |         |         |   |         |         |        
|Net balance at December 31     |                          |                         | 115,265 |         |         |   | 109,704 |         |         |   | 108,340 |        
|Plus: Reinsurance recoverables |                          |                         | 53,352  |         |         |   | 57,429  |         |         |   | 41,752  |        
|                               |                          |                         |         |         |         |   |         |         |        
|Balance at December 31         |                          | $                       | 168,617 |         |         | $ | 167,133 |         |         | $ | 150,092 |        
|                               |                          |                         |         |         |         |   |         |         |        



|    |                                                          
|--- | ---------------------------------------------------------
|(1) | See Note 3 of Notes to Consolidated Financial Statements.







8



---



##### Table of Contents













|                                     |                                      |                |        |        |      |   |        |        |  |   |        |         | 
|------------------------------------ | ------------------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------- | 
|                                     |                                      | Case           |        |        | IBNR |   |        | Total  | 
|                                     |                                      |                |        |        |      |   |        |        | 
|                                     |                                      | (In thousands) |       
|Workers compensation                |                                      | $              | 38,441 |        |      | $ | 17,490 |        |  | $ | 55,931 |        
|Business automobile                  |                                      |                | 18,850 |        |      |   | 17,307 |        |  |   | 36,157 |        
|Personal automobile/physical damage  |                                      |                | 4,215  |        |      |   | 1,266  |        |  |   | 5,481  |        
|General & other liability            |                                      |                | 7,202  |        |      |   | 10,086 |        |  |   | 17,288 |        
|Commercial multi peril               |                                      |                | 9,846  |        |      |   | 16,750 |        |  |   | 26,596 |        
|Other lines (including life)         |                                      |                | 1,937  |        |      |   | 2,461  |        |  |   | 4,398  |        
|Medicare supplement                  |                                      |                | 260    |        |      |   | 8,432  |        |  |   | 8,692  |        
|Unallocated loss adjustment reserves |                                      |                |       |        |      |   | 14,074 |        |  |   | 14,074 |        
|                                     |                                      |                |        |        |      |   |        |        | 
|                                     | Total reserves for losses and claims |                | $      | 80,751 |      |   | $      | 87,866 |  |   | $      | 168,617 | 
|                                     |                                      |                |        |        |      |   |        |        | 



9



---



##### Table of Contents







| |                                 
| | --------------------------------
| | Property and Casualty Operations









10



---



##### Table of Contents



|                                   |                    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|---------------------------------- | ------------------ | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                   |                    | Year Ended December 31, |        
|                                   |                    |                         |        
|                                   |                    | 2005                    |         |         | 2004 |   |         | 2003    |  |   | 2002    |         |  | 2001 |         |         | 2000 |   |         | 1999    |  |   | 1998    |         |  | 1997 |         |         | 1996 |   |        | 1995   | 
|                                   |                    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        | 
|                                   |                    | (In thousands)          |        
|Reserve for losses and LAE         |                    | $                       | 158,393 |         |      | $ | 156,415 |         |  | $ | 139,560 |         |  | $    | 139,802 |         |      | $ | 135,948 |         |  | $ | 126,263 |         |  | $    | 120,235 |         |      | $ | 81,070 |        |  | $ | 81,657 |        |  | $ | 79,776 |        |  | $ | 74,677 |       
|Cumulative paid as of:             |                    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                   | One year later     |                         |         |         |      |   |         | 53,752  |  |   |         | 52,420  |  |      |         | 48,628  |      |   |         | 52,644  |  |   |         | 48,780  |  |      |         | 38,957  |      |   |        | 26,357 |  |   |        | 25,799 |  |   |        | 25,925 |  |   |        | 30,117 | 
|                                   | Two years later    |                         |         |         |      |   |         |         |  |   |         | 77,924  |  |      |         | 81,083  |      |   |         | 78,654  |  |   |         | 78,496  |  |      |         | 63,496  |      |   |        | 43,749 |  |   |        | 38,756 |  |   |        | 38,330 |  |   |        | 42,581 | 
|                                   | Three years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         | 97,438  |      |   |         | 98,580  |  |   |         | 93,599  |  |      |         | 80,824  |      |   |        | 54,408 |  |   |        | 48,330 |  |   |        | 45,073 |  |   |        | 49,288 | 
|                                   | Four years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         | 108,587 |  |   |         | 106,022 |  |      |         | 90,266  |      |   |        | 61,981 |  |   |        | 54,840 |  |   |        | 50,334 |  |   |        | 53,224 | 
|                                   | Five years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         | 111,833 |  |      |         | 100,393 |      |   |        | 66,467 |  |   |        | 58,891 |  |   |        | 53,833 |  |   |        | 56,517 | 
|                                   | Six years later    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         | 104,658 |      |   |        | 72,925 |  |   |        | 61,600 |  |   |        | 56,534 |  |   |        | 59,398 | 
|                                   | Seven years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        | 75,486 |  |   |        | 65,744 |  |   |        | 59,029 |  |   |        | 61,320 | 
|                                   | Eight years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        | 68,042 |  |   |        | 61,671 |  |   |        | 63,570 | 
|                                   | Nine years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        | 63,321 |  |   |        | 66,122 | 
|                                   | Ten years later    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 67,310 | 
|Ultimate losses and LAE            |                    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                   | reestimated as of: |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|                                   | End of year        |                         |         | 158,393 |      |   |         | 156,415 |  |   |         | 139,560 |  |      |         | 139,802 |      |   |         | 135,948 |  |   |         | 126,263 |  |      |         | 120,235 |      |   |        | 81,070 |  |   |        | 81,657 |  |   |        | 79,776 |  |   |        | 74,677 | 
|                                   | One year later     |                         |         |         |      |   |         | 148,576 |  |   |         | 146,058 |  |      |         | 143,771 |      |   |         | 136,606 |  |   |         | 130,415 |  |      |         | 115,019 |      |   |        | 80,174 |  |   |        | 75,243 |  |   |        | 76,269 |  |   |        | 79,620 | 
|                                   | Two years later    |                         |         |         |      |   |         |         |  |   |         | 144,989 |  |      |         | 149,552 |      |   |         | 143,901 |  |   |         | 136,425 |  |      |         | 117,289 |      |   |        | 81,023 |  |   |        | 73,037 |  |   |        | 70,734 |  |   |        | 76,712 | 
|                                   | Three years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         | 148,755 |      |   |         | 146,775 |  |   |         | 140,039 |  |      |         | 122,099 |      |   |        | 83,149 |  |   |        | 75,199 |  |   |        | 68,816 |  |   |        | 73,383 | 
|                                   | Four years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         | 147,618 |  |   |         | 143,400 |  |      |         | 125,006 |      |   |        | 83,033 |  |   |        | 76,758 |  |   |        | 70,932 |  |   |        | 72,944 | 
|                                   | Five years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         | 142,646 |  |      |         | 129,797 |      |   |        | 83,182 |  |   |        | 76,832 |  |   |        | 72,430 |  |   |        | 74,695 | 
|                                   | Six years later    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         | 128,299 |      |   |        | 86,132 |  |   |        | 76,886 |  |   |        | 72,243 |  |   |        | 76,275 | 
|                                   | Seven years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        | 85,285 |  |   |        | 77,692 |  |   |        | 72,401 |  |   |        | 75,986 | 
|                                   | Eight years later  |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        | 77,574 |  |   |        | 72,144 |  |   |        | 76,323 | 
|                                   | Nine years later   |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        | 72,208 |  |   |        | 75,976 | 
|                                   | Ten years later    |                         |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 76,018 | 
|Cumulative redundancy (deficiency) |                    |                         |         |         |      | $ | 7,839   |         |  | $ | (5,429  | )       |  | $    | (8,953  | )       |      | $ | (11,670 | )       |  | $ | (16,383 | )       |  | $    | (8,064  | )       |      | $ | (4,215 | )      |  | $ | 4,083  |        |  | $ | 7,568  |        |  | $ | (1,341 | )     
|                                   |                    |                         |         |         |      |   | 5.0     | %       |  |   | -3.9    | %       |  |      | -6.4    | %       |      |   | -8.6    | %       |  |   | -13.0   | %       |  |      | -6.7    | %       |      |   | -5.2   | %      |  |   | 5.0    | %      |  |   | 9.5    | %      |  |   | -1.8   | %     



11



---



##### Table of Contents





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






Reinsurance






| |                                 
| | --------------------------------
| | Property and Casualty Operations

American Southern.


Association Casualty.


Georgia Casualty.




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

Bankers Fidelity.


12



---



##### Table of Contents






Competition






| |                                 
| | --------------------------------
| | Property and Casualty Operations

American Southern.


Association Casualty.


Georgia Casualty.




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



13



---



##### Table of Contents








Ratings






American Southern.


Association Casualty.


Georgia Casualty.


Bankers Fidelity.





Regulation








14



---



##### Table of Contents












NAIC Ratios











Risk-Based Capital




15



---



##### Table of Contents








Investments




|                                              |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         |  |        |         |         |  |      |       |      | 
|--------------------------------------------- | ------------------------------------------------- | ------------------------- | ------ | ------- | ------- |  | ---- | ------ | ---- |  | ------- | ------- | ------- | ------ | ---- | ----- | ------- |  | ------ | ------- | ------- |  | ---- | ----- | ---- | 
|                                              |                                                   | December 31,              |       
|                                              |                                                   |                           |       
|                                              |                                                   | 2005                      |        |         | 2004    |  |      | 2003   |     
|                                              |                                                   |                           |        |         |         |  |      |        |     
|                                              |                                                   | Amount                    |        |         | Percent |  |      | Amount |      |  | Percent |         |         | Amount |      |       | Percent | 
|                                              |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         | 
|                                              |                                                   | (Dollars in thousands)    |       
|Fixed maturities:                             |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         |  |        |         |         |  |      |      
|                                              | U.S. Government agencies and authorities          |                           | $      | 141,572 |         |  |      | 46.5   | %    |  | $       | 125,855 |         |        |      | 41.7  | %       |  | $      | 121,521 |         |  |      | 39.1  | %   
|                                              | States, municipalities and political subdivisions |                           |        | 1,037   |         |  |      | 0.3    |      |  |         | 1,144   |         |        |      | 0.4   |         |  |        | 1,446   |         |  |      | 0.5   |     
|                                              | Public utilities                                  |                           |        | 4,932   |         |  |      | 1.6    |      |  |         | 5,939   |         |        |      | 2.0   |         |  |        | 7,309   |         |  |      | 2.3   |     
|                                              | All other corporate bonds                         |                           |        | 61,040  |         |  |      | 20.1   |      |  |         | 71,327  |         |        |      | 23.6  |         |  |        | 73,868  |         |  |      | 23.8  |     
|                                              | Redeemable preferred stock                        |                           |        | 23,226  |         |  |      | 7.6    |      |  |         | 24,900  |         |        |      | 8.2   |         |  |        | 24,205  |         |  |      | 7.8   |     
|                                              | Certificates of deposit                           |                           |        | 100     |         |  |      | 0.0    |      |  |         | 300     |         |        |      | 0.1   |         |  |        | 1,100   |         |  |      | 0.3   |     
|                                              |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         | 
|                                              |                                                   | Total fixed maturities(1) |        |         | 231,907 |  |      |        | 76.1 |  |         |         | 229,465 |        |      |       | 76.0    |  |        |         | 229,449 |  |      |       | 73.8 | 
|Common and non-redeemable preferred stocks(2) |                                                   |                           | 36,108 |         |         |  | 11.9 |        |      |  | 38,407  |         |         |        | 12.7 |       |         |  | 44,000 |         |         |  | 14.2 |      
|Mortgage, policy and student loans(3)         |                                                   |                           | 4,017  |         |         |  | 1.3  |        |      |  | 5,318   |         |         |        | 1.8  |       |         |  | 5,564  |         |         |  | 1.8  |      
|Other invested assets(4)                      |                                                   |                           | 3,660  |         |         |  | 1.2  |        |      |  | 4,569   |         |         |        | 1.5  |       |         |  | 4,639  |         |         |  | 1.5  |      
|Real estate                                   |                                                   |                           | 38     |         |         |  |     |        |      |  | 38      |         |         |        |     |       |         |  |       |         |         |  |     |      
|Investment in unconsolidated trusts           |                                                   |                           | 1,238  |         |         |  | 0.4  |        |      |  | 1,238   |         |         |        | 0.4  |       |         |  | 1,238  |         |         |  | 0.4  |      
|Short-term investments(5)                     |                                                   |                           | 27,726 |         |         |  | 9.1  |        |      |  | 23,073  |         |         |        | 7.6  |       |         |  | 25,819 |         |         |  | 8.3  |      
|                                              |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         | 
|                                              | Total investments                                 |                           | $      | 304,694 |         |  |      | 100.0  | %    |  | $       | 302,108 |         |        |      | 100.0 | %       |  | $      | 310,709 |         |  |      | 100.0 | %   
|                                              |                                                   |                           |        |         |         |  |      |        |      |  |         |         |         |        |      |       |         | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fixed maturities are carried on the balance sheet at estimated
    fair value. Total cost of fixed maturities was
    $232.6 million as of December 31, 2005,
    $226.5 million as of December 31, 2004, and
    $223.2 million as of December 31, 2003.                                                                                                                                               
|   
|(2) | Equity securities are carried on the balance sheet at estimated
    fair value. Certain non-redeemable preferred stocks do not have
    quoted values, and are carried at estimated fair value as
    determined by management. Total cost of equity securities was
    $15.4 million as of December 31, 2005,
    $14.7 million as of December 31, 2004, and
    $21.7 million as of December 31, 2003.
|   
|(3) | Mortgage, policy and student loans are valued at historical cost.                                                                                                                                                                                                                                                                                                                                       
|   
|(4) | Investments in other invested assets which are traded are valued
    at estimated fair value and the others are accounted for using
    the equity method. Total cost of other invested assets was
    $3.7 million as of December 31, 2005,
    $4.6 million as of December 31, 2004, and
    $4.6 million as of December 31, 2003.                                                                    
|   
|(5) | Short-term investments are valued at cost, which approximates
    market value.                                                                                                                                                                                                                                                                                                                         

16



---



##### Table of Contents





|                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                           |  | Year Ended December 31, |        
|                                           |  |                         |        
|                                           |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|                                           |  |                         |         |   |      |   |         |      | 
|                                           |  | (Dollars in thousands)  |        
|Average investments(1)                     |  | $                       | 294,411 |   |      | $ | 290,256 |      |  | $ | 283,873 |  
|Net investment income                      |  |                         | 16,460  |   |      |   | 15,640  |      |  |   | 15,359  |  
|Average yield on investments               |  |                         | 5.59    | % |      |   | 5.39    | %    |  |   | 5.41    | %
|Realized investment gains (losses), net(2) |  |                         | (10,456 | ) |      |   | 2,199   |      |  |   | 360     |  



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                    
|   
|(2) | Includes a $10.7 million impairment charge in 2005 for
    automotive sector fixed maturity investments. See Note 2 of
    Notes to Consolidated Financial Statements.






Employees







Financial Information By Industry Segment







Available Information


10-K, 10-Q, 8-K, 1-800-SEC-0330.





Executive Officers of the Registrant




|                      |  |     |    |  |                           |                             |               |  |      | 
|--------------------- |  | --- | -- |  | ------------------------- | --------------------------- | ------------- |  | ---- | 
|                      |  |     |    |  |                           | Director or                 |              
|Name                  |  | Age |    |  | Position with the Company |                             | Officer Since | 
|                      |  |     |    |  |                           |                             |               | 
|J. Mack Robinson      |  |     | 82 |  |                           | Chairman of the Board       |               |  | 1974 | 
|Hilton H. Howell, Jr. |  |     | 43 |  |                           | Director, President & CEO   |               |  | 1992 | 
|John G. Sample, Jr.   |  |     | 49 |  |                           | Senior Vice President & CFO |               |  | 2002 | 



17



---



##### Table of Contents



Mr. Robinson


Mr. Howell son-in


Mr. Sample st





Forward-Looking Statements









|         |             
|-------- | ------------
|Item 1A. | Risk Factors



18



---



##### Table of Contents







| |                                                
| | -----------------------------------------------
| | We operate in a highly competitive environment.





| |                                              
| | ---------------------------------------------
| | We operate in a highly regulated environment.





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Our revenues may fluctuate with insurance market
    conditions for similar products.





| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Our revenues and profitability may fluctuate with interest
    rates and investment results.



19



---



##### Table of Contents







| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Our operating results may be affected if incurred losses
    differ from our loss reserve estimates.





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Rapidly changing benefit costs could have a material
    impact on our operations.





| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If market conditions cause reinsurance to be more costly
    or unavailable, we may be required to assume increased risk or
    reduce the level of our underwriting commitments.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We cannot guarantee that our reinsurers will pay in a
    timely fashion, if at all, and, as a result, we could experience
    losses.



20



---



##### Table of Contents





| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The guaranty fund assessments that we are required to pay
    to state guaranty associations may increase and results of
    operations and financial condition could suffer as a
    result.





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | The unpredictability of court decisions could have a
    material impact on our operations.





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The passage of tort reform or other legislation, and the
    subsequent review of such laws by the courts, could have a
    material impact on our operations.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The geographic concentration of our regional property and
    casualty operations ties our performance to the economic,
    regulatory and demographic conditions of the southern United
    States.



21



---



##### Table of Contents







| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Catastrophic events could have a material adverse effect
    on our business, consolidated operating results, financial
    condition and/or liquidity.





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain favorable financial strength
    ratings, it may be more difficult for us to write new business
    or renew our existing business.





| |                                                                                
| | -------------------------------------------------------------------------------
| | Our business could be adversely affected by the loss of
    independent agents.





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Our business could be adversely affected by the loss of
    one or more key employees.



22



---



##### Table of Contents





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are a holding company and are dependent on dividends
    and other payments from our operating subsidiaries, which are
    subject to dividend restrictions.





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | A majority of our common stock is held directly and
    indirectly by one family.








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties

Leased Properties.













|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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



23



---



##### Table of Contents






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Shareholder Matters and Issuer Purchases of Equity
    Securities



|                        |             |      |   |      |     |  |   |      | 
|----------------------- | ----------- | ---- | - | ---- | --- |  | - | ---- | 
|Year Ended December 31, |             | High |   |      | Low | 
|                        |             |      |   |      |     | 
|2005                    |             |      |   |      |     |  |   |     
|                        | 1st quarter |      | $ | 3.27 |     |  | $ | 2.95 | 
|                        | 2nd quarter |      |   | 3.15 |     |  |   | 2.80 | 
|                        | 3rd quarter |      |   | 3.06 |     |  |   | 2.50 | 
|                        | 4th quarter |      |   | 3.00 |     |  |   | 2.50 | 
|2004                    |             |      |   |      |     |  |   |     
|                        | 1st quarter |      | $ | 3.62 |     |  | $ | 2.80 | 
|                        | 2nd quarter |      |   | 3.15 |     |  |   | 2.35 | 
|                        | 3rd quarter |      |   | 3.18 |     |  |   | 2.61 | 
|                        | 4th quarter |      |   | 3.18 |     |  |   | 2.87 | 



Equity Compensation Plan Information




|                                                           |       |                      |         |                  |              |   |                         |                         |  |  |           |           | 
|---------------------------------------------------------- | ----- | -------------------- | ------- | ---------------- | ------------ | - | ----------------------- | ----------------------- |  |  | --------- | --------- | 
|                                                           |       |                      |         | 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     |       |                      | 659,500 |                  |              | $ | 1.44                    |                         |  |  | 2,504,914 |          
|Equity compensation plans not approved by security holders |       |                      |        | (1)              |              |   |                        | (1)                     |  |  |          | (1)      
|                                                           |       |                      |         |                  |              |   |                         |                         | 
|                                                           | Total |                      |         | 659,500          |              |   | $                       | 1.44                    |  |  |           | 2,504,914 | 
|                                                           |       |                      |         |                  |              |   |                         |                         | 



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

24



---



##### Table of Contents



Issuer Purchases of Equity Securities








|                               |       |              |        |        |            |                     |      |                    |                    |  |                    |        |  |  |         |  | 
|------------------------------ | ----- | ------------ | ------ | ------ | ---------- | ------------------- | ---- | ------------------ | ------------------ |  | ------------------ | ------ |  |  | ------- |  | 
|                               |       |              |        |        |            | Total Number of     |      |                    | Maximum Number     | 
|                               |       |              |        |        |            | Shares Purchased as |      |                    | of Shares That May | 
|                               |       | Total Number |        |        | Average    |                     |      | Part of Publicly   |                    |  | Yet Be Purchased   |       
|                               |       | of Shares    |        |        | Price Paid |                     |      | Announced Plans or |                    |  | Under the Plans or |       
|Period                         |       | Purchased    |        |        | Per Share  |                     |      | Programs           |                    |  | Programs           |       
|                               |       |              |        |        |            |                     |      |                    |                    |  |                    |       
|October 1  October 31, 2005   |       |              | 157    |        |            | $                   | 2.86 |                    |                    |  | 157                |        |  |  | 604,842 | 
|November 1  November 30, 2005 |       |              | 115    |        |            |                     | 2.65 |                    |                    |  | 115                |        |  |  | 604,727 | 
|December 1  December 31, 2005 |       |              | 19,104 |        |            |                     | 2.72 |                    |                    |  | 19,104             |        |  |  | 585,623 | 
|                               |       |              |        |        |            |                     |      |                    |                    |  |                    |       
|                               | Total |              |        | 19,376 |            |                     | $    | 2.72               |                    |  |                    | 19,376 |  |  |         |  | 
|                               |       |              |        |        |            |                     |      |                    |                    |  |                    |       

25



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |         |      |         |   |         |     |         | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------- | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | --- | ------- | ---- | ------- | ---- | ------- | - | ------- | --- | ------- | 
|                                                                                              |                                                                              | Year Ended December 31,               |        
|                                                                                              |                                                                              |                                       |        
|                                                                                              |                                                                              | 2005                                  |         |      | 2004    |   |         | 2003 |         |   | 2002    |     |         | 2001 |        
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              |                                                                              | (In thousands, except per share data) |        
|Insurance premiums                                                                            |                                                                              | $                                     | 177,593 |      |         | $ | 170,860 |      |         | $ | 154,712 |     |         | $    | 154,499 |      |         | $ | 145,589 |    
|Investment income                                                                             |                                                                              |                                       | 16,685  |      |         |   | 15,860  |      |         |   | 15,628  |     |         |      | 14,011  |      |         |   | 14,317  |    
|Other income                                                                                  |                                                                              |                                       | 1,263   |      |         |   | 1,183   |      |         |   | 900     |     |         |      | 1,148   |      |         |   | 1,694   |    
|Realized investment gains (losses), net(1)                                                    |                                                                              |                                       | (10,456 | )    |         |   | 2,199   |      |         |   | 360     |     |         |      | 587     |      |         |   | 1,708   |    
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              |                                                                              | Total revenue                         |         |      | 185,085 |   |         |      | 190,102 |   |         |     | 171,600 |      |         |      | 170,245 |   |         |     | 163,308 | 
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Insurance benefits and losses incurred                                                        |                                                                              |                                       | 115,676 |      |         |   | 113,077 |      |         |   | 102,343 |     |         |      | 109,109 |      |         |   | 106,896 |    
|Other expenses                                                                                |                                                                              |                                       | 76,874  |      |         |   | 72,704  |      |         |   | 62,732  |     |         |      | 58,033  |      |         |   | 52,159  |    
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              |                                                                              | Total benefits and expenses           |         |      | 192,550 |   |         |      | 185,781 |   |         |     | 165,075 |      |         |      | 167,142 |   |         |     | 159,055 | 
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Income (loss) before income taxes and cumulative effect of
    change in accounting principle |                                                                              |                                       | (7,465  | )    |         |   | 4,321   |      |         |   | 6,525   |     |         |      | 3,103   |      |         |   | 4,253   |    
|Income tax (benefit) expense                                                                  |                                                                              |                                       | (4,290  | )    |         |   | (696    | )    |         |   | (319    | )   |         |      | (498    | )    |         |   | 656     |    
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Income (loss) before cumulative effect of change in accounting
    principle                  |                                                                              |                                       | (3,175  | )    |         |   | 5,017   |      |         |   | 6,844   |     |         |      | 3,601   |      |         |   | 3,597   |    
|Cumulative effect of change in accounting principle(2)                                        |                                                                              |                                       |        |      |         |   |        |      |         |   |        |     |         |      | (15,816 | )    |         |   |        |    
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              |                                                                              | Net income (loss)                     |         | $    | (3,175  | ) |         | $    | 5,017   |   |         | $   | 6,844   |      |         | $    | (12,215 | ) |         | $   | 3,597   | 
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Basic earnings (loss) per common share:                                                       |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |         |      |         |   |         |    
|                                                                                              | Income (loss) before cumulative effect of change in accounting
    principle |                                       | $       | (.21 | )       |   | $       | .18  |         |   | $       | .26 |         |      | $       | .10  |         |   | $       | .10 |        
|                                                                                              | Cumulative effect of change in accounting principle(2)                       |                                       |         |     |         |   |         |     |         |   |         |    |         |      |         | (.74 | )       |   |         |    |        
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              | Net income (loss)                                                            |                                       | $       | (.21 | )       |   | $       | .18  |         |   | $       | .26 |         |      | $       | (.64 | )       |   | $       | .10 |        
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Diluted earnings (loss) per common share:                                                     |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |         |      |         |   |         |    
|                                                                                              | Income (loss) before cumulative effect of change in accounting
    principle |                                       | $       | (.21 | )       |   | $       | .18  |         |   | $       | .25 |         |      | $       | .10  |         |   | $       | .10 |        
|                                                                                              | Cumulative effect of change in accounting principle(2)                       |                                       |         |     |         |   |         |     |         |   |         |    |         |      |         | (.73 | )       |   |         |    |        
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|                                                                                              | Net income (loss)                                                            |                                       | $       | (.21 | )       |   | $       | .18  |         |   | $       | .25 |         |      | $       | (.63 | )       |   | $       | .10 |        
|                                                                                              |                                                                              |                                       |         |      |         |   |         |      |         |   |         |     |         |      |        
|Tangible book value per common share(3)                                                       |                                                                              | $                                     | 3.00    |      |         | $ | 3.42    |      |         | $ | 3.30    |     |         | $    | 2.79    |      |         | $ | 2.49    |    
|Common shares outstanding                                                                     |                                                                              |                                       | 21,383  |      |         |   | 21,213  |      |         |   | 21,199  |     |         |      | 21,374  |      |         |   | 21,246  |    
|Total assets                                                                                  |                                                                              | $                                     | 460,417 |      |         | $ | 470,511 |      |         | $ | 443,552 |     |         | $    | 421,524 |      |         | $ | 412,019 |    
|Total long-term debt                                                                          |                                                                              | $                                     | 49,738  |      |         | $ | 51,488  |      |         | $ | 53,238  |     |         | $    | 48,042  |      |         | $ | 44,000  |    
|Total debt                                                                                    |                                                                              | $                                     | 51,488  |      |         | $ | 53,238  |      |         | $ | 56,238  |     |         | $    | 50,042  |      |         | $ | 44,000  |    
|Total shareholders equity                                                                    |                                                                              | $                                     | 80,453  |      |         | $ | 88,960  |      |         | $ | 86,893  |     |         | $    | 78,540  |      |         | $ | 87,526  |    



|    |                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $10,709 impairment charge in 2005 for automotive
    sector fixed maturity investments. See Note 2 of Notes to
    Consolidated Financial Statements.                                                                              
|   
|(2) | Represents a cumulative effect of change in accounting principle
    with respect to the adoption of Statement of Financial
    Accounting Standards No. 142 regarding goodwill. See
    Note 1 of Notes to Consolidated Financial Statements.
|   
|(3) | Excludes goodwill.                                                                                                                                                                                                                            

26



---



##### Table of Contents








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





Critical Accounting Policies




Unpaid loss and loss adjustment expenses


27



---



##### Table of Contents



Future policy benefits


Deferred acquisition costs


Receivables


Cash and investments


Deferred income taxes


28



---



##### Table of Contents





Overall Corporate Results


|                                        |                      |                             |                             |        |        |         |         |        |       |         |         |        |       |         | 
|--------------------------------------- | -------------------- | --------------------------- | --------------------------- | ------ | ------ | ------- | ------- | ------ | ----- | ------- | ------- | ------ | ----- | ------- | 
|                                        |                      | Year Ended December 31,     |                            
|                                        |                      |                             |                            
|                                        |                      | 2005                        |                             |        | 2004   |         |         | 2003   |      
|                                        |                      |                             |                             |        |        |         |         |        |      
|                                        |                      | (In thousands)              |                            
|Revenue                                 |                      |                             |                             |        |        |         |         |        |       |         |         |       
|Property and Casualty:                  |                      |                             |                             |        |        |         |         |        |       |         |         |       
|                                        | American Southern    |                             | $                           | 52,925 |        |         | $       | 53,277 |       |         | $       | 42,202 |      
|                                        | Association Casualty |                             |                             | 22,626 |        |         |         | 25,278 |       |         |         | 22,776 |      
|                                        | Georgia Casualty     |                             |                             | 40,480 |        |         |         | 39,046 |       |         |         | 37,523 |      
|                                        |                      |                             |                             |        |        |         |         |        |      
|                                        |                      |                             | Total property and casualty |        |        | 116,031 |         |        |       | 117,601 |         |        |       | 102,501 | 
|Life and Health:                        |                      |                             |                             |        |        |         |         |        |       |         |         |       
|                                        | Bankers Fidelity     |                             |                             | 68,255 |        |         |         | 71,369 |       |         |         | 68,333 |      
|Corporate and Other                     |                      |                             | 799                         |        |        |         | 1,132   |        |       |         | 766     |       
|                                        |                      |                             |                             |        |        |         |         |        |      
|Total revenue                           |                      | $                           | 185,085                     |        |        | $       | 190,102 |        |       | $       | 171,600 |       
|                                        |                      |                             |                             |        |        |         |         |        |      
|Income (loss) before income taxes       |                      |                             |                             |        |        |         |         |        |       |         |         |       
|Property and Casualty:                  |                      |                             |                             |        |        |         |         |        |       |         |         |       
|                                        | American Southern    |                             | $                           | 4,765  |        |         | $       | 8,024  |       |         | $       | 7,847  |      
|                                        | Association Casualty |                             |                             | 1,342  |        |         |         | 2,094  |       |         |         | (612   | )    
|                                        | Georgia Casualty     |                             |                             | (8,191 | )      |         |         | (5,463 | )     |         |         | 1,115  |      
|                                        |                      |                             |                             |        |        |         |         |        |      
|                                        |                      | Total property and casualty |                             |        | (2,084 | )       |         |        | 4,655 |         |         |        | 8,350 |        
|Life and Health:                        |                      |                             |                             |        |        |         |         |        |       |         |         |       
|                                        | Bankers Fidelity     |                             |                             | 2,208  |        |         |         | 5,863  |       |         |         | 5,269  |      
|Corporate and Other                     |                      |                             | (7,589                      | )      |        |         | (6,197  | )      |       |         | (7,094  | )     
|                                        |                      |                             |                             |        |        |         |         |        |      
|Total income (loss) before income taxes |                      | $                           | (7,465                      | )      |        | $       | 4,321   |        |       | $       | 6,525   |       
|                                        |                      |                             |                             |        |        |         |         |        |      
|Net income (loss)                       |                      | $                           | (3,175                      | )      |        | $       | 5,017   |        |       | $       | 6,844   |       
|                                        |                      |                             |                             |        |        |         |         |        |      



29



---



##### Table of Contents









Underwriting Results




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



|                                        |                      |                         |        |        |      |   |        |        |   |   |        |        |  
|--------------------------------------- | -------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                        |                      | Year Ended December 31, |       
|                                        |                      |                         |       
|                                        |                      | 2005                    |        |        | 2004 |   |        | 2003   |  
|                                        |                      |                         |        |        |      |   |        |        |  
|                                        |                      | (Dollars in thousands)  |       
|Gross written premiums                  |                      | $                       | 62,081 |        |      | $ | 60,278 |        |   | $ | 44,393 |       
|Ceded premiums                          |                      |                         | (9,099 | )      |      |   | (9,268 | )      |   |   | (6,435 | )     
|                                        |                      |                         |        |        |      |   |        |        |  
|                                        | Net written premiums |                         | $      | 52,982 |      |   | $      | 51,010 |   |   | $      | 37,958 |  
|                                        |                      |                         |        |        |      |   |        |        |  
|Net earned premiums                     |                      | $                       | 51,447 |        |      | $ | 48,062 |        |   | $ | 37,358 |       
|Net losses and loss adjustment expenses |                      |                         | 24,827 |        |      |   | 24,795 |        |   |   | 20,977 |       
|Underwriting expenses                   |                      |                         | 23,333 |        |      |   | 20,458 |        |   |   | 13,378 |       
|                                        |                      |                         |        |        |      |   |        |        |  
|                                        | Underwriting income  |                         | $      | 3,287  |      |   | $      | 2,809  |   |   | $      | 3,003  |  
|                                        |                      |                         |        |        |      |   |        |        |  
|Loss ratio                              |                      |                         | 48.2   | %      |      |   | 51.6   | %      |   |   | 56.2   | %     
|Expense ratio                           |                      |                         | 45.4   |        |      |   | 42.6   |        |   |   | 35.8   |       
|                                        |                      |                         |        |        |      |   |        |        |  
|                                        | Combined ratio       |                         |        | 93.6   | %    |   |        | 94.2   | % |   |        | 92.0   | %
|                                        |                      |                         |        |        |      |   |        |        |  



30



---



##### Table of Contents













|                           |                      |                         |        |        |      |   |        |        |  |   |        |        | 
|-------------------------- | -------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                           |                      | Year Ended December 31, |       
|                           |                      |                         |       
|                           |                      | 2005                    |        |        | 2004 |   |        | 2003   | 
|                           |                      |                         |        |        |      |   |        |        | 
|                           |                      | (In thousands)          |       
|Automobile liability       |                      | $                       | 16,723 |        |      | $ | 18,944 |        |  | $ | 17,947 |       
|Automobile physical damage |                      |                         | 11,002 |        |      |   | 11,187 |        |  |   | 9,451  |       
|General liability          |                      |                         | 11,767 |        |      |   | 10,102 |        |  |   | 5,777  |       
|Property                   |                      |                         | 3,692  |        |      |   | 3,862  |        |  |   | 3,819  |       
|Surety                     |                      |                         | 8,263  |        |      |   | 3,967  |        |  |   | 364    |       
|                           |                      |                         |        |        |      |   |        |        | 
|                           | Total earned premium |                         | $      | 51,447 |      |   | $      | 48,062 |  |   | $      | 37,358 | 
|                           |                      |                         |        |        |      |   |        |        | 









31



---



##### Table of Contents









| |                     
| | --------------------
| | Association Casualty



|                                        |                        |                         |        |        |      |   |        |        |   |   |        |        |  
|--------------------------------------- | ---------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                        |                        | Year Ended December 31, |       
|                                        |                        |                         |       
|                                        |                        | 2005                    |        |        | 2004 |   |        | 2003   |  
|                                        |                        |                         |        |        |      |   |        |        |  
|                                        |                        | (Dollars in thousands)  |       
|Direct written premiums                 |                        | $                       | 25,077 |        |      | $ | 22,322 |        |   | $ | 23,259 |       
|Assumed written premiums(1)             |                        |                         | 745    |        |      |   | 5,913  |        |   |   | 3,594  |       
|                                        |                        |                         |        |        |      |   |        |        |  
|                                        | Gross written premiums |                         |        | 25,822 |      |   |        | 28,235 |   |   |        | 26,853 |  
|Ceded premiums                          |                        |                         | (5,685 | )      |      |   | (4,703 | )      |   |   | (4,584 | )     
|                                        |                        |                         |        |        |      |   |        |        |  
|                                        | Net written premiums   |                         | $      | 20,137 |      |   | $      | 23,532 |   |   | $      | 22,269 |  
|                                        |                        |                         |        |        |      |   |        |        |  
|Net earned premiums                     |                        | $                       | 20,972 |        |      | $ | 22,681 |        |   | $ | 20,352 |       
|Net losses and loss adjustment expenses |                        |                         | 12,410 |        |      |   | 13,785 |        |   |   | 15,245 |       
|Underwriting expenses                   |                        |                         | 8,874  |        |      |   | 9,399  |        |   |   | 8,143  |       
|                                        |                        |                         |        |        |      |   |        |        |  
|                                        | Underwriting loss      |                         | $      | (312   | )    |   | $      | (503   | ) |   | $      | (3,036 | )
|                                        |                        |                         |        |        |      |   |        |        |  
|Loss ratio                              |                        |                         | 59.2   | %      |      |   | 60.8   | %      |   |   | 74.9   | %     
|Expense ratio                           |                        |                         | 42.3   |        |      |   | 41.4   |        |   |   | 40.0   |       
|                                        |                        |                         |        |        |      |   |        |        |  
|                                        | Combined ratio         |                         |        | 101.5  | %    |   |        | 102.2  | % |   |        | 114.9  | %
|                                        |                        |                         |        |        |      |   |        |        |  



|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Written premiums assumed from Georgia Casualty under a quota
    share reinsurance agreement and eliminated in consolidation.
    This agreement was cancelled effective August 31, 2005.



32



---



##### Table of Contents













|                      |                      |                         |       |        |      |   |        |        |  |   |        |        | 
|--------------------- | -------------------- | ----------------------- | ----- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                      |                      | Year Ended December 31, |      
|                      |                      |                         |      
|                      |                      | 2005                    |       |        | 2004 |   |        | 2003   | 
|                      |                      |                         |       |        |      |   |        |        | 
|                      |                      | (In thousands)          |      
|Workers compensation |                      | $                       | 9,613 |        |      | $ | 11,357 |        |  | $ | 13,196 |       
|Business automobile   |                      |                         | 4,265 |        |      |   | 4,119  |        |  |   | 2,307  |       
|General liability     |                      |                         | 350   |        |      |   | 558    |        |  |   | 385    |       
|Property              |                      |                         | 6,744 |        |      |   | 6,647  |        |  |   | 4,464  |       
|                      |                      |                         |       |        |      |   |        |        | 
|                      | Total earned premium |                         | $     | 20,972 |      |   | $      | 22,681 |  |   | $      | 20,352 | 
|                      |                      |                         |       |        |      |   |        |        | 







33



---



##### Table of Contents









| |                 
| | ----------------
| | Georgia Casualty



|                                        |                      |                         |         |        |      |   |         |        |   |   |         |        |  
|--------------------------------------- | -------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                        |                      | Year Ended December 31, |        
|                                        |                      |                         |        
|                                        |                      | 2005                    |         |        | 2004 |   |         | 2003   |  
|                                        |                      |                         |         |        |      |   |         |        |  
|                                        |                      | (Dollars in thousands)  |        
|Gross written premiums                  |                      | $                       | 48,388  |        |      | $ | 65,345  |        |   | $ | 55,347  |       
|Ceded premiums                          |                      |                         | (19,943 | )      |      |   | (17,479 | )      |   |   | (14,481 | )     
|Ceded premiums(1)                       |                      |                         | (745    | )      |      |   | (5,913  | )      |   |   | (3,594  | )     
|                                        |                      |                         |         |        |      |   |         |        |  
|                                        | Net written premiums |                         | $       | 27,700 |      |   | $       | 41,953 |   |   | $       | 37,272 |  
|                                        |                      |                         |         |        |      |   |         |        |  
|Net earned premiums                     |                      | $                       | 39,270  |        |      | $ | 34,675  |        |   | $ | 34,319  |       
|Net losses and loss adjustment expenses |                      |                         | 32,064  |        |      |   | 28,670  |        |   |   | 22,258  |       
|Underwriting expenses                   |                      |                         | 16,607  |        |      |   | 15,839  |        |   |   | 14,150  |       
|                                        |                      |                         |         |        |      |   |         |        |  
|                                        | Underwriting loss    |                         | $       | (9,401 | )    |   | $       | (9,834 | ) |   | $       | (2,089 | )
|                                        |                      |                         |         |        |      |   |         |        |  
|Loss ratio                              |                      |                         | 81.6    | %      |      |   | 82.7    | %      |   |   | 64.9    | %     
|Expense ratio                           |                      |                         | 42.3    |        |      |   | 45.7    |        |   |   | 41.2    |       
|                                        |                      |                         |         |        |      |   |         |        |  
|                                        | Combined ratio       |                         |         | 123.9  | %    |   |         | 128.4  | % |   |         | 106.1  | %
|                                        |                      |                         |         |        |      |   |         |        |  



|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Written premiums ceded to Association Casualty under a quota
    share reinsurance agreement and eliminated in consolidation.
    This agreement was cancelled effective August 31, 2005.





34



---



##### Table of Contents











|                      |                      |                         |        |        |      |   |        |        |  |   |        |        | 
|--------------------- | -------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                      |                      | Year Ended December 31, |       
|                      |                      |                         |       
|                      |                      | 2005                    |        |        | 2004 |   |        | 2003   | 
|                      |                      |                         |        |        |      |   |        |        | 
|                      |                      | (In thousands)          |       
|Workers compensation |                      | $                       | 12,909 |        |      | $ | 11,608 |        |  | $ | 11,071 |       
|Business automobile   |                      |                         | 11,026 |        |      |   | 9,470  |        |  |   | 8,767  |       
|General liability     |                      |                         | 434    |        |      |   | 351    |        |  |   | 2,272  |       
|Property              |                      |                         | 14,901 |        |      |   | 13,246 |        |  |   | 12,209 |       
|                      |                      |                         |        |        |      |   |        |        | 
|                      | Total earned premium |                         | $      | 39,270 |      |   | $      | 34,675 |  |   | $      | 34,319 | 
|                      |                      |                         |        |        |      |   |        |        | 





35



---



##### Table of Contents









| |                 
| | ----------------
| | Bankers Fidelity



|                              |                      |                         |        |        |      |   |        |        |   |   |        |        |  
|----------------------------- | -------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                              |                      | Year Ended December 31, |       
|                              |                      |                         |       
|                              |                      | 2005                    |        |        | 2004 |   |        | 2003   |  
|                              |                      |                         |        |        |      |   |        |        |  
|                              |                      | (In thousands)          |       
|Medicare supplement           |                      | $                       | 51,414 |        |      | $ | 49,575 |        |   | $ | 46,190 |       
|Other health products         |                      |                         | 2,890  |        |      |   | 2,933  |        |   |   | 2,952  |       
|Life insurance                |                      |                         | 11,600 |        |      |   | 12,934 |        |   |   | 13,541 |       
|                              |                      |                         |        |        |      |   |        |        |  
|                              | Total earned premium |                         |        | 65,904 |      |   |        | 65,442 |   |   |        | 62,683 |  
|                              |                      |                         |        |        |      |   |        |        |  
|Insurance benefits and losses |                      |                         | 46,375 |        |      |   | 45,827 |        |   |   | 43,863 |       
|Underwriting expenses         |                      |                         | 19,672 |        |      |   | 19,679 |        |   |   | 19,201 |       
|                              |                      |                         |        |        |      |   |        |        |  
|                              | Total expenses       |                         |        | 66,047 |      |   |        | 65,506 |   |   |        | 63,064 |  
|                              |                      |                         |        |        |      |   |        |        |  
|                              | Underwriting loss    |                         | $      | (143   | )    |   | $      | (64    | ) |   | $      | (381   | )
|                              |                      |                         |        |        |      |   |        |        |  



36



---



##### Table of Contents











Investment Income and Realized Gains






|                            |  |                |       |  |      |   |     |      |  |   |     | 
|--------------------------- |  | -------------- | ----- |  | ---- | - | --- | ---- |  | - | --- | 
|                            |  | 2005           |       |  | 2004 |   |     | 2003 | 
|                            |  |                |       |  |      |   |     |      | 
|                            |  | (In thousands) |      
|Corporate bonds             |  | $              | 9,492 |  |      | $ |    |      |  | $ |    | 
|Redeemable preferred stocks |  | $              | 1,274 |  |      | $ | 281 |      |  | $ |    | 
|Common stocks               |  | $              |      |  |      | $ | 179 |      |  | $ | 995 | 
|Other invested assets       |  | $              |      |  |      | $ |    |      |  | $ | 159 | 



37



---



##### Table of Contents





Interest Expense






Other Expenses






38



---



##### Table of Contents





Liquidity and Capital Resources










39



---



##### Table of Contents















40



---



##### Table of Contents





New Accounting Pronouncements








Impact of Inflation




Off-Balance Sheet Arrangements




41



---



##### Table of Contents



Contractual Obligations




|                               |       |                        |         |           |        |   |        |         |  |     |        |        |           |         |        |        |  |   |        |         | 
|------------------------------ | ----- | ---------------------- | ------- | --------- | ------ | - | ------ | ------- |  | --- | ------ | ------ | --------- | ------- | ------ | ------ |  | - | ------ | ------- | 
|                               |       | Payments Due by Period |        
|                               |       |                        |        
|                               |       |                        |         | Less than |        |   | 1-3    |         |  | 3-5 |        |        | More than |        
|                               |       | Total                  |         |           | 1 Year |   |        | Years   |  |     | Years  |        |           | 5 Years |       
|                               |       |                        |         |           |        |   |        |         |  |     |        |        |           |         |       
|                               |       | (In thousands)         |        
|Bank debt payable              |       | $                      | 10,250  |           |        | $ | 1,750  |         |  | $   | 8,500  |        |           | $       |       |        |  | $ |       |        
|Junior Subordinated Debentures |       |                        | 41,238  |           |        |   |       |         |  |     |       |        |           |         |       |        |  |   | 41,238 |        
|Interest payable(1)            |       |                        | 94,414  |           |        |   | 4,027  |         |  |     | 7,507  |        |           |         | 6,749  |        |  |   | 76,131 |        
|Operating leases               |       |                        | 5,540   |           |        |   | 983    |         |  |     | 2,178  |        |           |         | 1,826  |        |  |   | 553    |        
|Purchase commitments(2)        |       |                        | 16,226  |           |        |   | 15,824 |         |  |     | 402    |        |           |         |       |        |  |   |       |        
|Losses and claims(3)           |       |                        | 168,617 |           |        |   | 63,202 |         |  |     | 48,879 |        |           |         | 23,190 |        |  |   | 33,346 |        
|Future policy benefits(4)      |       |                        | 51,356  |           |        |   | 8,146  |         |  |     | 15,863 |        |           |         | 14,926 |        |  |   | 12,421 |        
|Unearned premiums(5)           |       |                        | 37,445  |           |        |   | 16,430 |         |  |     | 11,148 |        |           |         | 5,228  |        |  |   | 4,639  |        
|Other policy liabilities       |       |                        | 5,499   |           |        |   | 5,499  |         |  |     |       |        |           |         |       |        |  |   |       |        
|                               |       |                        |         |           |        |   |        |         |  |     |        |        |           |         |       
|                               | Total |                        | $       | 430,585   |        |   | $      | 115,861 |  |     | $      | 94,477 |           |         | $      | 51,919 |  |   | $      | 168,328 | 
|                               |       |                        |         |           |        |   |        |         |  |     |        |        |           |         |       



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Interest payable is based on interest rates as of
    December 31, 2005 and assumes that all debt remains
    outstanding until its stated contractual maturity. The interest
    rates on outstanding bank debt and trust preferred obligations
    are variable and are equal to three-month LIBOR plus an
    applicable predetermined margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | Represents balances due for goods and/or services which have
    been contractually committed as of December 31, 2005. To
    the extent contracts provide for early termination with notice
    but without penalty, only the amounts contractually due during
    the notice period have been included.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | Losses and claims include case reserves for reported claims and
    reserves for claims incurred but not reported
    (IBNR). While payments due on claim reserves are
    considered contractual obligations because they relate to
    insurance policies issued by the Company, the ultimate amount to
    be paid to settle both case reserves and IBNR reserves is an
    estimate, subject to significant uncertainty. The actual amount
    to be paid is not determined until the Company reaches a
    settlement with any applicable claimant. Final claim settlements
    may vary significantly from the present estimates, particularly
    since many claims will not be settled until well into the
    future. In estimating the timing of future payments by year, the
    Company has assumed that its historical payment patterns will
    continue. However, the actual timing of future payments will
    likely vary materially from these estimates due to, among other
    things, changes in claim reporting and payment patterns and
    large unanticipated settlements. Amounts reflected do not
    include reinsurance amounts which may also be recoverable based
    on the level of ultimate sustained loss.
|   
|(4) | Future policy benefits relate to life insurance policies on
    which the Company is not currently making payments and will not
    make future payments unless and until the occurrence of an
    insurable event, such as a death or disability, or the
    occurrence of a payment triggering event, such as a surrender of
    a policy. Occurrence of any of these events is outside the
    control of the Company and the payment estimates are based on
    significant uncertainties such as mortality, morbidity,
    expenses, persistency, investment returns, inflation and the
    timing of payments. For regulatory purposes, the Company does
    perform cash flow modeling of such liabilities, which is the
    basis for the indicated disclosure; however, due to the
    significance of the assumptions used, the amount presented could
    materially differ from actual results.                                                                                                                                                                                                                                                                                                                                    
|   
|(5) | Unearned premiums represent potential future revenue for the
    Company; however, under certain circumstances, such premiums may
    be refundable with cancellation of the underlying policy.
    Significantly all unearned premiums will be earned within the
    following twelve month period as the related future insurance
    protection is provided. Significantly all costs related to such
    unearned                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

42



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | premiums have already been incurred and paid and are included in
    deferred acquisition costs; however, future losses related to
    the unearned premiums have not been recorded. The contractual
    obligations related to unearned premiums reflected in the table
    represent the average loss ratio applied to the year end
    unearned premium balances, with loss payments projected in
    comparable proportions to the year end loss and claims reserves.
    Projecting future losses is subject to significant uncertainties
    and the projected payments will most likely vary materially from
    these estimates as a result of differences in future severity,
    frequency and other anticipated and unanticipated factors.
    Amounts reflected do not take into account reinsurance amounts
    which may be recoverable based on the level of ultimate
    sustained loss.

Forward-Looking Statements









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

Interest Rate and Market Risk




43



---



##### Table of Contents









|                  |  |                |         |  |        |   |         |            |  |   |         |  |  |        |         |  |  |   |         | 
|----------------- |  | -------------- | ------- |  | ------ | - | ------- | ---------- |  | - | ------- |  |  | ------ | ------- |  |  | - | ------- | 
|                  |  | +200bp         |         |  | +100bp |   |         | Fair Value |  |   | -100bp  |  |  | -200bp |        
|                  |  |                |         |  |        |   |         |            |  |   |         |  |  |        |        
|                  |  | (In thousands) |        
|December 31, 2005 |  | $              | 204,862 |  |        | $ | 217,571 |            |  | $ | 231,907 |  |  | $      | 248,149 |  |  | $ | 266,636 | 
|December 31, 2004 |  | $              | 199,727 |  |        | $ | 213,618 |            |  | $ | 229,465 |  |  | $      | 247,657 |  |  | $ | 268,611 | 



|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |        |  |  |   |        | 
|---------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                   |  | +20%           |        |  | +10% |   |        | Fair Value |  |   | -10%   |  |  | -20% |       
|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |       
|                                   |  | (In thousands) |       
|December 31, 2005                  |  |                |        |  |      |   |        |            |  |   |        |  |  |      |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $              | 27,441 |  |      | $ | 25,154 |            |  | $ | 22,867 |  |  | $    | 20,580 |  |  | $ | 18,293 | 
|Other equity holdings              |  |                | 15,889 |  |      |   | 14,565 |            |  |   | 13,241 |  |  |      | 11,917 |  |  |   | 10,593 | 
|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |       
|Total equity holdings              |  | $              | 43,330 |  |      | $ | 39,719 |            |  | $ | 36,108 |  |  | $    | 32,497 |  |  | $ | 28,886 | 
|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |       
|December 31, 2004                  |  |                |        |  |      |   |        |            |  |   |        |  |  |      |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $              | 27,306 |  |      | $ | 25,030 |            |  | $ | 22,755 |  |  | $    | 20,479 |  |  | $ | 18,204 | 
|Other equity holdings              |  |                | 18,782 |  |      |   | 17,218 |            |  |   | 15,652 |  |  |      | 14,087 |  |  |   | 12,522 | 
|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |       
|Total equity holdings              |  | $              | 46,088 |  |      | $ | 42,248 |            |  | $ | 38,407 |  |  | $    | 34,566 |  |  | $ | 30,726 | 
|                                   |  |                |        |  |      |   |        |            |  |   |        |  |  |      |       



|                  |  |                  |       |  |        |   |                  |      |  |   |        |  |  |        |      |   |  |   |        |  
|----------------- |  | ---------------- | ----- |  | ------ | - | ---------------- | ---- |  | - | ------ |  |  | ------ | ---- | - |  | - | ------ | -
|                  |  | Interest Expense |       |  |        |   | Interest Expense |     
|                  |  |                  |       |  |        |   |                  |     
|                  |  | +200bp           |       |  | +100bp |   |                  | Debt |  |   | -100bp |  |  | -200bp |     
|                  |  |                  |       |  |        |   |                  |      |  |   |        |  |  |        |     
|                  |  | (In thousands)   |      
|December 31, 2005 |  | $                | 1,005 |  |        | $ | 503              |      |  | $ | 51,488 |  |  | $      | (503 | ) |  | $ | (1,005 | )
|December 31, 2004 |  | $                | 1,040 |  |        | $ | 520              |      |  | $ | 53,238 |  |  | $      | (520 | ) |  | $ | (1,040 | )



44



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS


|                                                                                                                          |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                          |  | Page |   
|                                                                                                                          |  |      |   
|ATLANTIC AMERICAN CORPORATION                                                                                             |  |      |    | 
|Report of Independent Registered Public
    Accounting Firm                                                               |  |      | 46 | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                                          |  |      | 47 | 
|Consolidated Statements of Operations for
    each of the three years in the period ended December 31,
    2005           |  |      | 48 | 
|Consolidated Statements of
    Shareholders Equity for each of the three years in the
    period ended December 31, 2005 |  |      | 49 | 
|Consolidated Statements of Cash Flows for
    each of the three years in the period ended December 31,
    2005           |  |      | 50 | 
|Notes to Consolidated Financial
    Statements                                                                            |  |      | 51 | 

45



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















|                      | 
|--------------------- | 
|DELOITTE & TOUCHE LLP | 

Atlanta, Georgia


March 31, 2006


46



---



##### Table of Contents



ATLANTIC AMERICAN CORPORATION





CONSOLIDATED BALANCE SHEETS


|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |         |         |        |         |         | 
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                                                                                                      |                                                                                                                                       | December 31,               |                                           
|                                                                                                                      |                                                                                                                                       |                            |                                           
|                                                                                                                      |                                                                                                                                       | 2005                       |                                            |        | 2004    |        
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                      |                                                                                                                                       | (Dollars in thousands,     |                                           
|                                                                                                                      |                                                                                                                                       | except per share data)     |                                           
|ASSETS                                                                                                               
|Cash and cash equivalents, including short-term investments of
    $27,726 and $23,073 in 2005 and 2004, respectively |                                                                                                                                       | $                          | 41,776                                     |        |         | $       | 40,958  |       
|Investments                                                                                                           |                                                                                                                                       |                            | 276,968                                    |        |         |         | 279,035 |       
|Receivables:                                                                                                          |                                                                                                                                       |                            |                                            |        |         |         |         |       
|                                                                                                                      | Reinsurance                                                                                                                           |                            |                                            | 57,406 |         |         |         | 62,854 |        
|                                                                                                                      | Other, net of allowance for doubtful accounts of $1,501 and
    $1,677 in 2005 and 2004, respectively                                 |                            |                                            | 37,643 |         |         |         | 47,127 |        
|Deferred income taxes, net                                                                                            |                                                                                                                                       |                            | 7,099                                      |        |         |         | 476     |       
|Deferred acquisition costs                                                                                            |                                                                                                                                       |                            | 27,835                                     |        |         |         | 30,358  |       
|Other assets                                                                                                          |                                                                                                                                       |                            | 8,682                                      |        |         |         | 6,695   |       
|Goodwill                                                                                                              |                                                                                                                                       |                            | 3,008                                      |        |         |         | 3,008   |       
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                      |                                                                                                                                       |                            | Total assets                               |        | $       | 460,417 |         |        | $       | 470,511 | 
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                     
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                 
|Insurance reserves and policyholder funds                                                                             |                                                                                                                                       | $                          | 286,351                                    |        |         | $       | 292,287 |       
|Accounts payable and accrued expenses                                                                                 |                                                                                                                                       |                            | 35,125                                     |        |         |         | 36,026  |       
|Payable for securities                                                                                                |                                                                                                                                       |                            | 7,000                                      |        |         |         |        |       
|Debt payable                                                                                                          |                                                                                                                                       |                            | 51,488                                     |        |         |         | 53,238  |       
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                      |                                                                                                                                       | Total liabilities          |                                            |        | 379,964 |         |         |        | 381,551 |        
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|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    |        
|Common stock, $1 par, 50,000,000 shares authorized;                                                                   |                                                                                                                                       |                            |                                            |        |         |         |         |       
|                                                                                                                      | 21,412,138 shares issued in 2005 and 2004 and
    21,383,255 shares outstanding in 2005 and
    21,212,925 shares outstanding in 2004 |                            |                                            | 21,412 |         |         |         | 21,412 |        
|Additional paid-in capital                                                                                            |                                                                                                                                       |                            | 48,947                                     |        |         |         | 50,369  |       
|Retained earnings (accumulated deficit)                                                                               |                                                                                                                                       |                            | (2,780                                     | )      |         |         | 462     |       
|Unearned compensation                                                                                                 |                                                                                                                                       |                            | (22                                        | )      |         |         | (22     | )     
|Accumulated other comprehensive income                                                                                |                                                                                                                                       |                            | 12,846                                     |        |         |         | 17,207  |       
|Treasury stock, at cost, 28,883 shares in 2005 and
    199,213 shares in 2004                                         |                                                                                                                                       |                            | (84                                        | )      |         |         | (602    | )     
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                      |                                                                                                                                       | Total shareholders equity |                                            |        | 80,453  |         |         |        | 88,960  |        
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        
|                                                                                                                      |                                                                                                                                       |                            | Total liabilities and shareholders equity |        | $       | 460,417 |         |        | $       | 470,511 | 
|                                                                                                                      |                                                                                                                                       |                            |                                            |        |         |        



47



---



##### Table of Contents



ATLANTIC AMERICAN CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                             |                                         |                               |        |         |         |   |        |         |         |   |        |         |         | 
|-------------------------------------------- | --------------------------------------- | ----------------------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                             |                                         | Year Ended December 31,       |       
|                                             |                                         |                               |       
|                                             |                                         | 2005                          |        |         | 2004    |   |        | 2003    |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|                                             |                                         | (Dollars in thousands, except |       
|                                             |                                         | per share data)               |       
|Revenue:                                     |                                         |                               |        |         |         |   |        |         |         |   |        |        
|                                             | Insurance premiums                      |                               | $      | 177,593 |         |   | $      | 170,860 |         |   | $      | 154,712 |        
|                                             | Investment income                       |                               |        | 16,685  |         |   |        | 15,860  |         |   |        | 15,628  |        
|                                             | Other income                            |                               |        | 1,263   |         |   |        | 1,183   |         |   |        | 900     |        
|                                             | Realized investment gains (losses), net |                               |        | (10,456 | )       |   |        | 2,199   |         |   |        | 360     |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|                                             |                                         | Total revenue                 |        |         | 185,085 |   |        |         | 190,102 |   |        |         | 171,600 | 
|                                             |                                         |                               |        |         |         |   |        |         |        
|Benefits and expenses:                       |                                         |                               |        |         |         |   |        |         |         |   |        |        
|                                             | Insurance benefits and losses incurred  |                               |        | 115,676 |         |   |        | 113,077 |         |   |        | 102,343 |        
|                                             | Commissions and underwriting expenses   |                               |        | 58,376  |         |   |        | 56,089  |         |   |        | 46,807  |        
|                                             | Interest expense                        |                               |        | 3,611   |         |   |        | 3,071   |         |   |        | 3,120   |        
|                                             | Other                                   |                               |        | 14,887  |         |   |        | 13,544  |         |   |        | 12,805  |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|                                             |                                         | Total benefits and expenses   |        |         | 192,550 |   |        |         | 185,781 |   |        |         | 165,075 | 
|                                             |                                         |                               |        |         |         |   |        |         |        
|Income (loss) before income tax benefit      |                                         |                               | (7,465 | )       |         |   | 4,321  |         |         |   | 6,525  |        
|Income tax benefit                           |                                         |                               | 4,290  |         |         |   | 696    |         |         |   | 319    |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|Net income (loss)                            |                                         |                               | (3,175 | )       |         |   | 5,017  |         |         |   | 6,844  |        
|Preferred stock dividends                    |                                         |                               | (1,206 | )       |         |   | (1,216 | )       |         |   | (1,349 | )      
|                                             |                                         |                               |        |         |         |   |        |         |        
|Net income (loss) applicable to common stock |                                         | $                             | (4,381 | )       |         | $ | 3,801  |         |         | $ | 5,495  |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|Basic earnings (loss) per common share:      |                                         | $                             | (.21   | )       |         | $ | .18    |         |         | $ | .26    |        
|                                             |                                         |                               |        |         |         |   |        |         |        
|Diluted earnings (loss) per common share:    |                                         | $                             | (.21   | )       |         | $ | .18    |         |         | $ | .25    |        
|                                             |                                         |                               |        |         |         |   |        |         |        



48



---



##### 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)                                         |    
|Balance, December 31, 2002 |                                                                             |                                                                | 159 |     |        |            | 21,412 |          |          |   | 55,204       |        |             |              | (11,270 | )   |               |   | (30 | )        |   |   | 13,143 |   |        |   | (78  | )    |   |   | 78,540 |       
|                           | Comprehensive income:                                                       |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |   |        |   |      |      |   |   |        |        |       
|                           |                                                                             | Net income                                                     |     |     |       |            |        |          |         |   |              |        |            |              |         |     | 6,844         |   |     |          |  |   |        |   |       |   |      |      |  |   |        |        | 6,844  |  
|                           |                                                                             | Increase in unrealized investment gains                        |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | 7,453  |   |      |      |  |   |        |        | 7,453  |  
|                           |                                                                             | Fair value adjustment to interest rate swap                    |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | 470    |   |      |      |  |   |        |        | 470    |  
|                           |                                                                             | Deferred income tax attributable to other comprehensive income |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | (2,773 | ) |      |      |  |   |        |        | (2,773 | )
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|                           |                                                                             | Total comprehensive income                                     |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   |       |   |      |      |  |   |        |        | 11,994 |  
|                           | Preferred stock redeemed                                                    |                                                                |     | (20 | )      |            |        |         |          |   |              | (1,980 | )           |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | (2,000 | )     
|                           | Dividends accrued on preferred stock                                        |                                                                |     |    |        |            |        |         |          |   |              | (1,349 | )           |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | (1,349 | )     
|                           | Deferred share compensation expense                                         |                                                                |     |    |        |            |        |         |          |   |              | 52     |             |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | 52     |       
|                           | Restricted stock grants                                                     |                                                                |     |    |        |            |        |         |          |   |              | (1     | )           |              |         |    |               |   |     | (66      | ) |   |        |  |        |   |      | 67   |   |   |        |       |       
|                           | Amortization of unearned compensation                                       |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     | 74       |   |   |        |  |        |   |      |     |   |   |        | 74     |       
|                           | Acquisition of 371,582 shares for treasury                                  |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     |         |   |   |        |  |        |   |      | (698 | ) |   |        | (698   | )     
|                           | Issuance of 154,262 shares for employee benefit plans and
    stock options |                                                                |     |    |        |            |        |         |          |   |              | 52     |             |              |         | (31 | )             |   |     |         |   |   |        |  |        |   |      | 259  |   |   |        | 280    |       
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|Balance, December 31, 2003 |                                                                             |                                                                | 139 |     |        |            | 21,412 |          |          |   | 51,978       |        |             |              | (4,457  | )   |               |   | (22 | )        |   |   | 18,293 |   |        |   | (450 | )    |   |   | 86,893 |       
|                           | Comprehensive income:                                                       |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |   |        |   |      |      |   |   |        |        |       
|                           |                                                                             | Net income                                                     |     |     |       |            |        |          |         |   |              |        |            |              |         |     | 5,017         |   |     |          |  |   |        |   |       |   |      |      |  |   |        |        | 5,017  |  
|                           |                                                                             | Decrease in unrealized investment gains                        |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | (1,985 | ) |      |      |  |   |        |        | (1,985 | )
|                           |                                                                             | Fair value adjustment to interest rate swap                    |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | 445    |   |      |      |  |   |        |        | 445    |  
|                           |                                                                             | Minimum pension liability adjustment                           |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | (131   | ) |      |      |  |   |        |        | (131   | )
|                           |                                                                             | Deferred income tax attributable to other comprehensive income |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | 585    |   |      |      |  |   |        |        | 585    |  
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|                           |                                                                             | Total comprehensive income                                     |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   |       |   |      |      |  |   |        |        | 3,931  |  
|                           | Preferred stock redeemed                                                    |                                                                |     | (5  | )      |            |        |         |          |   |              | (495   | )           |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | (500   | )     
|                           | Dividends accrued on preferred stock                                        |                                                                |     |    |        |            |        |         |          |   |              | (1,216 | )           |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | (1,216 | )     
|                           | Deferred share compensation expense                                         |                                                                |     |    |        |            |        |         |          |   |              | 27     |             |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | 27     |       
|                           | Restricted stock grants                                                     |                                                                |     |    |        |            |        |         |          |   |              | 18     |             |              |         |    |               |   |     | (176     | ) |   |        |  |        |   |      | 158  |   |   |        |       |       
|                           | Amortization of unearned compensation                                       |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     | 176      |   |   |        |  |        |   |      |     |   |   |        | 176    |       
|                           | Acquisition of 248,290 shares for treasury                                  |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     |         |   |   |        |  |        |   |      | (747 | ) |   |        | (747   | )     
|                           | Issuance of 199,599 shares for employee benefit plans and
    stock options |                                                                |     |    |        |            |        |         |          |   |              | 57     |             |              |         | (98 | )             |   |     |         |   |   |        |  |        |   |      | 437  |   |   |        | 396    |       
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|Balance, December 31, 2004 |                                                                             | $                                                              | 134 |     |        | $          | 21,412 |          |          | $ | 50,369       |        |             | $            | 462     |     |               | $ | (22 | )        |   | $ | 17,207 |   |        | $ | (602 | )    |   | $ | 88,960 |       
|                           | Comprehensive loss:                                                         |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |   |        |   |      |      |   |   |        |        |       
|                           |                                                                             | Net loss                                                       |     |     |       |            |        |          |         |   |              |        |            |              |         |     | (3,175        | ) |     |          |  |   |        |   |       |   |      |      |  |   |        |        | (3,175 | )
|                           |                                                                             | Decrease in unrealized investment gains                        |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | (6,549 | ) |      |      |  |   |        |        | (6,549 | )
|                           |                                                                             | Minimum pension liability adjustment                           |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | (160   | ) |      |      |  |   |        |        | (160   | )
|                           |                                                                             | Deferred income tax attributable to other comprehensive loss   |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   | 2,348  |   |      |      |  |   |        |        | 2,348  |  
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|                           |                                                                             | Total comprehensive loss                                       |     |     |       |            |        |          |         |   |              |        |            |              |         |     |              |   |     |          |  |   |        |   |       |   |      |      |  |   |        |        | (7,536 | )
|                           | Dividends accrued on preferred stock                                        |                                                                |     |    |        |            |        |         |          |   |              | (1,206 | )           |              |         |    |               |   |     |         |   |   |        |  |        |   |      |     |   |   |        | (1,206 | )     
|                           | Deferred share compensation expense                                         |                                                                |     |    |        |            |        |         |          |   |              | (201   | )           |              |         | (40 | )             |   |     |         |   |   |        |  |        |   |      | 240  |   |   |        | (1     | )     
|                           | Restricted stock grants                                                     |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     | (66      | ) |   |        |  |        |   |      | 66   |   |   |        |       |       
|                           | Amortization of unearned compensation                                       |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     | 66       |   |   |        |  |        |   |      |     |   |   |        | 66     |       
|                           | Acquisition of 45,619 shares for treasury                                   |                                                                |     |    |        |            |        |         |          |   |              |       |             |              |         |    |               |   |     |         |   |   |        |  |        |   |      | (132 | ) |   |        | (132   | )     
|                           | Issuance of 194,026 shares for employee benefit plans and
    stock options |                                                                |     |    |        |            |        |         |          |   |              | (15    | )           |              |         | (27 | )             |   |     |         |   |   |        |  |        |   |      | 344  |   |   |        | 302    |       
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  
|Balance, December 31, 2005 |                                                                             | $                                                              | 134 |     |        | $          | 21,412 |          |          | $ | 48,947       |        |             | $            | (2,780  | )   |               | $ | (22 | )        |   | $ | 12,846 |   |        | $ | (84  | )    |   | $ | 80,453 |       
|                           |                                                                             |                                                                |     |     |        |            |        |          |          |   |              |        |             |              |         |     |               |   |     |          |   |   |        |  



49



---



##### Table of Contents



ATLANTIC AMERICAN CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                    |                                                                                              |                         |        |          |      |  |        |          |   |  |         |          |  
|--------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------- | ------ | -------- | ---- |  | ------ | -------- | - |  | ------- | -------- | -
|                                                    |                                                                                              | Year Ended December 31, |       
|                                                    |                                                                                              |                         |       
|                                                    |                                                                                              | 2005                    |        |          | 2004 |  |        | 2003     |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|                                                    |                                                                                              | (Dollars in thousands)  |       
|Cash flows from operating activities:               |                                                                                              |                         |        |          |      |  |        |          |   |  |         |         
|                                                    | Net income (loss)                                                                            |                         | $      | (3,175   | )    |  | $      | 5,017    |   |  | $       | 6,844    |  
|                                                    | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities: |                         |        |          |      |  |        |          |   |  |         |          |  
|                                                    | Amortization of deferred acquisition costs                                                   |                         |        | 26,264   |      |  |        | 22,846   |   |  |         | 18,478   |  
|                                                    | Acquisition costs deferred                                                                   |                         |        | (23,741  | )    |  |        | (25,208  | ) |  |         | (20,552  | )
|                                                    | Realized investment losses (gains), net                                                      |                         |        | 10,456   |      |  |        | (2,199   | ) |  |         | (360     | )
|                                                    | (Decrease) increase in insurance reserves and policyholder funds                             |                         |        | (5,936   | )    |  |        | 27,094   |   |  |         | 9,610    |  
|                                                    | Compensation expense related to share awards                                                 |                         |        | 65       |      |  |        | 203      |   |  |         | 126      |  
|                                                    | Depreciation and amortization                                                                |                         |        | 1,079    |      |  |        | 1,361    |   |  |         | 1,138    |  
|                                                    | Deferred income tax benefit                                                                  |                         |        | (4,275   | )    |  |        | (834     | ) |  |         | (1,163   | )
|                                                    | Decrease (increase) in receivables, net                                                      |                         |        | 14,932   |      |  |        | (26,024  | ) |  |         | 5,759    |  
|                                                    | (Decrease) increase in other liabilities                                                     |                         |        | (2,268   | )    |  |        | 1,364    |   |  |         | (6,076   | )
|                                                    | Other, net                                                                                   |                         |        | (2,134   | )    |  |        | 2,406    |   |  |         | 111      |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Net cash provided by operating activities           |                                                                                              |                         | 11,267 |          |      |  | 6,026  |          |   |  | 13,915  |         
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Cash flows from investing activities:               |                                                                                              |                         |        |          |      |  |        |          |   |  |         |         
|                                                    | Proceeds from investments sold                                                               |                         |        | 44,606   |      |  |        | 45,924   |   |  |         | 20,914   |  
|                                                    | Proceeds from investments matured, called or redeemed                                        |                         |        | 56,778   |      |  |        | 58,645   |   |  |         | 92,690   |  
|                                                    | Investments purchased                                                                        |                         |        | (109,310 | )    |  |        | (100,645 | ) |  |         | (136,804 | )
|                                                    | Additions to property and equipment                                                          |                         |        | (675     | )    |  |        | (575     | ) |  |         | (425     | )
|                                                    | Acquired insurance reserves and policy funds (Note 3)                                        |                         |        |         |      |  |        | 1,448    |   |  |         |         |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Net cash (used in) provided by investing activities |                                                                                              |                         | (8,601 | )        |      |  | 4,797  |          |   |  | (23,625 | )       
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Cash flows from financing activities:               |                                                                                              |                         |        |          |      |  |        |          |   |  |         |         
|                                                    | Net proceeds from issuance of junior subordinated debentures                                 |                         |        |         |      |  |        |         |   |  |         | 21,824   |  
|                                                    | Preferred stock redemption                                                                   |                         |        |         |      |  |        | (500     | ) |  |         | (2,000   | )
|                                                    | Preferred stock dividends paid                                                               |                         |        |         |      |  |        | (10      | ) |  |         | (143     | )
|                                                    | Proceeds from exercise of stock options                                                      |                         |        | 34       |      |  |        | 154      |   |  |         | 25       |  
|                                                    | Purchase of treasury shares                                                                  |                         |        | (132     | )    |  |        | (747     | ) |  |         | (396     | )
|                                                    | Repayments of debt                                                                           |                         |        | (1,750   | )    |  |        | (3,000   | ) |  |         | (17,000  | )
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Net cash (used in) provided by financing activities |                                                                                              |                         | (1,848 | )        |      |  | (4,103 | )        |   |  | 2,310   |         
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|                                                    | Net increase (decrease) in cash and cash equivalents                                         |                         |        | 818      |      |  |        | 6,720    |   |  |         | (7,400   | )
|                                                    | Cash and cash equivalents at beginning of year                                               |                         |        | 40,958   |      |  |        | 34,238   |   |  |         | 41,638   |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|                                                    | Cash and cash equivalents at end of year                                                     |                         | $      | 41,776   |      |  | $      | 40,958   |   |  | $       | 34,238   |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|Supplemental cash flow information:                 |                                                                                              |                         |        |          |      |  |        |          |   |  |         |         
|                                                    | Cash paid for interest                                                                       |                         | $      | 3,470    |      |  | $      | 3,189    |   |  | $       | 3,285    |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  
|                                                    | Cash paid for income taxes                                                                   |                         | $      | 317      |      |  | $      | 1,218    |   |  | $       | 537      |  
|                                                    |                                                                                              |                         |        |          |      |  |        |          |  



50



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)




|        |                                           
|------- | ------------------------------------------
|Note 1. | Summary of Significant Accounting Policies



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







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





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





| |            
| | -----------
| | Investments



51



---



##### Table of Contents







| |             
| | ------------
| | Income Taxes





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





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



52



---



##### Table of Contents





|                                                                                                                 |  |      |        |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                                                 |  | 2005 |        |   | 2004 |   |       | 2003 | 
|                                                                                                                 |  |      |        |   |      |   |       |      | 
|Net income (loss), as reported                                                                                   |  | $    | (3,175 | ) |      | $ | 5,017 |      |  | $ | 6,844 |  
|Add: Stock-based employee compensation expense included in
    reported net income(loss), net of tax             |  |      | 42     |   |      |   | 132   |      |  |   | 82    |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method, net of tax |  |      | (144   | ) |      |   | (344  | )    |  |   | (280  | )
|                                                                                                                 |  |      |        |   |      |   |       |      | 
|Pro forma net income (loss)                                                                                      |  | $    | (3,277 | ) |      | $ | 4,805 |      |  | $ | 6,646 |  
|                                                                                                                 |  |      |        |   |      |   |       |      | 
|Net income (loss) per common share:                                                                              |  |      |        |   |      |   |       |      |  |   |       |  
|Basic  as reported                                                                                              |  | $    | (.21   | ) |      | $ | .18   |      |  | $ | .26   |  
|Basic  pro forma                                                                                                |  | $    | (.21   | ) |      | $ | .17   |      |  | $ | .25   |  
|Diluted  as reported                                                                                            |  | $    | (.21   | ) |      | $ | .18   |      |  | $ | .25   |  
|Diluted  pro forma                                                                                              |  | $    | (.21   | ) |      | $ | .17   |      |  | $ | .25   |  





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                               
| | ----------------------------------------------
| | Impact of Recently Issued Accounting Standards







53



---



##### Table of Contents







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





|        |            
|------- | -----------
|Note 2. | Investments



|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |       |       |  |         |         |         | 
|------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- | ---------- |  | ------ | ---------- | ----- |  | --------- | ----- | ----- |  | ------- | ------- | ------- | 
|                                                       |                                                                                          | 2005                   |        
|                                                       |                                                                                          |                        |        
|                                                       |                                                                                          |                        |         | Gross   |            |  | Gross  |            |       | 
|                                                       |                                                                                          | Carrying               |         |         | Unrealized |  |        | Unrealized |       |  | Amortized |      
|                                                       |                                                                                          | Value                  |         |         | Gains      |  |        | Losses     |       |  | Cost      |      
|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|Fixed Maturities:                                      |                                                                                          |                        |         |         |            |  |        |            |       |  |           |       |       |  |         |        
|                                                       | U.S. Treasury securities and obligations of
    U.S. Government agencies and authorities |                        | $       | 139,113 |            |  | $      | 286        |       |  | $         | 1,919 |       |  | $       | 140,746 |        
|                                                       | Obligations of states and political subdivisions                                         |                        |         | 1,037   |            |  |        | 35         |       |  |           |      |       |  |         | 1,002   |        
|                                                       | Corporate securities                                                                     |                        |         | 66,072  |            |  |        | 1,441      |       |  |           | 361   |       |  |         | 64,992  |        
|                                                       | Mortgage-backed securities (government guaranteed)                                       |                        |         | 2,459   |            |  |        | 29         |       |  |           | 24    |       |  |         | 2,454   |        
|                                                       | Redeemable preferred stocks                                                              |                        |         | 23,226  |            |  |        | 200        |       |  |           | 344   |       |  |         | 23,370  |        
|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                       |                                                                                          | Total fixed maturities |         |         | 231,907    |  |        |            | 1,991 |  |           |       | 2,648 |  |         |         | 232,564 | 
|Common and non-redeemable preferred stocks             |                                                                                          |                        | 36,108  |         |            |  | 20,800 |            |       |  | 90        |       |       |  | 15,398  |        
|Other invested assets (estimated fair value of $4,887) |                                                                                          |                        | 3,660   |         |            |  | 1      |            |       |  |          |       |       |  | 3,659   |        
|Mortgage loans (estimated fair value of $2,664)        |                                                                                          |                        | 1,941   |         |            |  |       |            |       |  |          |       |       |  | 1,941   |        
|Policy and student loans                               |                                                                                          |                        | 2,076   |         |            |  |       |            |       |  |          |       |       |  | 2,076   |        
|Real estate                                            |                                                                                          |                        | 38      |         |            |  |       |            |       |  |          |       |       |  | 38      |        
|Investment in unconsolidated trusts                    |                                                                                          |                        | 1,238   |         |            |  |       |            |       |  |          |       |       |  | 1,238   |        
|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                       |                                                                                          |                        | 276,968 |         |            |  | 22,792 |            |       |  | 2,738     |       |       |  | 256,914 |        
|Short-term investments                                 |                                                                                          |                        | 27,726  |         |            |  |       |            |       |  |          |       |       |  | 27,726  |        
|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                       | Total investments                                                                        |                        | $       | 304,694 |            |  | $      | 22,792     |       |  | $         | 2,738 |       |  | $       | 284,640 |        
|                                                       |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      

54



---



##### Table of Contents



|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |       |       |  |         |         |         | 
|----------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- | ---------- |  | ------ | ---------- | ----- |  | --------- | ----- | ----- |  | ------- | ------- | ------- | 
|                                                |                                                                                          | 2004                   |        
|                                                |                                                                                          |                        |        
|                                                |                                                                                          |                        |         | Gross   |            |  | Gross  |            |       | 
|                                                |                                                                                          | Carrying               |         |         | Unrealized |  |        | Unrealized |       |  | Amortized |      
|                                                |                                                                                          | Value                  |         |         | Gains      |  |        | Losses     |       |  | Cost      |      
|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|Fixed Maturities:                               |                                                                                          |                        |         |         |            |  |        |            |       |  |           |       |       |  |         |        
|                                                | U.S. Treasury securities and obligations of
    U.S. Government agencies and authorities |                        | $       | 122,670 |            |  | $      | 767        |       |  | $         | 934   |       |  | $       | 122,837 |        
|                                                | Obligations of states and political subdivisions                                         |                        |         | 1,144   |            |  |        | 72         |       |  |           |      |       |  |         | 1,072   |        
|                                                | Corporate securities                                                                     |                        |         | 77,566  |            |  |        | 3,179      |       |  |           | 1,086 |       |  |         | 75,473  |        
|                                                | Mortgage-backed securities (government guaranteed)                                       |                        |         | 3,185   |            |  |        | 92         |       |  |           |      |       |  |         | 3,093   |        
|                                                | Redeemable preferred stocks                                                              |                        |         | 24,900  |            |  |        | 942        |       |  |           | 94    |       |  |         | 24,052  |        
|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                |                                                                                          | Total fixed maturities |         |         | 229,465    |  |        |            | 5,052 |  |           |       | 2,114 |  |         |         | 226,527 | 
|Common and non-redeemable preferred stocks      |                                                                                          |                        | 38,407  |         |            |  | 23,708 |            |       |  | 42        |       |       |  | 14,741  |        
|Other invested assets                           |                                                                                          |                        | 4,569   |         |            |  |       |            |       |  | 1         |       |       |  | 4,570   |        
|Mortgage loans (estimated fair value of $3,602) |                                                                                          |                        | 2,997   |         |            |  |       |            |       |  |          |       |       |  | 2,997   |        
|Policy and student loans                        |                                                                                          |                        | 2,321   |         |            |  |       |            |       |  |          |       |       |  | 2,321   |        
|Real estate                                     |                                                                                          |                        | 38      |         |            |  |       |            |       |  |          |       |       |  | 38      |        
|Investment in unconsolidated trusts             |                                                                                          |                        | 1,238   |         |            |  |       |            |       |  |          |       |       |  | 1,238   |        
|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                |                                                                                          |                        | 279,035 |         |            |  | 28,760 |            |       |  | 2,157     |       |       |  | 252,432 |        
|Short-term investments                          |                                                                                          |                        | 23,073  |         |            |  |       |            |       |  |          |       |       |  | 23,073  |        
|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      
|                                                | Total investments                                                                        |                        | $       | 302,108 |            |  | $      | 28,760     |       |  | $         | 2,157 |       |  | $       | 275,505 |        
|                                                |                                                                                          |                        |         |         |            |  |        |            |       |  |           |      





|                                                                                         |  |                     |        |  |                     |   |       |       |  |   |            |  |  |       |       |  |            |   |         |  |  |   |       | 
|---------------------------------------------------------------------------------------- |  | ------------------- | ------ |  | ------------------- | - | ----- | ----- |  | - | ---------- |  |  | ----- | ----- |  | ---------- | - | ------- |  |  | - | ----- | 
|                                                                                         |  | 2005                |       
|                                                                                         |  |                     |       
|                                                                                         |  | Less than 12 months |        |  | 12 months or longer |   |       | Total | 
|                                                                                         |  |                     |        |  |                     |   |       |       | 
|                                                                                         |  | Fair                |        |  | Unrealized          |   |       | Fair  |  |   | Unrealized |  |  | Fair  |       |  | Unrealized |  
|                                                                                         |  | Value               |        |  | Losses              |   |       | Value |  |   | Losses     |  |  | Value |       |  | Losses     |  
|                                                                                         |  |                     |        |  |                     |   |       |       |  |   |            |  |  |       |       |  |            |  
|U.S. Treasury securities and obligations of
    U.S. Government agencies and authorities |  | $                   | 85,191 |  |                     | $ | 1,215 |       |  | $ | 36,406     |  |  | $     | 728   |  |            | $ | 121,597 |  |  | $ | 1,943 | 
|Corporate securities                                                                     |  |                     | 7,044  |  |                     |   | 185   |       |  |   | 5,102      |  |  |       | 176   |  |            |   | 12,146  |  |  |   | 361   | 
|Redeemable preferred stocks                                                              |  |                     | 4,282  |  |                     |   | 169   |       |  |   | 5,543      |  |  |       | 175   |  |            |   | 9,825   |  |  |   | 344   | 
|Common and non-redeemable preferred stocks                                               |  |                     | 2,795  |  |                     |   | 61    |       |  |   | 794        |  |  |       | 29    |  |            |   | 3,589   |  |  |   | 90    | 
|                                                                                         |  |                     |        |  |                     |   |       |       |  |   |            |  |  |       |       |  |            |  
|Total temporary impaired securities                                                      |  | $                   | 99,312 |  |                     | $ | 1,630 |       |  | $ | 47,845     |  |  | $     | 1,108 |  |            | $ | 147,157 |  |  | $ | 2,738 | 
|                                                                                         |  |                     |        |  |                     |   |       |       |  |   |            |  |  |       |       |  |            |  

55



---



##### Table of Contents



|                                                                                         |  |                     |        |  |                     |   |     |       |  |   |            |  |  |       |       |  |            |   |         |  |  |   |       | 
|---------------------------------------------------------------------------------------- |  | ------------------- | ------ |  | ------------------- | - | --- | ----- |  | - | ---------- |  |  | ----- | ----- |  | ---------- | - | ------- |  |  | - | ----- | 
|                                                                                         |  | 2004                |       
|                                                                                         |  |                     |       
|                                                                                         |  | Less than 12 months |        |  | 12 months or longer |   |     | Total | 
|                                                                                         |  |                     |        |  |                     |   |     |       | 
|                                                                                         |  | Fair                |        |  | Unrealized          |   |     | Fair  |  |   | Unrealized |  |  | Fair  |       |  | Unrealized |  
|                                                                                         |  | Value               |        |  | Losses              |   |     | Value |  |   | Losses     |  |  | Value |       |  | Losses     |  
|                                                                                         |  |                     |        |  |                     |   |     |       |  |   |            |  |  |       |       |  |            |  
|U.S. Treasury securities and obligations of
    U.S. Government agencies and authorities |  | $                   | 31,218 |  |                     | $ | 103 |       |  | $ | 37,964     |  |  | $     | 831   |  |            | $ | 69,182  |  |  | $ | 934   | 
|Corporate securities                                                                     |  |                     | 20,137 |  |                     |   | 474 |       |  |   | 6,725      |  |  |       | 612   |  |            |   | 26,862  |  |  |   | 1,086 | 
|Redeemable preferred stocks                                                              |  |                     | 4,528  |  |                     |   | 71  |       |  |   | 1,104      |  |  |       | 23    |  |            |   | 5,632   |  |  |   | 94    | 
|Common and non-redeemable preferred stocks                                               |  |                     | 780    |  |                     |   | 42  |       |  |   |           |  |  |       |      |  |            |   | 780     |  |  |   | 42    | 
|Other invested assets                                                                    |  |                     | 4,569  |  |                     |   | 1   |       |  |   |           |  |  |       |      |  |            |   | 4,569   |  |  |   | 1     | 
|                                                                                         |  |                     |        |  |                     |   |     |       |  |   |            |  |  |       |       |  |            |  
|Total temporary impaired securities                                                      |  | $                   | 61,232 |  |                     | $ | 691 |       |  | $ | 45,793     |  |  | $     | 1,466 |  |            | $ | 107,025 |  |  | $ | 2,157 | 
|                                                                                         |  |                     |        |  |                     |   |     |       |  |   |            |  |  |       |       |  |            |  







|                               |  |      |       |  |      |   |     |      |  |   |     | 
|------------------------------ |  | ---- | ----- |  | ---- | - | --- | ---- |  | - | --- | 
|                               |  | 2005 |       |  | 2004 |   |     | 2003 | 
|                               |  |      |       |  |      |   |     |      | 
|Corporate bonds(1)             |  | $    | 9,492 |  |      | $ |    |      |  | $ |    | 
|Redeemable preferred stocks(1) |  | $    | 1,274 |  |      | $ | 281 |      |  | $ |    | 
|Common stocks                  |  | $    |      |  |      | $ | 179 |      |  | $ | 995 | 
|Other invested assets          |  | $    |      |  |      | $ |    |      |  | $ | 159 | 



|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes automotive sector impairments of $10.7 million in
    2005, primarily from holdings in General Motors and related
    entities.



56



---



##### Table of Contents





|                                       |        |          |         |         |           |   |         |         | 
|-------------------------------------- | ------ | -------- | ------- | ------- | --------- | - | ------- | ------- | 
|                                       |        | Carrying |         |         | Amortized |  
|                                       |        | Value    |         |         | Cost      |  
|                                       |        |          |         |         |           |  
|Due in one year or less                |        | $        | 42,266  |         |           | $ | 42,390  |        
|Due after one year through five years  |        |          | 26,772  |         |           |   | 26,554  |        
|Due after five years through ten years |        |          | 36,600  |         |           |   | 36,485  |        
|Due after ten years                    |        |          | 151,536 |         |           |   | 152,407 |        
|Varying maturities                     |        |          | 2,459   |         |           |   | 2,454   |        
|                                       |        |          |         |         |           |  
|                                       | Totals |          | $       | 259,633 |           |   | $       | 260,290 | 
|                                       |        |          |         |         |           |  



|                                           |                          |                       |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------ | ------------------------ | --------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                           |                          | 2005                  |        |        | 2004   |   |        | 2003   |       
|                                           |                          |                       |        |        |        |   |        |        |       
|Fixed maturities                           |                          | $                     | 13,026 |        |        | $ | 13,403 |        |        | $ | 13,726 |       
|Common and non-redeemable preferred stocks |                          |                       | 2,056  |        |        |   | 1,438  |        |        |   | 1,137  |       
|Mortgage loans                             |                          |                       | 250    |        |        |   | 285    |        |        |   | 299    |       
|Short-term investments                     |                          |                       | 920    |        |        |   | 329    |        |        |   | 239    |       
|Other                                      |                          |                       | 433    |        |        |   | 405    |        |        |   | 227    |       
|                                           |                          |                       |        |        |        |   |        |        |       
|                                           | Total investment income  |                       |        | 16,685 |        |   |        | 15,860 |        |   |        | 15,628 |       
|                                           | Less investment expenses |                       |        | (225   | )      |   |        | (220   | )      |   |        | (269   | )     
|                                           |                          |                       |        |        |        |   |        |        |       
|                                           |                          | Net investment income |        | $      | 16,460 |   |        | $      | 15,640 |   |        | $      | 15,359 | 
|                                           |                          |                       |        |        |        |   |        |        |       



|                                             |  |        |       |       |            |   |                |        |  |       |   |  |  |   |         |  
|-------------------------------------------- |  | ------ | ----- | ----- | ---------- | - | -------------- | ------ |  | ----- | - |  |  | - | ------- | -
|                                             |  | 2005   |      
|                                             |  |        |      
|                                             |  |        |       | Fixed |            |   | Other Invested |        | 
|                                             |  | Stocks |       |       | Maturities |   |                | Assets |  | Total |  
|                                             |  |        |       |       |            |   |                |        |  |       |  
|Gains                                        |  | $      | 1,517 |       |            | $ | 132            |        |  | $     |  |  |  | $ | 1,649   |  
|Losses                                       |  |        | (679  | )     |            |   | (11,426        | )      |  |       |  |  |  |   | (12,105 | )
|                                             |  |        |       |       |            |   |                |        |  |       |   | 
|Total realized investment gains (losses) net |  | $      | 838   |       |            | $ | (11,294        | )      |  | $     |  |  |  | $ | (10,456 | )
|                                             |  |        |       |       |            |   |                |        |  |       |   | 

|                                             |  |        |       |       |            |   |                |        |  |       |   |  |  |   |       |  
|-------------------------------------------- |  | ------ | ----- | ----- | ---------- | - | -------------- | ------ |  | ----- | - |  |  | - | ----- | -
|                                             |  | 2004   |      
|                                             |  |        |      
|                                             |  |        |       | Fixed |            |   | Other Invested |        | 
|                                             |  | Stocks |       |       | Maturities |   |                | Assets |  | Total |  
|                                             |  |        |       |       |            |   |                |        |  |       |  
|Gains                                        |  | $      | 1,432 |       |            | $ | 1,699          |        |  | $     |  |  |  | $ | 3,131 |  
|Losses                                       |  |        | (205  | )     |            |   | (727           | )      |  |       |  |  |  |   | (932  | )
|                                             |  |        |       |       |            |   |                |        |  |       |   | 
|Total realized investment gains (losses) net |  | $      | 1,227 |       |            | $ | 972            |        |  | $     |  |  |  | $ | 2,199 |  
|                                             |  |        |       |       |            |   |                |        |  |       |   | 

|                                             |  |        |      |       |            |   |                |        |  |   |       |   |  |   |        |  
|-------------------------------------------- |  | ------ | ---- | ----- | ---------- | - | -------------- | ------ |  | - | ----- | - |  | - | ------ | -
|                                             |  | 2003   |     
|                                             |  |        |     
|                                             |  |        |      | Fixed |            |   | Other Invested |        |  |  
|                                             |  | Stocks |      |       | Maturities |   |                | Assets |  |   | Total |  
|                                             |  |        |      |       |            |   |                |        |  |   |       |  
|Gains                                        |  | $      | 297  |       |            | $ | 1,257          |        |  | $ | 100   |   |  | $ | 1,654  |  
|Losses                                       |  |        | (995 | )     |            |   | (123           | )      |  |   | (176  | ) |  |   | (1,294 | )
|                                             |  |        |      |       |            |   |                |        |  |   |       |  
|Total realized investment gains (losses) net |  | $      | (698 | )     |            | $ | 1,134          |        |  | $ | (76   | ) |  | $ | 360    |  
|                                             |  |        |      |       |            |   |                |        |  |   |       |  

57



---



##### Table of Contents





|                                           |                |      |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------------ | -------------- | ---- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                           |                | 2005 |        |        | 2004 |   |        | 2003   | 
|                                           |                |      |        |        |      |   |        |        | 
|Common and non-redeemable preferred stocks |                | $    | 19,942 |        |      | $ | 14,216 |        |  | $ | 1,572  |       
|Fixed maturities                           |                |      | 23,314 |        |      |   | 31,305 |        |  |   | 18,344 |       
|Student loans                              |                |      | 245    |        |      |   | 55     |        |  |   | 34     |       
|Other investments                          |                |      | 1,105  |        |      |   | 348    |        |  |   | 964    |       
|                                           |                |      |        |        |      |   |        |        | 
|                                           | Total proceeds |      | $      | 44,606 |      |   | $      | 45,924 |  |   | $      | 20,914 | 
|                                           |                |      |        |        |      |   |        |        | 









|        |                                          
|------- | -----------------------------------------
|Note 3. | Insurance Reserves and Policyholder Funds



|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |   |         |   |         |   |         | 
|------------------------ | ----------------------------------------------- | -------------------- | ------- | ------- | ------ | ------------------- | ------- | ------- | ------ | - | ------- | - | ------- | - | ------- | - | ------- | 
|                         |                                                 |                      |         |         |        | Amount of Insurance |        
|                         |                                                 |                      |         |         |        | In Force            |        
|                         |                                                 |                      |         |         |        |                     |        
|                         |                                                 | 2005                 |         |         | 2004   |                     |         | 2005    |        |   | 2004    |  
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  
|Future policy benefits   |                                                 |                      |         |         |        |                     |         |         |        |   |         |   |         |   |         |  
|                         | Life insurance policies:                        |                      |         |         |        |                     |         |         |        |   |         |   |         |   |         |   |        
|                         |                                                 | Ordinary             |         | $       | 41,934 |                     |         | $       | 40,610 |   |         | $ | 235,476 |   |         | $ | 250,802 | 
|                         |                                                 | Mass market          |         |         | 5,281  |                     |         |         | 5,541  |   |         |   | 8,495   |   |         |   | 9,424   | 
|                         |                                                 | Individual annuities |         |         | 639    |                     |         |         | 756    |   |         |   |        |   |         |   |        | 
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  
|                         |                                                 |                      | 47,854  |         |        |                     | 46,907  |         |        | $ | 243,971 |   |         | $ | 260,226 |  
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  
|                         | Accident and health insurance policies          |                      |         | 3,502   |        |                     |         | 2,979   |        |   |         |   |         |   |         |   |        
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  
|                         |                                                 |                      | 51,356  |         |        |                     | 49,886  |         |        |   |         |   |         |   |         |  
|Unearned premiums        |                                                 |                      | 60,879  |         |        |                     | 70,264  |         |        |   |         |   |         |   |         |  
|Losses and claims        |                                                 |                      | 168,617 |         |        |                     | 167,133 |         |        |   |         |   |         |   |         |  
|Other policy liabilities |                                                 |                      | 5,499   |         |        |                     | 5,004   |         |        |   |         |   |         |   |         |  
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  
|                         | Total insurance reserves and policyholder funds |                      | $       | 286,351 |        |                     | $       | 292,287 |        |   |         |   |         |   |         |   |        
|                         |                                                 |                      |         |         |        |                     |         |         |        |   |         |  



58



---



##### Table of Contents





|                                     |                          |                   |       |     |       | 
|------------------------------------ | ------------------------ | ----------------- | ----- | --- | ----- | 
|Cash                                 |                          | $                 | 1,448 |    
|                                     |                          |                   |      
|Insurance reserves and policy funds: |                          |                   |       |    
|                                     | Unearned premiums        |                   | $     | 429 |      
|                                     | Losses and claims        |                   |       | 930 |      
|                                     | Other policy liabilities |                   |       | 89  |      
|                                     |                          |                   |      
|                                     |                          | Total liabilities |       | $   | 1,448 | 
|                                     |                          |                   |      



| |                       
| | ----------------------
| | Future Policy Benefits





| |                        
| | -----------------------
| | Loss and Claim Reserves





|                               |                          |                |         |         |         |   |         |         |         |   |         |         |        | 
|------------------------------ | ------------------------ | -------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                               |                          | 2005           |         |         | 2004    |   |         | 2003    |        
|                               |                          |                |         |         |         |   |         |         |        
|Balance at January 1           |                          | $              | 167,133 |         |         | $ | 150,092 |         |         | $ | 148,691 |        
|Less: Reinsurance recoverables |                          |                | (57,429 | )       |         |   | (41,752 | )       |         |   | (39,380 | )      
|                               |                          |                |         |         |         |   |         |         |        
|                               | Net balance at January 1 |                |         | 109,704 |         |   |         | 108,340 |         |   |         | 109,311 |       
|                               |                          |                |         |         |         |   |         |         |        
|Incurred related to:           |                          |                |         |         |         |   |         |         |         |   |         |        
|                               | Current year             |                |         | 119,455 |         |   |         | 111,220 |         |   |         | 98,536  |       
|                               | Prior years              |                |         | (6,708  | )       |   |         | (1,899  | )       |   |         | 139     |       
|                               |                          |                |         |         |         |   |         |         |        
|                               |                          | Total incurred |         |         | 112,747 |   |         |         | 109,321 |   |         |         | 98,675 | 
|                               |                          |                |         |         |         |   |         |         |        
|Paid related to:               |                          |                |         |         |         |   |         |         |         |   |         |        
|                               | Current year             |                |         | 68,792  |         |   |         | 67,020  |         |   |         | 56,229  |       
|                               | Prior years              |                |         | 38,309  |         |   |         | 41,867  |         |   |         | 43,417  |       
|                               |                          |                |         |         |         |   |         |         |        
|                               |                          | Total paid     |         |         | 107,101 |   |         |         | 108,887 |   |         |         | 99,646 | 
|                               |                          |                |         |         |         |   |         |         |        
|Acquired reserves              |                          |                | (85     | )       |         |   | 930     |         |         |   |        |        
|                               |                          |                |         |         |         |   |         |         |        
|Net balance at December 31     |                          |                | 115,265 |         |         |   | 109,704 |         |         |   | 108,340 |        
|Plus: Reinsurance recoverables |                          |                | 53,352  |         |         |   | 57,429  |         |         |   | 41,752  |        
|                               |                          |                |         |         |         |   |         |         |        
|Balance at December 31         |                          | $              | 168,617 |         |         | $ | 167,133 |         |         | $ | 150,092 |        
|                               |                          |                |         |         |         |   |         |         |        

59



---



##### Table of Contents







|                                            |                                              |      |         |         |      |   |         |         |  |   |        |         | 
|------------------------------------------- | -------------------------------------------- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------ | ------- | 
|                                            |                                              | 2005 |         |         | 2004 |   |         | 2003    | 
|                                            |                                              |      |         |         |      |   |         |         | 
|Total incurred claims                       |                                              | $    | 112,747 |         |      | $ | 109,321 |         |  | $ | 98,675 |        
|State residual pool adjustments             |                                              |      | (17     | )       |      |   | (66     | )       |  |   | (75    | )      
|Cash surrender value and matured endowments |                                              |      | 1,663   |         |      |   | 1,318   |         |  |   | 1,489  |        
|Benefit reserve changes                     |                                              |      | 1,283   |         |      |   | 2,504   |         |  |   | 2,254  |        
|                                            |                                              |      |         |         |      |   |         |         | 
|                                            | Total insurance benefits and losses incurred |      | $       | 115,676 |      |   | $       | 113,077 |  |   | $      | 102,343 | 
|                                            |                                              |      |         |         |      |   |         |         | 



|        |            
|------- | -----------
|Note 4. | Reinsurance





|                                           |                                 |      |         |         |      |   |         |         |   |   |         |         |  
|------------------------------------------ | ------------------------------- | ---- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                           |                                 | 2005 |         |         | 2004 |   |         | 2003    |  
|                                           |                                 |      |         |         |      |   |         |         |  
|Direct premiums written                    |                                 | $    | 191,118 |         |      | $ | 203,536 |         |   | $ | 178,320 |        
|Plus  premiums assumed                    |                                 |      | 10,187  |         |      |   | 9,860   |         |   |   | 7,843   |        
|Less  premiums ceded                      |                                 |      | (34,919 | )       |      |   | (31,523 | )       |   |   | (25,562 | )      
|                                           |                                 |      |         |         |      |   |         |         |  
|Net premiums written                       |                                 |      | 166,386 |         |      |   | 181,873 |         |   |   | 160,601 |        
|                                           |                                 |      |         |         |      |   |         |         |  
|Change in unearned premiums                |                                 |      | 9,385   |         |      |   | (8,685  | )       |   |   | (5,250  | )      
|Change in unearned premiums ceded          |                                 |      | 1,822   |         |      |   | (2,328  | )       |   |   | (639    | )      
|                                           |                                 |      |         |         |      |   |         |         |  
|                                           | Net change in unearned premiums |      |         | 11,207  |      |   |         | (11,013 | ) |   |         | (5,889  | )
|                                           |                                 |      |         |         |      |   |         |         |  
|                                           | Net premiums earned             |      | $       | 177,593 |      |   | $       | 170,860 |   |   | $       | 154,712 |  
|                                           |                                 |      |         |         |      |   |         |         |  
|Provision for benefits and losses incurred |                                 | $    | 135,821 |         |      | $ | 152,535 |         |   | $ | 121,639 |        
|Reinsurance loss recoveries                |                                 |      | (20,145 | )       |      |   | (39,458 | )       |   |   | (19,296 | )      
|                                           |                                 |      |         |         |      |   |         |         |  
|Insurance benefits and losses incurred     |                                 | $    | 115,676 |         |      | $ | 113,077 |         |   | $ | 102,343 |        
|                                           |                                 |      |         |         |      |   |         |         |  

60



---



##### Table of Contents





|                            |  |      |        |  |      |   |        | 
|--------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                            |  | 2005 |        |  | 2004 |  
|                            |  |      |        |  |      |  
|Receivable on unpaid losses |  | $    | 53,352 |  |      | $ | 57,429 | 
|Receivable on paid losses   |  |      | 4,054  |  |      |   | 5,425  | 
|                            |  |      |        |  |      |  
|                            |  | $    | 57,406 |  |      | $ | 62,854 | 
|                            |  |      |        |  |      |  

Note 5.     Income Taxes




|                                                                                                                   |                                |      |        |        |      |   |        |      |   |   |        |      |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ---- | ------ | ------ | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                                                                                                                   |                                | 2005 |        |        | 2004 |   |        | 2003 |  
|                                                                                                                   |                                |      |        |        |      |   |        |      |  
|Federal income tax provision at statutory rate of 35%                                                              |                                | $    | (2,613 | )      |      | $ | 1,512  |      |   | $ | 2,284  |     
|Tax exempt interest and dividends received deductions                                                              |                                |      | (701   | )      |      |   | (581   | )    |   |   | (598   | )   
|Small life deduction                                                                                               |                                |      | (534   | )      |      |   | (542   | )    |   |   |       |     
|Other permanent differences                                                                                        |                                |      | 49     |        |      |   | 470    |      |   |   | 238    |     
|Change in asset valuation allowance due to change in judgment
    relating to realizability of deferred tax assets |                                |      | (125   | )      |      |   | (1,291 | )    |   |   | (1,478 | )   
|Adjustment for prior years estimates to actual                                                                    |                                |      | (373   | )      |      |   | (267   | )    |   |   | (767   | )   
|State income taxes                                                                                                 |                                |      | 7      |        |      |   | 3      |      |   |   | 2      |     
|                                                                                                                   |                                |      |        |        |      |   |        |      |  
|                                                                                                                   | Total benefit for income taxes |      | $      | (4,290 | )    |   | $      | (696 | ) |   | $      | (319 | )
|                                                                                                                   |                                |      |        |        |      |   |        |      |  



|                          |                                  |                                |       |        |         |   |        |        |         |  
|------------------------- | -------------------------------- | ------------------------------ | ----- | ------ | ------- | - | ------ | ------ | ------- | -
|                          |                                  | 2005                           |       |        | 2004    |  
|                          |                                  |                                |       |        |         |  
|Deferred tax liabilities: |                                  |                                |       |        |         |   |        |       
|                          | Deferred acquisition costs       |                                | $     | (5,413 | )       |   | $      | (6,476 | )      
|                          | Net unrealized investment gains  |                                |       | (7,019 | )       |   |        | (9,311 | )      
|                          | Deferred and uncollected premium |                                |       | (698   | )       |   |        | (766   | )      
|                          | Other                            |                                |       | (86    | )       |   |        | (113   | )      
|                          |                                  |                                |       |        |         |  
|                          |                                  | Total deferred tax liabilities |       |        | (13,216 | ) |        |        | (16,666 | )
|                          |                                  |                                |       |        |         |  
|Deferred tax assets:      |                                  |                                |       |        |         |   |        |       
|                          | Net operating loss carryforwards |                                |       | 5,002  |         |   |        | 5,604  |        
|                          | Insurance reserves               |                                |       | 9,681  |         |   |        | 10,275 |        
|                          | Impaired assets                  |                                |       | 4,277  |         |   |        | 509    |        
|                          | Alternative minimum tax credit   |                                |       | 1,046  |         |   |        | 810    |        
|                          | Bad debts and other              |                                |       | 1,239  |         |   |        | 999    |        
|                          |                                  |                                |       |        |         |  
|                          |                                  | Total deferred tax assets      |       |        | 21,245  |   |        |        | 18,197  |  
|                          |                                  |                                |       |        |         |  
|Asset valuation allowance |                                  |                                | (930  | )      |         |   | (1,055 | )     
|                          |                                  |                                |       |        |         |  
|Net deferred tax asset    |                                  | $                              | 7,099 |        |         | $ | 476    |       
|                          |                                  |                                |       |        |         |  

61



---



##### Table of Contents





|                   |       |      |        |        |      |   |      |      |   |   |        |      |  
|------------------ | ----- | ---- | ------ | ------ | ---- | - | ---- | ---- | - | - | ------ | ---- | -
|                   |       | 2005 |        |        | 2004 |   |      | 2003 |  
|                   |       |      |        |        |      |   |      |      |  
|Current  Federal  |       | $    | (22    | )      |      | $ | 135  |      |   | $ | 842    |     
|Current  State    |       |      | 7      |        |      |   | 3    |      |   |   | 2      |     
|Deferred  Federal |       |      | (4,275 | )      |      |   | (834 | )    |   |   | (1,163 | )   
|                   |       |      |        |        |      |   |      |      |  
|                   | Total |      | $      | (4,290 | )    |   | $    | (696 | ) |   | $      | (319 | )
|                   |       |      |        |        |      |   |      |      |  





|        |                    
|------- | -------------------
|Note 6. | Credit Arrangements



| |          
| | ---------
| | Bank Debt



62



---



##### Table of Contents





| |                               
| | ------------------------------
| | Junior Subordinated Debentures





|                                     |  |                               |  |                              
|------------------------------------ |  | ----------------------------- |  | -----------------------------
|                                     |  | Atlantic American             |  | Atlantic American            
|                                     |  | Statutory Trust I             |  | Statutory Trust II           
|                                     |  |                               |  |                              
|JUNIOR SUBORDINATED DEBENTURES(1)(2) |  |                               |  |                              
|Principal amount owed                |  | $18,042                       |  | $23,196                      
|Balance December 31, 2005            |  | 18,042                        |  | 23,196                       
|Balance December 31, 2004            |  | 18,042                        |  | 23,196                       
|Coupon rate                          |  | LIBOR + 4.00%                 |  | LIBOR + 4.10%                
|Interest payable                     |  | Quarterly                     |  | Quarterly                    
|Maturity date                        |  | December 4, 2032              |  | May 15, 2033                 
|Redeemable by issuer on or after     |  | December 4, 2007              |  | May 15, 2008                 
|TRUST PREFERRED SECURITIES           |  |                               |  |                              
|Issuance date                        |  | December 4, 2002              |  | May 15, 2003                 
|Securities issued                    |  | 17,500                        |  | 22,500                       
|Liquidation preference per security  |  | $1                            |  | $1                           
|Liquidation value                    |  | 17,500                        |  | 22,500                       
|Coupon rate                          |  | LIBOR + 4.00%                 |  | LIBOR + 4.10%                
|Distribution payable                 |  | Quarterly                     |  | Quarterly                    
|Distribution guaranteed by(3)        |  | Atlantic American Corporation |  | Atlantic American Corporation



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For each of the respective debentures, the Company has the right
    at any time, and from time to time, to defer payments of
    interest on the Junior Subordinated Debentures for a period not
    exceeding 20 consecutive quarters up to the debentures
    respective maturity dates. During any such period, interest will
    continue to accrue and the Company may not declare or pay any
    cash dividends or distributions on, or purchase, the
    Companys common stock nor make any principal, interest or
    premium payments on or repurchase any debt securities that rank
    equally with or junior to the Junior Subordinated Debentures.
    The Company has the right at any time to dissolve each of the
    trusts and cause the Junior Subordinated Debentures to be
    distributed to the holders of the Trust Preferred Securities.
|   
|(2) | The Junior Subordinated Debentures are unsecured and rank junior
    and subordinate in right of payment to all senior debt of the
    Parent and are effectively subordinated to all existing and
    future liabilities of its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | The Parent has guaranteed, on a subordinated basis, all of the
    obligations under the Trust Preferred Securities, including
    payment of the redemption price and any accumulated and unpaid
    distributions to the extent of available funds and upon
    dissolution, winding up or liquidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|        |                                 
|------- | --------------------------------
|Note 7. | Derivative Financial Instruments



63



---



##### Table of Contents







|        |                              
|------- | -----------------------------
|Note 8. | Commitments and Contingencies



| |           
| | ----------
| | Litigation





| |                            
| | ---------------------------
| | Operating Lease Commitments



|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|Year Ending December 31, |       |  
|2006                     |       | $ | 983   |      
|2007                     |       |   | 1,095 |      
|2008                     |       |   | 1,083 |      
|2009                     |       |   | 1,089 |      
|2010                     |       |   | 736   |      
|Thereafter               |       |   | 554   |      
|                         |       |   |      
|                         | Total |   | $     | 5,540 | 
|                         |       |   |      



|        |                       
|------- | ----------------------
|Note 9. | Employee Benefit Plans



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



64



---



##### Table of Contents





|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                |  |           |   |  |   |      | 
|-------------------------------------- |  | ------ | --------- | -------- | -------------- | - | ---- | ------ | -------- |  | -------------- | - |  | -------- | ---- |  | -------------- |  | --------- | - |  | - | ---- | 
|                                       |  | 2005   |           |          | 2004           |   |      | 2003   |         
|                                       |  |        |           |          |                |   |      |        |         
|                                       |  |        |           | Weighted |                |   |      |        | Weighted |  |                |   |  | Weighted |     
|                                       |  |        |           | Average  |                |   |      |        | Average  |  |                |   |  | Average  |     
|                                       |  | Shares |           |          | Exercise Price |   |      | Shares |          |  | Exercise Price |   |  | Shares   |      |  | Exercise Price | 
|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                | 
|Options outstanding, beginning of year |  |        | 677,500   |          |                | $ | 1.47 |        |          |  | 910,500        |   |  | $        | 1.74 |  |                |  | 1,008,000 |   |  | $ | 2.31 | 
|Options granted                        |  |        |          |          |                |   |     |        |          |  |               |   |  |          |     |  |                |  | 227,000   |   |  |   | 1.59 | 
|Options exercised                      |  |        | (21,000   | )        |                |   | 1.73 |        |          |  | (117,250       | ) |  |          | 1.31 |  |                |  | (20,000   | ) |  |   | 1.25 | 
|Options canceled or expired            |  |        | (7,000    | )        |                |   | 3.54 |        |          |  | (115,750       | ) |  |          | 3.80 |  |                |  | (304,500  | ) |  |   | 3.54 | 
|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                | 
|Options outstanding, end of year       |  |        | 649,500   |          |                |   | 1.44 |        |          |  | 677,500        |   |  |          | 1.47 |  |                |  | 910,500   |   |  |   | 1.74 | 
|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                | 
|Options exercisable                    |  |        | 649,500   |          |                |   | 1.44 |        |          |  | 626,125        |   |  |          | 1.46 |  |                |  | 784,500   |   |  |   | 1.76 | 
|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                | 
|Options available for future grant     |  |        | 2,504,914 |          |                |   |      |        |          |  | 2,514,837      |   |  |          |      |  |                |  | 2,452,150 |   |  |   |      | 
|                                       |  |        |           |          |                |   |      |        |          |  |                |   |  |          |      |  |                | 



|                        |  |           |         |                             |                |  |      |                  |  |   |      | 
|----------------------- |  | --------- | ------- | --------------------------- | -------------- |  | ---- | ---------------- |  | - | ---- | 
|                        |  |           |         | Outstanding and Exercisable |               
|                        |  |           |         |                             |               
|                        |  |           |         | Weighted Average            |                |  |     
|                        |  | Number of |         |                             | Remaining Life |  |      | Weighted Average | 
|Range of Exercise Price |  | Options   |         |                             | (Years)        |  |      | Exercise Price   | 
|                        |  |           |         |                             |                |  |      |                  | 
|$1.00 to $1.50          |  |           | 387,500 |                             |                |  | 5.79 |                  |  | $ | 1.25 | 
|$1.51 to $2.00          |  |           | 254,000 |                             |                |  | 6.98 |                  |  | $ | 1.68 | 
|$2.51 to $3.00          |  |           | 8,000   |                             |                |  | 1.35 |                  |  | $ | 2.68 | 
|                        |  |           |         |                             |                |  |      |                  | 
|                        |  |           | 649,500 |                             |                |  |      |                  |  |   |      | 
|                        |  |           |         |                             |                |  |      |                  | 





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





| |                              
| | -----------------------------
| | Defined Benefit Pension Plans



65



---



##### Table of Contents



Obligation and Funded Status


|                             |                                                             |      |   |        |      |  |   |        |  
|---------------------------- | ----------------------------------------------------------- | ---- | - | ------ | ---- |  | - | ------ | -
|                             |                                                             | 2005 |   |        | 2004 | 
|                             |                                                             |      |   |        |      | 
|Change in Benefit Obligation |                                                             |      |   |        |      |  |   |       
|                             | Net benefit obligation at beginning of year                 |      | $ | 5,166  |      |  | $ | 4,801  |  
|                             | Service cost                                                |      |   | 177    |      |  |   | 170    |  
|                             | Interest cost                                               |      |   | 298    |      |  |   | 278    |  
|                             | Actuarial loss                                              |      |   | 236    |      |  |   | 98     |  
|                             | Gross benefits paid                                         |      |   | (164   | )    |  |   | (181   | )
|                             |                                                             |      |   |        |      | 
|                             | Net benefit obligation at end of year                       |      |   | 5,713  |      |  |   | 5,166  |  
|                             |                                                             |      |   |        |      | 
|Change in Plan Assets        |                                                             |      |   |        |      |  |   |       
|                             | Fair value of plan assets at beginning of year              |      |   | 2,689  |      |  |   | 2,458  |  
|                             | Employer contributions                                      |      |   | 203    |      |  |   | 318    |  
|                             | Actual return on plan assets                                |      |   | 71     |      |  |   | 94     |  
|                             | Gross benefits paid                                         |      |   | (164   | )    |  |   | (181   | )
|                             |                                                             |      |   |        |      | 
|                             | Fair value of plan assets at end of year                    |      |   | 2,799  |      |  |   | 2,689  |  
|                             |                                                             |      |   |        |      | 
|Funded Status of Plan        |                                                             |      |   |        |      |  |   |       
|                             | Funded status at end of year                                |      |   | (2,914 | )    |  |   | (2,477 | )
|                             | Unrecognized net actuarial loss                             |      |   | 1,840  |      |  |   | 1,624  |  
|                             | Unrecognized prior service cost                             |      |   | (6     | )    |  |   | (6     | )
|                             | Unrecognized net transition obligation                      |      |   |       |      |  |   |       |  
|                             | Additional minimum liability                                |      |   | (700   | )    |  |   | (540   | )
|                             |                                                             |      |   |        |      | 
|                             | Net amount recognized in accrued liabilities at end of year |      | $ | (1,780 | )    |  | $ | (1,399 | )
|                             |                                                             |      |   |        |      | 





|                                                            |  |      |       |  |      |  |       | 
|----------------------------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                                            |  | 2005 |       |  | 2004 | 
|                                                            |  |      |       |  |      | 
|Discount rate to determine the projected benefit obligation |  |      | 5.50% |  |      |  | 5.75% | 
|Projected annual salary increases                           |  |      | 4.50% |  |      |  | 4.50% | 



Components of Net Periodic Benefit Cost




|                               |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------ |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                               |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                               |  |      |      |   |      |   |      |      | 
|Service cost                   |  | $    | 177  |   |      | $ | 170  |      |  | $ | 144  |  
|Interest cost                  |  |      | 298  |   |      |   | 278  |      |  |   | 266  |  
|Expected return on plan assets |  |      | (185 | ) |      |   | (169 | )    |  |   | (137 | )
|Net amortization               |  |      | 142  |   |      |   | 81   |      |  |   | 88   |  
|                               |  |      |      |   |      |   |      |      | 
|                               |  | $    | 432  |   |      | $ | 360  |      |  | $ | 361  |  
|                               |  |      |      |   |      |   |      |      | 

66



---



##### Table of Contents





|                                                                                                 |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------------------------------------------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                                 |  | 2005 |      |   | 2004 |  |      | 2003 | 
|                                                                                                 |  |      |      |   |      |  |      |      | 
|Discount rate to determine the net periodic benefit cost                                         |  |      | 5.75 | % |      |  | 6.00 | %    |  |  | 6.50 | %
|Expected long-term rate of return on plan assets used to
    determine net periodic pension cost |  |      | 7.00 | % |      |  | 7.00 | %    |  |  | 7.00 | %
|Projected annual salary increases                                                                |  |      | 4.50 | % |      |  | 4.50 | %    |  |  | 4.50 | %





Expected Cash Flows




Estimated Future Benefit Payments




|                 |  |   |       | 
|---------------- |  | - | ----- | 
|Pension Benefits |  |  
|                 |  |  
|2006             |  | $ | 123   | 
|2007             |  | $ | 171   | 
|2008             |  | $ | 175   | 
|2009             |  | $ | 175   | 
|2010             |  | $ | 257   | 
|2011  2015      |  | $ | 1,799 | 



|         |                
|-------- | ---------------
|Note 10. | Preferred Stock



67



---



##### Table of Contents





|         |                          
|-------- | -------------------------
|Note 11. | Earnings Per Common Share



|                                          |                                            |                    |        |           |        |  |        |        |  |  |   |      |  
|----------------------------------------- | ------------------------------------------ | ------------------ | ------ | --------- | ------ |  | ------ | ------ |  |  | - | ---- | -
|                                          |                                            | For the Year Ended |       
|                                          |                                            | December 31, 2005  |       
|                                          |                                            |                    |       
|                                          |                                            |                    |        | Per Share |       
|                                          |                                            | Income             |        |           | Shares |  |        | Amount | 
|                                          |                                            |                    |        |           |        |  |        |        | 
|Basic and Diluted Loss Per Common Share   |                                            |                    |        |           |        |  |        |        |  |  |   |     
|Net loss before preferred stock dividends |                                            | $                  | (3,175 | )         |        |  | 21,305 |        |  |  |   |     
|Less preferred dividends                  |                                            |                    | (1,206 | )         |        |  |       |        |  |  |   |     
|                                          |                                            |                    |        |           |        |  |        |        | 
|                                          | Net loss applicable to common shareholders |                    | $      | (4,381    | )      |  |        | 21,305 |  |  | $ | (.21 | )
|                                          |                                            |                    |        |           |        |  |        |        | 

|                                            |                                              |                    |        |           |        |  |        |        |  |  |   |     | 
|------------------------------------------- | -------------------------------------------- | ------------------ | ------ | --------- | ------ |  | ------ | ------ |  |  | - | --- | 
|                                            |                                              | For the Year Ended |       
|                                            |                                              | December 31, 2004  |       
|                                            |                                              |                    |       
|                                            |                                              |                    |        | Per Share |       
|                                            |                                              | Income             |        |           | Shares |  |        | Amount | 
|                                            |                                              |                    |        |           |        |  |        |        | 
|Basic Earnings Per Common Share             |                                              |                    |        |           |        |  |        |        |  |  |   |    
|Net income before preferred stock dividends |                                              | $                  | 5,017  |           |        |  | 21,216 |        |  |  |   |    
|Less preferred dividends                    |                                              |                    | (1,216 | )         |        |  |       |        |  |  |   |    
|                                            |                                              |                    |        |           |        |  |        |        | 
|                                            | Net income applicable to common shareholders |                    |        | 3,801     |        |  |        | 21,216 |  |  | $ | .18 | 
|                                            |                                              |                    |        |           |        |  |        |        | 
|Diluted Earnings Per Common Share           |                                              |                    |        |           |        |  |        |        |  |  |   |    
|Effect of dilutive stock options            |                                              |                    |       |           |        |  | 468    |        |  |  |   |    
|                                            |                                              |                    |        |           |        |  |        |        | 
|                                            | Net income applicable to common shareholders |                    | $      | 3,801     |        |  |        | 21,684 |  |  | $ | .18 | 
|                                            |                                              |                    |        |           |        |  |        |        | 

|                                            |                                              |                    |        |           |        |  |        |        |  |  |   |     | 
|------------------------------------------- | -------------------------------------------- | ------------------ | ------ | --------- | ------ |  | ------ | ------ |  |  | - | --- | 
|                                            |                                              | For the Year Ended |       
|                                            |                                              | December 31, 2003  |       
|                                            |                                              |                    |       
|                                            |                                              |                    |        | Per Share |       
|                                            |                                              | Income             |        |           | Shares |  |        | Amount | 
|                                            |                                              |                    |        |           |        |  |        |        | 
|Basic Earnings Per Common Share             |                                              |                    |        |           |        |  |        |        |  |  |   |    
|Net income before preferred stock dividends |                                              | $                  | 6,844  |           |        |  | 21,200 |        |  |  |   |    
|Less preferred dividends                    |                                              |                    | (1,349 | )         |        |  |       |        |  |  |   |    
|                                            |                                              |                    |        |           |        |  |        |        | 
|                                            | Net income applicable to common shareholders |                    |        | 5,495     |        |  |        | 21,200 |  |  | $ | .26 | 
|                                            |                                              |                    |        |           |        |  |        |        | 
|Diluted Earnings Per Common Share           |                                              |                    |        |           |        |  |        |        |  |  |   |    
|Effect of dilutive stock options            |                                              |                    |       |           |        |  | 375    |        |  |  |   |    
|                                            |                                              |                    |        |           |        |  |        |        | 
|                                            | Net income applicable to common shareholders |                    | $      | 5,495     |        |  |        | 21,575 |  |  | $ | .25 | 
|                                            |                                              |                    |        |           |        |  |        |        | 





|         |                    
|-------- | -------------------
|Note 12. | Statutory Reporting



68



---



##### Table of Contents







|                                  |                         |      |        |         |      |   |        |         |  |   |        |         | 
|--------------------------------- | ----------------------- | ---- | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|                                  |                         | 2005 |        |         | 2004 |   |        | 2003    | 
|                                  |                         |      |        |         |      |   |        |         | 
|Life and Health, net income       |                         | $    | 5,135  |         |      | $ | 4,616  |         |  | $ | 3,102  |        
|Property and Casualty, net income |                         |      | 6,675  |         |      |   | 1,692  |         |  |   | 5,224  |        
|                                  |                         |      |        |         |      |   |        |         | 
|                                  | Statutory net income(1) |      | $      | 11,810  |      |   | $      | 6,308   |  |   | $      | 8,326   | 
|                                  |                         |      |        |         |      |   |        |         | 
|Life and Health, surplus          |                         | $    | 33,881 |         |      | $ | 35,492 |         |  | $ | 31,197 |        
|Property and Casualty, surplus    |                         |      | 73,277 |         |      |   | 76,036 |         |  |   | 74,937 |        
|                                  |                         |      |        |         |      |   |        |         | 
|                                  | Statutory surplus       |      | $      | 107,158 |      |   | $      | 111,528 |  |   | $      | 106,134 | 
|                                  |                         |      |        |         |      |   |        |         | 



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include 2005 automotive sector impairments which will
    be recorded in the first quarter of 2006 for statutory purposes.





|         |                                     
|-------- | ------------------------------------
|Note 13. | Related Party and Other Transactions











69



---



##### Table of Contents











|         |                    
|-------- | -------------------
|Note 14. | Segment Information



|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              |  |   |          |         |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------- | ------ | -------- | - | ------- | -------- |  | - | ----------- | ------ |  | ----------- | ------- | ------ | ------------- | - | ------- | ------------ |  | - | -------- | ------- | - | - | ------- | ------- | 
|                                                |                | American |         |        | Georgia  |   |         | Bankers  |  |   | Association |        |  | Corporate & |         |        | Adjustments & |   |         |             
|                                                |                | Southern |         |        | Casualty |   |         | Fidelity |  |   | Casualty    |        |  | Other       |         |        | Eliminations  |   |         | Consolidated | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|December 31, 2005                               |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              |  |   |          |         |   |   |         |        
|Insurance premiums                              |                | $        | 51,447  |        |          | $ | 39,270  |          |  | $ | 65,904      |        |  | $           | 20,972  |        |               | $ |        |              |  | $ |         |         |   | $ | 177,593 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Insurance benefits and losses incurred          |                |          | 24,827  |        |          |   | 32,064  |          |  |   | 46,375      |        |  |             | 12,410  |        |               |   |        |              |  |   |         |         |   |   | 115,676 |        
|Expenses deferred                               |                |          | (12,582 | )      |          |   | (6,324  | )        |  |   | (709        | )      |  |             | (4,126  | )      |               |   |        |              |  |   |         |         |   |   | (23,741 | )      
|Amortization and depreciation expense           |                |          | 12,510  |        |          |   | 8,500   |          |  |   | 2,197       |        |  |             | 4,136   |        |               |   |        |              |  |   |         |         |   |   | 27,343  |        
|Other expenses                                  |                |          | 23,405  |        |          |   | 14,431  |          |  |   | 18,184      |        |  |             | 8,864   |        |               |   | 21,210  |              |  |   | (12,822  | )       |   |   | 73,272  |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|                                                | Total expenses |          |         | 48,160 |          |   |         | 48,671   |  |   |             | 66,047 |  |             |         | 21,284 |               |   |         | 21,210       |  |   |          | (12,822 | ) |   |         | 192,550 | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Underwriting income (loss)                      |                |          | 3,287   |        |          |   | (9,401  | )        |  |   | (143        | )      |  |             | (312    | )      |               |   |         |              |  |   |          |         |   |   |         |        
|Investment income, including net realized gains |                |          | 4,818   |        |          |   | 3,435   |          |  |   | 5,816       |        |  |             | 2,782   |        |               |   | 3,070   |              |  |   | (2,983   | )       |   |   | 16,938  |        
|Automotive sector investments impairment charge |                |          | (3,733  | )      |          |   | (2,366  | )        |  |   | (3,465      | )      |  |             | (1,145  | )      |               |   |        |              |  |   |         |         |   |   | (10,709 | )      
|Other income                                    |                |          | 393     |        |          |   | 141     |          |  |   |            |        |  |             | 17      |        |               |   | 10,551  |              |  |   | (9,839   | )       |   |   | 1,263   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Income (loss) before income taxes               |                | $        | 4,765   |        |          | $ | (8,191  | )        |  | $ | 2,208       |        |  | $           | 1,342   |        |               | $ | (7,589  | )            |  | $ |         |         |   | $ | (7,465  | )      
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Total revenues                                  |                | $        | 52,925  |        |          | $ | 40,480  |          |  | $ | 68,255      |        |  | $           | 22,626  |        |               | $ | 13,621  |              |  | $ | (12,822  | )       |   | $ | 185,085 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Goodwill                                        |                | $        | 1,350   |        |          | $ |        |          |  | $ | 778         |        |  | $           |        |        |               | $ | 880     |              |  | $ |         |         |   | $ | 3,008   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Total assets                                    |                | $        | 123,919 |        |          | $ | 113,417 |          |  | $ | 128,225     |        |  | $           | 106,171 |        |               | $ | 145,247 |              |  | $ | (156,562 | )       |   | $ | 460,417 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 

70



---



##### Table of Contents



|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              |  |   |          |         |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------- | ------ | -------- | - | ------- | -------- |  | - | ----------- | ------ |  | ----------- | ------- | ------ | ------------- | - | ------- | ------------ |  | - | -------- | ------- | - | - | ------- | ------- | 
|                                                |                | American |         |        | Georgia  |   |         | Bankers  |  |   | Association |        |  | Corporate & |         |        | Adjustments & |   |         |             
|                                                |                | Southern |         |        | Casualty |   |         | Fidelity |  |   | Casualty    |        |  | Other       |         |        | Eliminations  |   |         | Consolidated | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|December 31, 2004                               |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              |  |   |          |         |   |   |         |        
|Insurance premiums                              |                | $        | 48,062  |        |          | $ | 34,675  |          |  | $ | 65,442      |        |  | $           | 22,681  |        |               | $ |        |              |  | $ |         |         |   | $ | 170,860 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Insurance benefits and losses incurred          |                |          | 24,795  |        |          |   | 28,670  |          |  |   | 45,827      |        |  |             | 13,785  |        |               |   |        |              |  |   |         |         |   |   | 113,077 |        
|Expenses deferred                               |                |          | (11,790 | )      |          |   | (8,433  | )        |  |   | (1,048      | )      |  |             | (3,937  | )      |               |   |        |              |  |   |         |         |   |   | (25,208 | )      
|Amortization and depreciation expense           |                |          | 10,858  |        |          |   | 7,282   |          |  |   | 1,860       |        |  |             | 4,207   |        |               |   |        |              |  |   |         |         |   |   | 24,207  |        
|Other expenses                                  |                |          | 21,390  |        |          |   | 16,990  |          |  |   | 18,867      |        |  |             | 9,129   |        |               |   | 18,597  |              |  |   | (11,268  | )       |   |   | 73,705  |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|                                                | Total expenses |          |         | 45,253 |          |   |         | 44,509   |  |   |             | 65,506 |  |             |         | 23,184 |               |   |         | 18,597       |  |   |          | (11,268 | ) |   |         | 185,781 | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Underwriting income (loss)                      |                |          | 2,809   |        |          |   | (9,834  | )        |  |   | (64         | )      |  |             | (503    | )      |               |   |         |              |  |   |          |         |   |   |         |        
|Investment income, including net realized gains |                |          | 5,215   |        |          |   | 4,263   |          |  |   | 5,927       |        |  |             | 2,571   |        |               |   | 2,331   |              |  |   | (2,248   | )       |   |   | 18,059  |        
|Other income                                    |                |          |        |        |          |   | 108     |          |  |   |            |        |  |             | 26      |        |               |   | 10,069  |              |  |   | (9,020   | )       |   |   | 1,183   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Income (loss) before income taxes               |                | $        | 8,024   |        |          | $ | (5,463  | )        |  | $ | 5,863       |        |  | $           | 2,094   |        |               | $ | (6,197  | )            |  | $ |         |         |   | $ | 4,321   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Total revenues                                  |                | $        | 53,277  |        |          | $ | 39,046  |          |  | $ | 71,369      |        |  | $           | 25,278  |        |               | $ | 12,400  |              |  | $ | (11,268  | )       |   | $ | 190,102 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Goodwill                                        |                | $        | 1,350   |        |          | $ |        |          |  | $ | 778         |        |  | $           |        |        |               | $ | 880     |              |  | $ |         |         |   | $ | 3,008   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 
|Total assets                                    |                | $        | 121,347 |        |          | $ | 136,397 |          |  | $ | 133,185     |        |  | $           | 111,536 |        |               | $ | 154,288 |              |  | $ | (186,242 | )       |   | $ | 470,511 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |         |        |               |   |         |              | 

|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              |  |   |          |        |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------- | ------ | -------- | - | ------- | -------- |  | - | ----------- | ------ |  | ----------- | ------ | ------ | ------------- | - | ------- | ------------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                |                | American |         |        | Georgia  |   |         | Bankers  |  |   | Association |        |  | Corporate & |        |        | Adjustments & |   |         |             
|                                                |                | Southern |         |        | Casualty |   |         | Fidelity |  |   | Casualty    |        |  | Other       |        |        | Eliminations  |   |         | Consolidated | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|December 31, 2003                               |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              |  |   |          |        |   |   |         |        
|Insurance premiums                              |                | $        | 37,358  |        |          | $ | 34,319  |          |  | $ | 62,683      |        |  | $           | 20,352 |        |               | $ |        |              |  | $ |         |        |   | $ | 154,712 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Insurance benefits and losses incurred          |                |          | 20,977  |        |          |   | 22,258  |          |  |   | 43,863      |        |  |             | 15,245 |        |               |   |        |              |  |   |         |        |   |   | 102,343 |        
|Expenses deferred                               |                |          | (7,807  | )      |          |   | (7,439  | )        |  |   | (1,427      | )      |  |             | (3,879 | )      |               |   |        |              |  |   |         |        |   |   | (20,552 | )      
|Amortization and depreciation expense           |                |          | 6,842   |        |          |   | 6,989   |          |  |   | 1,998       |        |  |             | 3,787  |        |               |   |        |              |  |   |         |        |   |   | 19,616  |        
|Other expenses                                  |                |          | 14,343  |        |          |   | 14,600  |          |  |   | 18,630      |        |  |             | 8,235  |        |               |   | 17,194  |              |  |   | (9,334   | )      |   |   | 63,668  |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|                                                | Total expenses |          |         | 34,355 |          |   |         | 36,408   |  |   |             | 63,064 |  |             |        | 23,388 |               |   |         | 17,194       |  |   |          | (9,334 | ) |   |         | 165,075 | 
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Underwriting income (loss)                      |                |          | 3,003   |        |          |   | (2,089  | )        |  |   | (381        | )      |  |             | (3,036 | )      |               |   |         |              |  |   |          |        |   |   |         |        
|Investment income, including net realized gains |                |          | 4,844   |        |          |   | 3,107   |          |  |   | 5,650       |        |  |             | 2,396  |        |               |   | 1,725   |              |  |   | (1,734   | )      |   |   | 15,988  |        
|Other income                                    |                |          |        |        |          |   | 97      |          |  |   |            |        |  |             | 28     |        |               |   | 8,375   |              |  |   | (7,600   | )      |   |   | 900     |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Income (loss) before income taxes               |                | $        | 7,847   |        |          | $ | 1,115   |          |  | $ | 5,269       |        |  | $           | (612   | )      |               | $ | (7,094  | )            |  | $ |         |        |   | $ | 6,525   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Total revenues                                  |                | $        | 42,202  |        |          | $ | 37,523  |          |  | $ | 68,333      |        |  | $           | 22,776 |        |               | $ | 10,100  |              |  | $ | (9,334   | )      |   | $ | 171,600 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Goodwill                                        |                | $        | 1,350   |        |          | $ |        |          |  | $ | 778         |        |  | $           |       |        |               | $ | 880     |              |  | $ |         |        |   | $ | 3,008   |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 
|Total assets                                    |                | $        | 113,299 |        |          | $ | 121,818 |          |  | $ | 127,642     |        |  | $           | 96,275 |        |               | $ | 153,635 |              |  | $ | (169,117 | )      |   | $ | 443,552 |        
|                                                |                |          |         |        |          |   |         |          |  |   |             |        |  |             |        |        |               |   |         |              | 

71



---



##### Table of Contents





|         |                                                      
|-------- | -----------------------------------------------------
|Note 15. | Disclosures About Fair Value of Financial Instruments



|             |                                                             |          |   |         |            |  |   |          |  |  |            |         |  |  |   |         | 
|------------ | ----------------------------------------------------------- | -------- | - | ------- | ---------- |  | - | -------- |  |  | ---------- | ------- |  |  | - | ------- | 
|             |                                                             | 2005     |   |         | 2004       | 
|             |                                                             |          |   |         |            | 
|             |                                                             | Carrying |   |         | Estimated  |  |   | Carrying |  |  | Estimated  |        
|             |                                                             | Amount   |   |         | Fair Value |  |   | Amount   |  |  | Fair Value |        
|             |                                                             |          |   |         |            |  |   |          |  |  |            |        
|Assets:      |                                                             |          |   |         |            |  |   |          |  |  |            |         |  |  |   |        
|             | Cash and cash equivalents, including short-term investments |          | $ | 41,776  |            |  | $ | 41,776   |  |  | $          | 40,958  |  |  | $ | 40,958  | 
|             | Fixed maturities                                            |          |   | 231,907 |            |  |   | 231,907  |  |  |            | 229,465 |  |  |   | 229,465 | 
|             | Common and non-redeemable preferred stocks                  |          |   | 36,108  |            |  |   | 36,108   |  |  |            | 38,407  |  |  |   | 38,407  | 
|             | Mortgage loans                                              |          |   | 1,941   |            |  |   | 2,664    |  |  |            | 2,997   |  |  |   | 3,602   | 
|             | Policy and student loans                                    |          |   | 2,076   |            |  |   | 2,076    |  |  |            | 2,321   |  |  |   | 2,321   | 
|             | Other invested assets                                       |          |   | 3,660   |            |  |   | 4,887    |  |  |            | 4,569   |  |  |   | 4,569   | 
|Liabilities: |                                                             |          |   |         |            |  |   |          |  |  |            |         |  |  |   |        
|             | Debt payable to bank                                        |          |   | 10,250  |            |  |   | 10,250   |  |  |            | 12,000  |  |  |   | 12,000  | 
|             | Junior Subordinated Debentures                              |          |   | 41,238  |            |  |   | 41,238   |  |  |            | 41,238  |  |  |   | 41,238  | 







| |                                                                
| | ---------------------------------------------------------------
| | Cash and Cash Equivalents, including Short-term
    Investments



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



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Fixed Maturities, Common and Non-Redeemable 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. Certain non-redeemable
    preferred stocks that do not have quoted values are carried at
    estimated fair value as determined by management.



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



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of investments in certain limited partnerships,
    which are included in other invested assets on the consolidated
    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 and Junior Subordinated Debentures



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

72



---



##### Table of Contents





|         |                                                    
|-------- | ---------------------------------------------------
|Note 16. | Reconciliation of Other Comprehensive Income (loss)



|                                                                                    |                                                                                           |              |         |         |      |   |       |        |   |   |     |        |  
|----------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------ | ------- | ------- | ---- | - | ----- | ------ | - | - | --- | ------ | -
|                                                                                    |                                                                                           | December 31, |        
|                                                                                    |                                                                                           |              |        
|                                                                                    |                                                                                           | 2005         |         |         | 2004 |   |       | 2003   |  
|                                                                                    |                                                                                           |              |         |         |      |   |       |        |  
|Net realized gain (loss) on investment securities included in
    net income (loss) |                                                                                           | $            | (10,456 | )       |      | $ | 2,199 |        |   | $ | 360 |       
|                                                                                    |                                                                                           |              |         |         |      |   |       |        |  
|Other components of comprehensive income (loss):                                    |                                                                                           |              |         |         |      |   |       |        |   |   |     |       
|                                                                                    | Net pre-tax unrealized gains (losses) arising during year                                 |              | $       | (17,005 | )    |   | $     | 214    |   |   | $   | 7,813  |  
|                                                                                    | Reclassification adjustment                                                               |              |         | 10,456  |      |   |       | (2,199 | ) |   |     | (360   | )
|                                                                                    |                                                                                           |              |         |         |      |   |       |        |  
|                                                                                    | Net pre-tax unrealized gains (losses) recognized in other
    comprehensive income (loss) |              |         | (6,549  | )    |   |       | (1,985 | ) |   |     | 7,453  |  
|                                                                                    | Fair value adjustments to interest rate swap                                              |              |         |        |      |   |       | 445    |   |   |     | 470    |  
|                                                                                    | Minimum pension liability adjustment                                                      |              |         | (160    | )    |   |       | (131   | ) |   |     |       |  
|                                                                                    | Deferred income tax expense attributable to other comprehensive
    income (loss)         |              |         | 2,348   |      |   |       | 585    |   |   |     | (2,773 | )
|                                                                                    |                                                                                           |              |         |         |      |   |       |        |  
|                                                                                    |                                                                                           |              | $       | (4,361  | )    |   | $     | (1,086 | ) |   | $   | 5,150  |  
|                                                                                    |                                                                                           |              |         |         |      |   |       |        |  



|         |                                            
|-------- | -------------------------------------------
|Note 17. | Quarterly Financial Information (Unaudited)



|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |     | 
|--------------------------------- | ----------------- | ------- | ------ | ---- | ------- | - | ------ | ------- |  | - | ------- | --- |  | ------- | ------ | ------ | ------- | - | ------ | ------- |  | - | ------- | ----- |  | - | ------ | ----- |  | - | ------ | --- | 
|                                  |                   | 2005    |        |      | 2004    |  
|                                  |                   |         |        |      |         |  
|                                  |                   | First   |        |      | Second  |   |        | Third   |  |   | Fourth  |     |  | First   |        |        | Second  |   |        | Third   |  |   | Fourth  |      
|                                  |                   | Quarter |        |      | Quarter |   |        | Quarter |  |   | Quarter |     |  | Quarter |        |        | Quarter |   |        | Quarter |  |   | Quarter |      
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      
|Revenue                           |                   | $       | 50,273 |      |         | $ | 50,188 |         |  | $ | 47,787  |     |  | $       | 36,837 | (1)    |         | $ | 46,404 |         |  | $ | 47,415  |       |  | $ | 49,648 |       |  | $ | 46,635 | (2)
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      
|Income (loss) before income taxes |                   | $       | (1,632 | )    |         | $ | 1,418  |         |  | $ | 111     |     |  | $       | (7,362 | )      |         | $ | 2,181  |         |  | $ | 1,408   |       |  | $ | (186   | )     |  | $ | 918    |    
|Income tax expense (benefit)      |                   |         | (800   | )    |         |   | 176    |         |  |   | (451    | )   |  |         | (3,215 | )      |         |   | 673    |         |  |   | 300     |       |  |   | (2,023 | )     |  |   | 354    |    
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      
|                                  | Net income (loss) |         | $      | (832 | )       |   | $      | 1,242   |  |   | $       | 562 |  |         | $      | (4,147 | )       |   | $      | 1,508   |  |   | $       | 1,108 |  |   | $      | 1,837 |  |   | $      | 564 | 
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      
|Per common share data:            |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |    
|Basic earnings (loss) per share   |                   | $       | (.05   | )    |         | $ | .04    |         |  | $ | .01     |     |  | $       | (.21   | )      |         | $ | .06    |         |  | $ | .04     |       |  | $ | .07    |       |  | $ | .01    |    
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      
|Diluted earnings (loss) per share |                   | $       | (.05   | )    |         | $ | .04    |         |  | $ | .01     |     |  | $       | (.21   | )      |         | $ | .06    |         |  | $ | .04     |       |  | $ | .07    |       |  | $ | .01    |    
|                                  |                   |         |        |      |         |   |        |         |  |   |         |     |  |         |        |        |         |   |        |         |  |   |         |      



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | Includes a $10.7 million impairment charge for automotive
    sector fixed maturity securities.           
|   
|(2) | Includes a $3.1 million charge related to settlement of an
    arbitration matter with a former reinsurer.

73



---



##### Table of Contents








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








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

13a-15(e) 15d-15(e)







|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III




10-K


74



---



##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

List of documents filed as part of this report:




| |                                                                  
| | -----------------------------------------------------------------
| | 1. Financial Statements:                                         
|
| | See Index to Financial Statements contained in Item 8
    hereof.
|
| | 2. Financial Statement Schedules:                                

|             |  |   |  |                                                                                                                           
|------------ |  | - |  | --------------------------------------------------------------------------------------------------------------------------
|Schedule II  |  |  |  | Condensed financial information of Registrant                                                                             
|Schedule III |  |  |  | Supplementary insurance information for the three years ended
    December 31, 2005                                       
|Schedule IV  |  |  |  | Reinsurance for the three years ended December 31, 2005                                                                   
|Schedule VI  |  |  |  | Supplemental information concerning property-casualty insurance
    operations for the three years ended December 31, 2005



Exhibits*:


| |    |       |  |   |  |                                                                                                                                                                                                                                                                                                       
| | -- | ----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1    |  |  |  | Restated Articles of Incorporation of the registrant, as amended
    [incorporated by reference to Exhibit 3.1 to the
    registrants Form 10-K for the year ended
    December 31, 2002].                                                                                                           
|
| | 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 10-Q 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 10-Q 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].
|
| | 10 | .08   |  |  |  | Loan and Security Agreement dated August 26, 1991, between
    registrants three insurance subsidiaries named therein 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].                                                                                       

75



---



##### Table of Contents



| |    |       |  |   |  |                                                                                                                                                                                                                                                                                                             
| | -- | ----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .10   |  |  |  | Intercreditor Agreement dated August 26, 1991, between
    Leath Furniture, Inc., the registrant and the registrants
    three insurance subsidiaries named therein [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. [incorporated by
    reference to Exhibit 10.19 to the registrants
    Form 10-K for the year ended December 31, 2002].                    
|
| | 10 | .20   |  |  |  | Fifth Amendment, dated April 23, 2003, 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, 2003].                          
|
| | 10 | .21   |  |  |  | Amended and Restated Credit Agreement, dated as of June 30,
    2003, between Atlantic American Corporation and Wachovia Bank,
    N.A. [incorporated by reference to Exhibit 10.2 to the
    registrants Form 10-Q for the quarter ended
    June 30, 2003].                                              
|
| | 10 | .22** |  |  |  | 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 | .23** |  |  |  | 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 | .24** |  |  |  | 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 | .25   |  |  |  | Summary Terms of Consulting Arrangement between Atlantic
    American Corporation and Samuel E. Hudgins, entered
    into in June 2002 [incorporated by reference to
    Exhibit 10.23 to the registrants Form 10-K for
    the year ended December 31, 2002].                                             
|
| | 10 | .26   |  |  |  | First Amendment, effective as of May 2, 2005, to Amended
    and Restated Credit Agreement, dated as of June 30, 2003,
    between Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.26 to registrants
    Form 10-Q for the quarter ended June 30, 2005].

76



---



##### Table of Contents



| |    |     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | --- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .27 |  |  |  | Term Loan Credit Agreement, dated as of February 28, 2006
    between Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.1 to the
    registrants Form 8-K dated March 3, 2006].                                                                                                                                                                                                                                 
|
| | 10 | .28 |  |  |  | Second Amendment, effective as of December 31, 2005, to
    Amended and Restated Credit Agreement, dated as of June 30,
    2003 and First Amendment effective as of February 28, 2006,
    to Term Loan Credit Agreement dated as of February 28,
    2006, both between Atlantic American Corporation and Wachovia
    Bank, N.A. [incorporated by reference to Exhibits 10.1 and
    10.2, respectively to the registrants Form 8-K dated
    March 31, 2006].
|
| | 14 | .1  |  |  |  | Code of Ethics [incorporated by reference to Exhibit 14.1
    to the registrants Form 10-K for the year ended
    December 31, 2003].                                                                                                                                                                                                                                                                                                                            
|
| | 21 | .1  |  |  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 23 | .1  |  |  |  | Consent of Deloitte & Touche LLP, Independent
    Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                              
|
| | 31 | .1  |  |  |  | Certification of the Principal Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                   
|
| | 31 | .2  |  |  |  | Certification of the Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                   
|
| | 32 | .1  |  |  |  | Certifications 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 15(c) of
    Form 10-K and
    Item 601 of
    Regulation S-K.

77



---



##### Table of Contents



SIGNATURES






| |                                               
| | ----------------------------------------------
| | (Registrant) Atlantic
    American Corporation



| |     |                            
| | --- | ---------------------------
| | By: | /s/ John G.
    Sample, Jr.

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





|                                                   |  |                                                                                                    |  |                |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                          |  | Title                                                                                              |  | Date          
|                                                   |  |                                                                                                    |  |               
|                                                  
|/s/ J. Mack RobinsonJ. Mack Robinson               |  | Chairman of the Board                                                                              |  | March 31, 2006
|                                                  
|/s/ Hilton H. Howell,
    Jr.Hilton H. Howell, Jr. |  | President, Chief Executive Officer
    and Director (Principal Executive
    Officer)              |  | March 31, 2006
|                                                  
|/s/ John G. Sample, Jr.John G. Sample, Jr.         |  | Senior Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | March 31, 2006
|                                                  
|/s/ Edward E. ElsonEdward E. Elson                 |  | Director                                                                                           |  | March 31, 2006
|                                                  
|/s/ Samuel E. HudginsSamuel E. Hudgins             |  | Director                                                                                           |  | March 31, 2006
|                                                  
|/s/ D. Raymond RiddleD. Raymond Riddle             |  | Director                                                                                           |  | March 31, 2006
|                                                  
|/s/ Harriett J.
    RobinsonHarriett J. Robinson   |  | Director                                                                                           |  | March 31, 2006
|                                                  
|/s/ Scott G. ThompsonScott G. Thompson             |  | Director                                                                                           |  | March 31, 2006
|                                                  
|/s/ Mark C. WestMark C. West                       |  | Director                                                                                           |  | March 31, 2006

78



---



##### Table of Contents



|                                                       |  |          |  |                |  | 
|------------------------------------------------------ |  | -------- |  | -------------- |  | 
|Signature                                              |  | Title    |  | Date          
|                                                       |  |          |  |               
|                                                      
|/s/ William H.
    Whaley, M.D.William H. Whaley, M.D. |  | Director |  | March 31, 2006
|                                                      
|/s/ Dom H. WyantDom H. Wyant                           |  | Director |  | March 31, 2006
|                                                      
|/s/ Harold K. FischerHarold K. Fischer                 |  | Director |  | March 31, 2006

79



---



##### Table of Contents



SCHEDULE II


Page 1 of 3


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


ATLANTIC AMERICAN CORPORATION


(Parent Company Only)


BALANCE SHEETS


|                                          |                                            |                |         |         |      |   |         |         | 
|----------------------------------------- | ------------------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                          |                                            | December 31,   |        
|                                          |                                            |                |        
|                                          |                                            | 2005           |         |         | 2004 |  
|                                          |                                            |                |         |         |      |  
|                                          |                                            | (In thousands) |        
|ASSETS                                   
|Cash and short-term investments           |                                            | $              | 2,348   |         |      | $ | 558     |        
|Investment in subsidiaries                |                                            |                | 132,385 |         |      |   | 149,534 |        
|Investment in unconsolidated trusts       |                                            |                | 1,238   |         |      |   | 1,238   |        
|Deferred tax asset, net                   |                                            |                | 5,578   |         |      |   |        |        
|Income taxes receivable from subsidiaries |                                            |                | 3,082   |         |      |   | 2,419   |        
|Other assets                              |                                            |                | 2,148   |         |      |   | 2,719   |        
|                                          |                                            |                |         |         |      |  
|                                          | Total assets                               |                | $       | 146,779 |      |   | $       | 156,468 | 
|                                          |                                            |                |         |         |      |  
|                                         
|LIABILITIES AND SHAREHOLDERS EQUITY     
|Deferred tax liability, net               |                                            | $              |        |         |      | $ | 1,045   |        
|Other payables                            |                                            |                | 14,838  |         |      |   | 13,225  |        
|Debt payable to bank                      |                                            |                | 10,250  |         |      |   | 12,000  |        
|Junior subordinated debentures            |                                            |                | 41,238  |         |      |   | 41,238  |        
|                                          |                                            |                |         |         |      |  
|Total liabilities                         |                                            |                | 66,326  |         |      |   | 67,508  |        
|Shareholders equity                      |                                            |                | 80,453  |         |      |   | 88,960  |        
|                                          |                                            |                |         |         |      |  
|                                          | Total liabilities and shareholders equity |                | $       | 146,779 |      |   | $       | 156,468 | 
|                                          |                                            |                |         |         |      |  

II-1



---



##### Table of Contents



SCHEDULE II


Page 2 of 3


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


ATLANTIC AMERICAN CORPORATION


(Parent Company Only)


STATEMENTS OF OPERATIONS


|                                                                   |                                                     |                         |         |        |        |   |        |       |        |  |        |       |        | 
|------------------------------------------------------------------ | --------------------------------------------------- | ----------------------- | ------- | ------ | ------ | - | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                                   |                                                     | Year Ended December 31, |        
|                                                                   |                                                     |                         |        
|                                                                   |                                                     | 2005                    |         |        | 2004   |   |        | 2003  |       
|                                                                   |                                                     |                         |         |        |        |   |        |       |       
|                                                                   |                                                     | (In thousands)          |        
|REVENUE                                                            |                                                     |                         |         |        |        |   |        |       |        |  |        |      
|                                                                   | Fees, rentals and interest income from subsidiaries |                         | $       | 9,832  |        |   | $      | 9,015 |        |  | $      | 7,599 |       
|                                                                   | Distributed earnings from subsidiaries              |                         |         | 13,242 |        |   |        | 5,803 |        |  |        | 5,728 |       
|                                                                   | Other                                               |                         |         | 188    |        |   |        | 506   |        |  |        | 120   |       
|                                                                   |                                                     |                         |         |        |        |   |        |       |       
|                                                                   |                                                     | Total revenue           |         |        | 23,262 |   |        |       | 15,324 |  |        |       | 13,447 | 
|GENERAL AND ADMINISTRATIVE EXPENSES                                |                                                     |                         | 14,165  |        |        |   | 12,772 |       |        |  | 12,005 |      
|INTEREST EXPENSE                                                   |                                                     |                         | 3,611   |        |        |   | 3,071  |       |        |  | 3,120  |      
|                                                                   |                                                     |                         |         |        |        |   |        |       |       
|                                                                   |                                                     |                         | 5,486   |        |        |   | (519   | )     |        |  | (1,678 | )    
|INCOME TAX BENEFIT(1)                                              |                                                     |                         | 7,400   |        |        |   | 2,832  |       |        |  | 4,747  |      
|                                                                   |                                                     |                         |         |        |        |   |        |       |       
|                                                                   |                                                     |                         | 12,886  |        |        |   | 2,313  |       |        |  | 3,069  |      
|EQUITY IN UNDISTRIBUTED EARNINGS (LOSSES) OF SUBSIDIARIES,
    NET |                                                     |                         | (16,061 | )      |        |   | 2,704  |       |        |  | 3,775  |      
|                                                                   |                                                     |                         |         |        |        |   |        |       |       
|                                                                   |                                                     | NET INCOME (LOSS)       |         | $      | (3,175 | ) |        | $     | 5,017  |  |        | $     | 6,844  | 
|                                                                   |                                                     |                         |         |        |        |   |        |       |       



|    |                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

II-2



---



##### Table of Contents



SCHEDULE II


Page 3 of 3


CONDENSED FINANCIAL INFORMATION OF REGISTRANT


ATLANTIC AMERICAN CORPORATION


(Parent Company Only)


STATEMENTS OF CASH FLOWS


|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |        |        |       |         |        |        |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | ------- | ------ | ------ | -
|                                      |                                                                                              | Year Ended December 31,                                                    |                                                    
|                                      |                                                                                              |                                                                            |                                                    
|                                      |                                                                                              | 2005                                                                       |                                                     |        | 2004   |        |        | 2003   |       
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|                                      |                                                                                              | (In thousands)                                                             |                                                    
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                              |                                                                            |                                                     |        |        |        |        |        |        |        |       |        
|                                      | Net income (loss)                                                                            |                                                                            | $                                                   | (3,175 | )      |        | $      | 5,017  |        |        | $     | 6,844   |       
|                                      | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities: |                                                                            |                                                     |        |        |        |        |        |        |        |       |         |       
|                                      |                                                                                              | Realized investment gains                                                  |                                                     |        | (72    | )      |        |        | (72    | )      |       |         |       |       
|                                      |                                                                                              | Depreciation and amortization                                              |                                                     |        | 776    |        |        |        | 802    |        |       |         | 798    |       
|                                      |                                                                                              | Compensation expense related to share awards                               |                                                     |        | 65     |        |        |        | 203    |        |       |         | 126    |       
|                                      |                                                                                              | Equity in undistributed (earnings) losses of consolidated
    subsidiaries |                                                     |        | 16,061 |        |        |        | (2,704 | )      |       |         | (3,775 | )     
|                                      |                                                                                              | (Increase) decrease in intercompany taxes                                  |                                                     |        | (663   | )      |        |        | 1,567  |        |       |         | (2,627 | )     
|                                      |                                                                                              | Deferred income tax benefit                                                |                                                     |        | (4,275 | )      |        |        | (834   | )      |       |         | (1,163 | )     
|                                      |                                                                                              | Increase (decrease) in other liabilities                                   |                                                     |        | 406    |        |        |        | (104   | )      |       |         | 90     |       
|                                      |                                                                                              | Other, net                                                                 |                                                     |        | 218    |        |        |        | 444    |        |       |         | (7     | )     
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|                                      |                                                                                              |                                                                            | Net cash provided by operating activities           |        |        | 9,341  |        |        |        | 4,319  |       |         |        | 286    |  
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                              |                                                                            |                                                     |        |        |        |        |        |        |        |       |        
|                                      | Capitalization of trusts                                                                     |                                                                            |                                                     |       |        |        |        |       |        |        |       | (696    | )     
|                                      | Capital contribution to subsidiaries                                                         |                                                                            |                                                     | (5,550 | )      |        |        | (900   | )      |        |       | (2,250  | )     
|                                      | Additions to property and equipment                                                          |                                                                            |                                                     | (153   | )      |        |        | (509   | )      |        |       | (337    | )     
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|                                      |                                                                                              |                                                                            | Net cash used in investing activities               |        |        | (5,703 | )      |        |        | (1,409 | )     |         |        | (3,283 | )
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                              |                                                                            |                                                     |        |        |        |        |        |        |        |       |        
|                                      | Proceeds from junior subordinated debentures                                                 |                                                                            |                                                     |       |        |        |        |       |        |        |       | 22,520  |       
|                                      | Preferred stock redemption                                                                   |                                                                            |                                                     |       |        |        |        | (500   | )      |        |       | (2,000  | )     
|                                      | Preferred stock dividends to affiliated shareholders                                         |                                                                            |                                                     |       |        |        |        | (10    | )      |        |       | (143    | )     
|                                      | Purchase of treasury shares                                                                  |                                                                            |                                                     | (132   | )      |        |        | (747   | )      |        |       | (396    | )     
|                                      | Repayments of debt                                                                           |                                                                            |                                                     | (1,750 | )      |        |        | (3,000 | )      |        |       | (17,000 | )     
|                                      | Proceeds from exercise of stock options                                                      |                                                                            |                                                     | 34     |        |        |        | 154    |        |        |       | 25      |       
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|                                      |                                                                                              |                                                                            | Net cash (used in) provided by financing activities |        |        | (1,848 | )      |        |        | (4,103 | )     |         |        | 3,006  |  
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|Net increase (decrease) in cash       |                                                                                              |                                                                            | 1,790                                               |        |        |        | (1,193 | )      |        |        | 9     |        
|Cash at beginning of year             |                                                                                              |                                                                            | 558                                                 |        |        |        | 1,751  |        |        |        | 1,742 |        
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|Cash at end of year                   |                                                                                              | $                                                                          | 2,348                                               |        |        | $      | 558    |        |        | $      | 1,751 |        
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|Supplemental disclosure:              |                                                                                              |                                                                            |                                                     |        |        |        |        |        |        |        |       |        
|                                      | Cash paid for interest                                                                       |                                                                            | $                                                   | 3,470  |        |        | $      | 3,189  |        |        | $     | 3,285   |       
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       
|                                      | Cash paid for income taxes                                                                   |                                                                            | $                                                   | 300    |        |        | $      | 1,200  |        |        | $     | 514     |       
|                                      |                                                                                              |                                                                            |                                                     |        |        |        |        |        |       

II-3



---



##### 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, 2005: |                      |                   |        |                   |                 |   |         |          |              |   |                  |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 16,957            |                 |   | $       | 61,580   |              |   | $                | 4,011  |  |   | $     | 2,445 | 
|                   | American Southern    |                   |        | 5,194             |                 |   |         | 43,593   |              |   |                  | 26,185 |  |   |       | 3,054 | 
|                   | Association Casualty |                   |        | 2,175             |                 |   |         | 44,813   |              |   |                  | 13,699 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 3,509             |                 |   |         | 69,987   |              |   |                  | 16,984 |  |   |       |      | 
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       
|                   |                      | $                 | 27,835 |                   |                 | $ | 219,973 | (1)      |              | $ | 60,879           |        |  | $ | 5,499 |      
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       
|December 31, 2004: |                      |                   |        |                   |                 |   |         |          |              |   |                  |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,175            |                 |   | $       | 60,604   |              |   | $                | 4,350  |  |   | $     | 2,516 | 
|                   | American Southern    |                   |        | 4,852             |                 |   |         | 42,307   |              |   |                  | 24,578 |  |   |       | 2,488 | 
|                   | Association Casualty |                   |        | 1,916             |                 |   |         | 45,489   |              |   |                  | 13,624 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 5,415             |                 |   |         | 68,619   |              |   |                  | 27,712 |  |   |       |      | 
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       
|                   |                      | $                 | 30,358 |                   |                 | $ | 217,019 | (2)      |              | $ | 70,264           |        |  | $ | 5,004 |      
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       
|December 31, 2003: |                      |                   |        |                   |                 |   |         |          |              |   |                  |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,647            |                 |   | $       | 57,758   |              |   | $                | 3,986  |  |   | $     | 2,414 | 
|                   | American Southern    |                   |        | 3,578             |                 |   |         | 39,042   |              |   |                  | 21,118 |  |   |       | 2,863 | 
|                   | Association Casualty |                   |        | 1,847             |                 |   |         | 44,497   |              |   |                  | 12,485 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 3,924             |                 |   |         | 56,021   |              |   |                  | 23,561 |  |   |       |      | 
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       
|                   |                      | $                 | 27,996 |                   |                 | $ | 197,318 | (3)      |              | $ | 61,150           |        |  | $ | 5,277 |      
|                   |                      |                   |        |                   |                 |   |         |          |              |   |                  |       



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | Includes future policy benefits of $51,356 and losses and claims
    of $168,617.
|   
|(2) | Includes future policy benefits of $49,886 and losses and claims
    of $167,133.
|   
|(3) | Includes future policy benefits of $47,226 and losses and claims
    of $150,092.

III-1



---



##### Table of Contents



SCHEDULE III


Page 2 of 2


ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES


SUPPLEMENTARY INSURANCE INFORMATION


|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |   |        |        |  |   |         |        | 
|------------------ | -------------------- | -------------- | ------- | ------ | ---------- | --------- | -------------- | -------------- | ------------ | ----------- | ----------- | ------ | ----- | --------- | ------ | -------- | -------- | - | ------ | ------ |  | - | ------- | ------ | 
|                   |                      |                |         |        |            | Benefits, |                |                | 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, 2005: |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |   |        |        |  |   |         |       
|                   | Bankers Fidelity     |                | $       | 65,904 |            |           | $              | 5,866          |              |             | $           | 46,375 |       |           | $      | 1,927    |          |   | $      | 17,745 |  |   | $       |       | 
|                   | American Southern    |                |         | 51,447 |            |           |                | 4,821          |              |             |             | 24,827 |       |           |        | 12,240   |          |   |        | 11,093 |  |   |         | 52,983 | 
|                   | Association Casualty |                |         | 20,972 |            |           |                | 2,497          |              |             |             | 12,410 |       |           |        | 3,867    |          |   |        | 5,007  |  |   |         | 20,137 | 
|                   | Georgia Casualty     |                |         | 39,270 |            |           |                | 3,261          |              |             |             | 32,064 |       |           |        | 8,230    |          |   |        | 8,377  |  |   |         | 27,700 | 
|                   | Other                |                |         |       |            |           |                | 15             |              |             |             |       |       |           |        |         |          |   |        | 8,388  |  |   |         |       | 
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  
|                   |                      | $              | 177,593 |        |            | $         | 16,460         |                |              | $           | 115,676     |        |       | $         | 26,264 |          |          | $ | 50,610 |        |  | $ | 100,820 |       
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  
|December 31, 2004: |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |   |        |        |  |   |         |       
|                   | Bankers Fidelity     |                | $       | 65,442 |            |           | $              | 5,349          |              |             | $           | 45,827 |       |           | $      | 1,520    |          |   | $      | 18,159 |  |   | $       |       | 
|                   | American Southern    |                |         | 48,062 |            |           |                | 4,599          |              |             |             | 24,795 |       |           |        | 10,517   |          |   |        | 9,941  |  |   |         | 51,010 | 
|                   | Association Casualty |                |         | 22,681 |            |           |                | 2,284          |              |             |             | 13,785 |       |           |        | 3,867    |          |   |        | 5,532  |  |   |         | 23,532 | 
|                   | Georgia Casualty     |                |         | 34,675 |            |           |                | 3,397          |              |             |             | 28,670 |       |           |        | 6,942    |          |   |        | 8,897  |  |   |         | 41,953 | 
|                   | Other                |                |         |       |            |           |                | 11             |              |             |             |       |       |           |        |         |          |   |        | 7,329  |  |   |         |       | 
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  
|                   |                      | $              | 170,860 |        |            | $         | 15,640         |                |              | $           | 113,077     |        |       | $         | 22,846 |          |          | $ | 49,858 |        |  | $ | 116,495 |       
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  
|December 31, 2003: |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |   |        |        |  |   |         |       
|                   | Bankers Fidelity     |                | $       | 62,683 |            |           | $              | 5,292          |              |             | $           | 43,863 |       |           | $      | 1,714    |          |   | $      | 17,487 |  |   | $       |       | 
|                   | American Southern    |                |         | 37,358 |            |           |                | 4,357          |              |             |             | 20,977 |       |           |        | 6,557    |          |   |        | 6,821  |  |   |         | 37,958 | 
|                   | Association Casualty |                |         | 20,352 |            |           |                | 2,178          |              |             |             | 15,245 |       |           |        | 3,503    |          |   |        | 4,640  |  |   |         | 22,269 | 
|                   | Georgia Casualty     |                |         | 34,319 |            |           |                | 3,505          |              |             |             | 22,258 |       |           |        | 6,704    |          |   |        | 7,446  |  |   |         | 37,272 | 
|                   | Other                |                |         |       |            |           |                | 27             |              |             |             |       |       |           |        |         |          |   |        | 7,860  |  |   |         |       | 
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  
|                   |                      | $              | 154,712 |        |            | $         | 15,359         |                |              | $           | 102,343     |        |       | $         | 18,478 |          |          | $ | 44,254 |        |  | $ | 97,499  |       
|                   |                      |                |         |        |            |           |                |                |              |             |             |        |       |           |        |          |          |  

III-2



---



##### 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, 2005: |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Life insurance in force       |  | $              | 276,996 |          |           | $ | (33,025 | )          |  | $ |        |               |  | $              | 243,971 |  |  |  |      |  
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Premiums                     |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 65,734  |          |           | $ | (191    | )          |  | $ | 361     |               |  | $              | 65,904  |  |  |  | 0.5  | %
|American Southern             |  |                | 51,941  |          |           |   | (9,034  | )          |  |   | 8,540   |               |  |                | 51,447  |  |  |  | 16.6 | %
|Association Casualty          |  |                | 25,749  |          |           |   | (4,777  | )          |  |   |        |               |  |                | 20,972  |  |  |  |     |  
|Georgia Casualty              |  |                | 34,609  |          |           |   | (19,095 | )          |  |   | 23,756  |               |  |                | 39,270  |  |  |  | 60.5 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Total premiums                |  | $              | 178,033 |          |           | $ | (33,097 | )          |  | $ | 32,657  |               |  | $              | 177,593 |  |  |  | 18.4 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Year ended December 31, 2004: |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Life insurance in force       |  | $              | 288,808 |          |           | $ | (28,582 | )          |  | $ |        |               |  | $              | 260,226 |  |  |  |      |  
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Premiums                     |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 65,103  |          |           | $ | (75     | )          |  | $ | 414     |               |  | $              | 65,442  |  |  |  | 0.6  | %
|American Southern             |  |                | 45,688  |          |           |   | (9,019  | )          |  |   | 11,393  |               |  |                | 48,062  |  |  |  | 23.7 | %
|Association Casualty          |  |                | 27,095  |          |           |   | (4,414  | )          |  |   |        |               |  |                | 22,681  |  |  |  |     |  
|Georgia Casualty              |  |                | 36,393  |          |           |   | (20,609 | )          |  |   | 18,891  |               |  |                | 34,675  |  |  |  | 54.5 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Total premiums                |  | $              | 174,279 |          |           | $ | (34,117 | )          |  | $ | 30,698  |               |  | $              | 170,860 |  |  |  | 18.0 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Year ended December 31, 2003: |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Life insurance in force       |  | $              | 305,793 |          |           | $ | (25,048 | )          |  | $ |        |               |  | $              | 280,745 |  |  |  |      |  
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Premiums                     |  |                |         |          |           |   |         |            |  |   |         |               |  |                |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 62,255  |          |           | $ | (62     | )          |  | $ | 490     |               |  | $              | 62,683  |  |  |  | 0.8  | %
|American Southern             |  |                | 35,438  |          |           |   | (6,436  | )          |  |   | 8,356   |               |  |                | 37,358  |  |  |  | 22.4 | %
|Association Casualty          |  |                | 24,515  |          |           |   | (4,163  | )          |  |   |        |               |  |                | 20,352  |  |  |  |     |  
|Georgia Casualty              |  |                | 36,807  |          |           |   | (17,358 | )          |  |   | 14,870  |               |  |                | 34,319  |  |  |  | 43.3 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        
|Total premiums                |  | $              | 159,015 |          |           | $ | (28,019 | )          |  | $ | 23,716  |               |  | $              | 154,712 |  |  |  | 15.3 | %
|                              |  |                |         |          |           |   |         |            |  |   |         |               |  |                |        

IV-1



---



##### Table of Contents



SCHEDULE VI


ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES


SUPPLEMENTAL INFORMATION CONCERNING


PROPERTY-CASUALTY INSURANCE OPERATIONS


|                  |  |                |        |  |          |   |          |         |  |        |         |                     |            |        |              |         |             |        |        |           |  |             |        |  |            |          |        |          |         |   |        |  |  |   |        |  |  |   |         | 
|----------------- |  | -------------- | ------ |  | -------- | - | -------- | ------- |  | ------ | ------- | ------------------- | ---------- | ------ | ------------ | ------- | ----------- | ------ | ------ | --------- |  | ----------- | ------ |  | ---------- | -------- | ------ | -------- | ------- | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                  |  |                |        |  |          |   |          |         |  |        |         | Claims and Claim    |            |        |              |         |             |        |       
|                  |  |                |        |  |          |   |          |         |  |        |         | Adjustment          |            |        |              |         |             |        |       
|                  |  |                |        |  |          |   |          |         |  |        |         | Expenses            |            |        |              |         | Paid        |        |        |          
|                  |  |                |        |  |          |   |          |         |  |        |         | Incurred Related To |            |        | Amortization |         |             | 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, 2005 |  | $              | 10,878 |  |          | $ | 158,393  |         |  | $      | 56,868  |                     |            | $      | 111,689      |         |             | $      | 10,579 |           |  | $           | 72,866 |  |            | $        | (3,548 | )        |         | $ | 24,337 |  |  | $ | 63,263 |  |  | $ | 100,820 | 
|                  |  |                |        |  |          |   |          |         |  |        |         |                     |            |        |              |         |             |        |        |           |  |             |        |  |            |          |        |          |         |  
|December 31, 2004 |  | $              | 12,183 |  |          | $ | 156,415  |         |  | $      | 65,914  |                     |            | $      | 105,418      |         |             | $      | 10,280 |           |  | $           | 66,599 |  |            | $        | 717    |          |         | $ | 21,326 |  |  | $ | 66,138 |  |  | $ | 116,495 | 
|                  |  |                |        |  |          |   |          |         |  |        |         |                     |            |        |              |         |             |        |        |           |  |             |        |  |            |          |        |          |         |  
|December 31, 2003 |  | $              | 9,349  |  |          | $ | 139,560  |         |  | $      | 57,164  |                     |            | $      | 92,029       |         |             | $      | 10,040 |           |  | $           | 57,038 |  |            | $        | 1,516  |          |         | $ | 16,764 |  |  | $ | 61,168 |  |  | $ | 97,499  | 
|                  |  |                |        |  |          |   |          |         |  |        |         |                     |            |        |              |         |             |        |        |           |  |             |        |  |            |          |        |          |         |  

VI-1