##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-K

|           |  |                                                                                           
|---------- |  | ------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                           
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the Fiscal Year Ended December 31,
	2001                                              
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-3722



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ATLANTIC AMERICAN CORPORATION

(Exact name of registrant as specified in its
charter)


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

(Registrants telephone number, including
area code):

(404) 266-5500


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

None


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

Common Stock, $1.00 par value

(Title of class)




---

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

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

The aggregate market value of common stock held
by non-affiliates of the registrant as of March 19, 2002,
was $13,000,421. On March 19, 2002 there were 21,258,595
shares of the registrants common stock, par value $1.00
per share, outstanding.



---

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrants Proxy
Statement for the Annual Meeting of Shareholders, to be held on
May 7, 2002, have been incorporated by reference in Items
10, 11, 12 and 13 of Part III of this Form 10-K.



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TABLE OF CONTENTS



|                                                                                              |                                                             |                                           |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------- |  |  |  |  |  | 
|PART I                                                                                       
|                                                                                              | Item 1. Business                                           
|                                                                                              |                                                             | The Company                              
|                                                                                              |                                                             | Casualty Operations                      
|                                                                                              |                                                             | Bankers Fidelity                         
|                                                                                              |                                                             | Marketing                                
|                                                                                              |                                                             | Underwriting                             
|                                                                                              |                                                             | Policyholder and Claims Services         
|                                                                                              |                                                             | Reserves                                 
|                                                                                              |                                                             | Reinsurance                              
|                                                                                              |                                                             | Competition                              
|                                                                                              |                                                             | Rating                                   
|                                                                                              |                                                             | Regulation                               
|                                                                                              |                                                             | NAIC Ratios                              
|                                                                                              |                                                             | Risk-Based Capital                       
|                                                                                              |                                                             | Investments                              
|                                                                                              |                                                             | Employees                                
|                                                                                              |                                                             | Financial Information By Industry Segment
|                                                                                              |                                                             | Executive Officers of the Registrant     
|                                                                                              |                                                             | Forward-Looking Statements               
|                                                                                              | Item 2. Properties                                         
|                                                                                              | Item 3. Legal Proceedings                                  
|                                                                                              | Item 4. Submission of Matters to a Vote of Security Holders
|PART II                                                                                      
|Item 5. Market for the Registrants Common Equity and Related Shareholder Matters            
|Item 6. Selected Financial Data                                                              
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Overall Corporate Results                                                                    
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                                                              | Item 8. Financial Statements and Supplementary Data        
|PART III                                                                                     
|PART IV                                                                                      
|SIGNATURES                                                                                   
|RESTATED AND AMENDED ARTICLES OF INCORPORATION                                               
|THIRD AMENDMENT TO CREDIT AGREEMENT                                                          
|SUBSIDIARIES OF THE REGISTRANT                                                               
|CONSENT OF ARTHUR ANDERSEN LLP                                                               
|LETTER RE: REPRESENTATION OF ARTHUR ANDERSEN LLP                                             



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##### Table of Contents



TABLE OF CONTENTS

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                        |  | Page
|         |  |                                                                                        |  |     
|PART I  
|Item 1.  |  | Business                                                                               |  |      | 2  | 
|         |  | The Company                                                                            |  |      | 2  | 
|         |  | Casualty Operations                                                                    |  |      | 2  | 
|         |  | Bankers Fidelity                                                                       |  |      | 4  | 
|         |  | Marketing                                                                              |  |      | 5  | 
|         |  | Underwriting                                                                           |  |      | 6  | 
|         |  | Policyholder and Claims Services                                                       |  |      | 7  | 
|         |  | Reserves                                                                               |  |      | 8  | 
|         |  | Reinsurance                                                                            |  |      | 11 | 
|         |  | Competition                                                                            |  |      | 12 | 
|         |  | Rating                                                                                 |  |      | 12 | 
|         |  | Regulation                                                                             |  |      | 13 | 
|         |  | NAIC Ratios                                                                            |  |      | 14 | 
|         |  | Risk-Based Capital                                                                     |  |      | 14 | 
|         |  | Investments                                                                            |  |      | 15 | 
|         |  | Employees                                                                              |  |      | 16 | 
|         |  | Financial Information by Industry Segment                                              |  |      | 16 | 
|         |  | Executive Officers of the Registrant                                                   |  |      | 16 | 
|         |  | Forward-Looking Statements                                                             |  |      | 16 | 
|Item 2.  |  | Properties                                                                             |  |      | 17 | 
|Item 3.  |  | Legal Proceedings                                                                      |  |      | 17 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
	Holders                                   |  |      | 18 | 
|PART II 
|Item 5.  |  | Market for the Registrants Common Equity and                                          |  |      |    | 
|         |  | Related Shareholder Matters                                                            |  |      | 18 | 
|Item 6.  |  | Selected Financial Data                                                                |  |      | 19 | 
|Item 7.  |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |      | 19 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |  |      | 31 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                            |  |      | 33 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
	Accounting
	and Financial Disclosure |  |      | 59 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                     |  |      | 59 | 
|Item 11. |  | Executive Compensation                                                                 |  |      | 59 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |      | 59 | 
|Item 13. |  | Certain Relationships and Related Transactions                                         |  |      | 59 | 
|PART IV 
|Item 14. |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |  |      | 59 | 

1



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##### Table of Contents






PART I




Item 1.     Business




The Company

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

On July 1, 1999 the Company, for an
aggregate price of $33.0 million, acquired 100% of the
outstanding stock of Association Casualty Insurance Company
(ACIC) and its affiliated agency, Association Risk
Management General Agency, Inc (ARMGA), both of
which are domiciled in Texas. The acquisition of both companies
was accounted for using the purchase method of accounting.
Together ACIC and ARMGA are referred to as Association Casualty.

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




Casualty
Operations

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



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

American Southern.American Southern provides tailored fleet automobile and
long-haul physical damage insurance coverage, on a multi-year
contract basis, to state governments, local municipalities and
other large motor pools and fleets (block accounts)
that can be specifically rated and underwritten. The size of the
block accounts insured by American Southern are such that
individual class experience generally can be determined, which
allows for customized policy terms and rates. American Southern
produces business in 18 of the 24 states in the Southeast
and Midwest in which it is authorized to conduct business.
Additionally, American Southern provides personal automobile
insurance to the members of the Carolina Motor Club, an AAA
affiliate. While the majority of American Southerns
premiums are derived from auto liability and auto physical
damage, American Southern also provides property, general
liability and surety coverage.

2



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##### Table of Contents



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

|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|-------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                           |       |                        
|                           |       | Year Ended December 31,
|                           |       |                        
|                           |       | 2001                    |        | 2000   |  | 1999 |        | 1998   |  | 1997
|                           |       |                         |        |        |  |      |        |        |  |     
|                           |       |                        
|                           |       | (In thousands)         
|Automobile Liability       |       | $                       | 23,677 |        |  | $    | 22,795 |        |  | $    | 24,573 |        |  | $ | 23,396 |        |  | $ | 30,909 |       
|Automobile Physical Damage |       |                         | 8,732  |        |  |      | 7,397  |        |  |      | 6,112  |        |  |   | 4,288  |        |  |   | 4,508  |       
|General Liability          |       |                         | 3,161  |        |  |      | 3,536  |        |  |      | 4,302  |        |  |   | 4,291  |        |  |   | 3,116  |       
|Property                   |       |                         | 3,386  |        |  |      | 3,383  |        |  |      | 3,118  |        |  |   | 2,970  |        |  |   | 3,206  |       
|Surety                     |       |                         | 67     |        |  |      | 61     |        |  |      | 61     |        |  |   | 57     |        |  |   | 60     |       
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                           | Total |                         | $      | 39,023 |  |      | $      | 37,172 |  |      | $      | 38,166 |  |   | $      | 35,002 |  |   | $      | 41,799 | 
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

Georgia Casualty.Georgia Casualty is a property-casualty insurance company
providing workers compensation, property, general
liability, automobile, umbrella, inland marine and mechanical
breakdown coverage to businesses throughout the Southeastern
United States.

Georgia Casualtys primary marketing focus
is toward small to middle market accounts with low to moderate
hazard grades, ranging from $15,000 to $250,000 in written
premium. In addition to the wide range of commercial products
available, Georgia Casualty offers customized products for nine
classes of business, including, but not limited to, light
manufacturing, restaurants, golf clubs and artisan contractors.
These products, along with innovative risk management services
and exceptional claims handling, are offered through an
exclusive network of independent agents.

Georgia Casualty is licensed to do business in
thirteen states. Its principal marketing territories include
Florida, Georgia, Kentucky, Mississippi, North Carolina, South
Carolina and Tennessee.

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

|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|--------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                      |       |                        
|                      |       | Year Ended December 31,
|                      |       |                        
|                      |       | 2001                    |        | 2000   |  | 1999 |        | 1998   |  | 1997
|                      |       |                         |        |        |  |      |        |        |  |     
|                      |       |                        
|                      |       | (In thousands)         
|Workers Compensation |       | $                       | 10,744 |        |  | $    | 16,741 |        |  | $    | 13,157 |        |  | $ | 14,344 |        |  | $ | 12,841 |       
|Business Automobile   |       |                         | 5,412  |        |  |      | 4,918  |        |  |      | 2,876  |        |  |   | 3,750  |        |  |   | 4,031  |       
|General Liability     |       |                         | 2,610  |        |  |      | 2,531  |        |  |      | 1,251  |        |  |   | 1,619  |        |  |   | 1,387  |       
|Property              |       |                         | 6,813  |        |  |      | 4,386  |        |  |      | 2,119  |        |  |   | 2,100  |        |  |   | 1,657  |       
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                      | Total |                         | $      | 25,579 |  |      | $      | 28,576 |  |      | $      | 19,403 |  |   | $      | 21,813 |  |   | $      | 19,916 | 
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

Association
Casualty.Association Casualty is a
property-casualty insurance company that has historically
specialized in workers compensation insurance in the state
of Texas. During 2000, Association Casualty began offering
general liability, property, automobile, and other commercial
coverages to complement its existing book of business and
continued these efforts in 2001.

Association Casualty is licensed to do business
in eight states. Currently, its principal marketing territory is
Texas.

Association Casualty had net earned premiums of
$25.7 million, of which 88.6% was workers
compensation business during 2001 compared to 94.7% during the
same period for 2000.

3



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##### Table of Contents



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

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



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




Bankers
Fidelity

Bankers Fidelity, which constitutes the life and
health operations of the Company, offers a variety of life and
supplemental health products with a focus on the senior markets.
Products offered by Bankers Fidelity include: ordinary life,
Medicare supplement, cancer, and other supplemental health
insurance products. Health business, primarily Medicare
supplement, accounted for 74.5% of Bankers Fidelitys net
premiums in 2001. Life insurance, including both whole and term
life insurance policies, accounted for 25.5% of Bankers
Fidelitys premiums in 2001. In terms of the number of
policies written in 2001, 48% were life policies and 52% were
health policies.

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

|                                  |                           |                                    |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|--------------------------------- | ------------------------- | ---------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                  |                           |                                   
|                                  |                           | Year Ended December 31,           
|                                  |                           |                                   
|                                  |                           | 2001                               |        | 2000   |        | 1999 |        | 1998   |        | 1997
|                                  |                           |                                    |        |        |        |      |        |        |        |     
|                                  |                           |                                   
|                                  |                           | (In thousands)                    
|Life Insurance                    |                           | $                                  | 14,096 |        |        | $    | 13,445 |        |        | $    | 12,499 |        |        | $ | 11,748 |        |        | $ | 10,453 |       
|                                  |                           |                                    |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Medicare Supplement               |                           |                                    | 38,268 |        |        |      | 31,295 |        |        |      | 25,822 |        |        |   | 19,743 |        |        |   | 12,534 |       
|Cancer, Accident and Other Health |                           |                                    | 2,912  |        |        |      | 2,899  |        |        |      | 3,206  |        |        |   | 2,986  |        |        |   | 3,980  |       
|                                  |                           |                                    |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  | Total Accident and Health |                                    |        | 41,180 |        |      |        | 34,194 |        |      |        | 29,028 |        |   |        | 22,729 |        |   |        | 16,514 |       
|                                  |                           |                                    |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  |                           | Total Life and Accident and Health |        | $      | 55,276 |      |        | $      | 47,639 |      |        | $      | 41,527 |   |        | $      | 34,477 |   |        | $      | 26,967 | 
|                                  |                           |                                    |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       

Life Products.Bankers Fidelity offers non-participating individual term and
whole life insurance policies with a variety of riders and
options.

Medicare Supplement.Bankers Fidelity currently markets 7 of the 10 standardized
Medicare supplement policies created under the Omnibus Budget
Reconciliation Act of 1990 (OBRA 1990), which are
designed to provide insurance coverage for certain expenses not
covered by the Medicare program, including copayments and
deductibles.

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

4



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##### Table of Contents






Marketing

Casualty
Operations

American Southern.American Southerns business is marketed through a small
number of specialized, experienced independent agents. Most of
American Southerns agents are paid a moderate up-front
commission with the potential for additional commission by
participating in a profit sharing arrangement that is directly
linked to the profitability of the business generated. In
addition, a significant portion (approximately 40.3% of total
written premium in 2001) of American Southerns premiums
are assumed from third parties. In arrangements similar to those
with its agents, the premium assumed from some of these parties
is adjusted based upon the profitability of the assumed
business. During 1998, American Southern formed American Auto
Club Insurance Agency, LLC in a 50/50 joint venture with the AAA
of the Carolinas motor club to market personal automobile
insurance to the members of the automobile club. The program,
which began writing business in 1999, had gross written premiums
of approximately $6.1 million during 2001.

Association
Casualty.Association Casualty is
represented by a field force of approximately
110 independent agents for the sale and distribution of its
insurance products. Each agency is a party to a standard agency
contract that sets forth the commission structure and other
terms and can be terminated by either party. Association
Casualty also offers a contingent profit sharing arrangement
that allows the most profitable agents to earn additional
commissions when specific loss experience and premium growth
goals are achieved. Marketing efforts are handled by an
experienced staff of insurance professionals.

Georgia Casualty.Georgia Casualty is represented by a field force of
approximately 75 independent agents for the sale and
distribution of its insurance products. Each agency is a party
to a standard agency contract that sets forth the commission
structure and other terms and can be terminated by either party
upon thirty days written notice. Georgia Casualty also offers a
contingent profit-sharing arrangement that allows the most
profitable agents to earn additional commissions when specific
loss experience and premium growth goals are achieved. Marketing
efforts, directed by experienced marketing professionals, are
complemented by the underwriting, risk management, and audit
staffs of Georgia Casualty, who are available to assist agents
in the presentation of all insurance products and services to
their insureds.

Bankers
Fidelity

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

Bankers Fidelity has implemented a selective
agent qualification process and had 2,533 licensed agents in
2001. The agents concentrate their sales activities in either
the accident and health or life insurance product lines. During
2001, a total of 1,314 agents wrote policies on behalf of
Bankers Fidelity.

Products of Bankers Fidelity compete directly
with products offered by other insurance companies, as agents
may represent several insurance companies. Bankers Fidelity, in
an effort to motivate agents to market their products, offers
the following agency services: a unique lead system, competitive
products and commission structures, efficient claims service,
prompt payment of commissions, simplified policy issue
procedures, periodic sales incentive programs and, in some
cases, protected sales territories consisting of counties and/or
zip codes.

The company utilizes a distribution sales system
which is centered around a lead generation plan that rewards
qualified agents with leads in accordance with monthly
production goals. In addition, a protected territory is
established for each qualified agent, which entitles them to all
leads produced within that

5



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##### Table of Contents



territory. The territories are zip code or county
based and encompass enough physical territory to produce a
minimum senior population of 12,000. In addition, Bankers
Fidelity recruits at a general agent level rather than at a
managing general agent level in an effort to reduce commission
expenses further.


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




Underwriting

Casualty
Operations

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

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

American Southern also acts as a reinsurer with
respect to all of the risks associated with certain automobile
policies issued by state administrative agencies, naming the
state and various local governmental entities as insureds.
Premiums written from such policies constituted $20.4 million of
American Southerns gross premiums written in 2001. For
2001, premiums assumed of $20.4 million, include a single
state contract of $14.1 million. These contracts are
periodically subject to competitive renewal quotes and the loss
of a significant contract could have a material adverse effect
on the business or financial condition of the Company. (See
Note 9 of Notes to Consolidated Financial Statements.)

Bankers
Fidelity

Bankers Fidelity issues a variety of products for
both health and life, which includes Medicare Supplement and
mainly senior life products typically with small face amounts of
not less than $1,000 and up. The majority of its products are
Yes or No applications which are
underwritten on a non-medical basis. Bankers Fidelity offers
products to all age groups, but primarily to the senior market.
For life products other than the senior market, the company may
require medical information such as medical examinations subject
to age and face amount based on published guidelines. For
example, such medical information is ordered for all applicants
regardless of age and face amounts of $50,000 and above. For
face amounts of $5,000 to $49,999 medical information is ordered
only for ages 51 and above. Approximately, 95% of the net
premiums earned for both health and life insurance sold during
2001 were derived from insurance written below Bankers
Fidelitys medical limits. For the senior market, Bankers
Fidelity issues products primarily on an accept-or-reject basis
with face amounts up to $30,000 for ages 45-70, $20,000 for ages
71-80 and $10,000 for ages 81-85. Bankers Fidelity retains
a maximum amount of $50,000 with respect to any individual life
(see Reinsurance).

Applications for insurance are reviewed to
determine the face amount, age, and medical history. Depending
upon this information and information obtained from the Medical
Information Bureau (M.I.B.) report, paramedical requirements,
medical records, and, where indicated, special tests are
ordered. If

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deemed necessary, Bankers Fidelity may use
investigative services to supplement and substantiate
information. For certain limited coverages, Bankers Fidelity has
adopted simplified policy issue procedures by which an
application containing a variety of Yes/No health related
questions is submitted. For these plans, a M.I.B. report is
always ordered, however, paramedical requirements and medical
records are not ordered in most cases. Presently, approximately
10-15% of all applications for individuals under age 80 are
verified by telephone interview with the client. For ages 80 and
above, 100% of applications are verified by telephone interview.





Policyholder and Claims Services

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

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

Casualty
Operations

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

Bankers
Fidelity

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

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Reserves

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

|                                     |                          |                |         |         |         |      |         |         |        |   |         |        |        | 
|------------------------------------ | ------------------------ | -------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------ | - | ------- | ------ | ------ | 
|                                     |                          |               
|                                     |                          | (In thousands)
|                                     |                          | 2001           |         | 2000    |         | 1999
|                                     |                          |                |         |         |         |     
|Balance at January 1                 |                          | $              | 133,220 |         |         | $    | 126,556 |         |        | $ | 86,768  |       
|Less: Reinsurance recoverables       |                          |                | (38,851 | )       |         |      | (38,759 | )       |        |   | (22,625 | )     
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|                                     | Net balance at January 1 |                |         | 94,369  |         |      |         | 87,797  |        |   |         | 64,143 |       
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|Incurred related to:                 |                          |                |         |         |         |      |         |         |        |   |         |       
|                                     | Current year             |                |         | 108,068 |         |      |         | 102,336 |        |   |         | 79,328 |       
|                                     | Prior years              |                |         | (2,415  | )       |      |         | (6,085  | )      |   |         | (2,427 | )     
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|                                     |                          | Total incurred |         |         | 105,653 |      |         |         | 96,251 |   |         |        | 76,901 | 
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|Paid related to:                     |                          |                |         |         |         |      |         |         |        |   |         |       
|                                     | Current year             |                |         | 59,506  |         |      |         | 54,313  |        |   |         | 44,623 |       
|                                     | Prior years              |                |         | 44,730  |         |      |         | 35,366  |        |   |         | 28,558 |       
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|                                     |                          | Total paid     |         |         | 104,236 |      |         |         | 89,679 |   |         |        | 73,181 | 
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|Reserves acquired due to acquisition |                          |                |        |         |         |      |        |         |        |   | 19,934  |       
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|Net balance at December 31           |                          |                | 95,786  |         |         |      | 94,369  |         |        |   | 87,797  |       
|Plus: Reinsurance recoverables       |                          |                | 47,729  |         |         |      | 38,851  |         |        |   | 38,759  |       
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       
|Balance at December 31               |                          | $              | 143,515 |         |         | $    | 133,220 |         |        | $ | 126,556 |       
|                                     |                          |                |         |         |         |      |         |         |        |   |         |       

Casualty
Operations

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

The casualty operations establish reserves for
claims based upon: (a) managements estimate of ultimate
liability and claim adjusters evaluations for unpaid
claims reported prior to the close of the accounting period, (b)
estimates of incurred but not reported claims based on past
experience, and (c) estimates of LAE. The estimated
liability is continually reviewed and updated, and changes to
the estimated liability are recorded in the statement of
operations in the year in which such changes become known.

The table on the following page sets forth the
development of balance sheet reserves for unpaid losses and LAE
for the casualty operations insurance lines for 1991
through 2001, including periods prior to the Companys
ownership of American Southern and Association Casualty. The top
line of the table represents the estimated amount of losses and
LAE for claims arising in all prior years that were unpaid at
the balance sheet date for each of the indicated periods,
including an estimate of losses that have been incurred but not
yet reported. The amounts represent initial reserve estimates at
the respective balance

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sheet dates for the current and all prior years.
The next portion of the table shows the cumulative amounts paid
with respect to claims in each succeeding year. The lower
portion of the table shows the reestimated amounts of previously
recorded reserves based on experience as of the end of each
succeeding year.


The reserve estimates are modified as more
information becomes known about the frequency and severity of
claims for individual years. The cumulative redundancy or
deficiency for each year represents the aggregate change
in such years estimates through the end of 2001. In
evaluating this information, it should be noted that the amount
of the redundancy or deficiency for any year represents the
cumulative amount of the changes from initial reserve estimates
for such year. Operations for any one year are only affected,
favorably or unfavorably, by the amount of the change in the
estimate for such year. Conditions and trends that have affected
development of the reserves in the past may not necessarily
occur in the future. Accordingly, it is inappropriate to predict
future redundancies or deficiencies based on the data in this
table.

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|                                     |                   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------ | ----------------- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                     |                   |                        
|                                     |                   | Year Ended December 31,
|                                     |                   |                        
|                                     |                   | 2001                    |        | 2000   |  | 1999 |        | 1998   |  | 1997 |        | 1996   |  | 1995 |        | 1994   |  | 1993 |        | 1992   |  | 1991
|                                     |                   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |     
|                                     |                   |                        
|                                     |                   | (in thousands)         
|Statutory reserve for losses and LAE |                   | $                       | 88,709 |        |  | $    | 88,247 |        |  | $    | 82,867 |        |  | $    | 78,320 |        |  | $    | 78,444 |        |  | $    | 74,115 |        |  | $ | 70,470 |        |  | $ | 65,970 |        |  | $ | 64,211 |        |  | $ | 59,720 |        |  | $ | 59,354 |       
|Cumulative paid as of:               |                   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                     | One year later    |                         |        |        |  |      |        | 37,970 |  |      |        | 30,278 |  |      |        | 26,454 |  |      |        | 24,247 |  |      |        | 25,445 |  |   |        | 29,538 |  |   |        | 18,133 |  |   |        | 24,247 |  |   |        | 22,478 |  |   |        | 24,964 | 
|                                     | Two years later   |                         |        |        |  |      |        |        |  |      |        | 46,489 |  |      |        | 40,491 |  |      |        | 35,534 |  |      |        | 34,409 |  |   |        | 39,084 |  |   |        | 34,485 |  |   |        | 30,754 |  |   |        | 34,055 |  |   |        | 36,123 | 
|                                     | Three years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        | 49,341 |  |      |        | 42,513 |  |      |        | 39,579 |  |   |        | 43,597 |  |   |        | 39,091 |  |   |        | 42,480 |  |   |        | 36,757 |  |   |        | 42,980 | 
|                                     | Four years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 47,412 |  |      |        | 43,171 |  |   |        | 46,334 |  |   |        | 40,885 |  |   |        | 45,530 |  |   |        | 46,676 |  |   |        | 44,153 | 
|                                     | Five years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 45,393 |  |   |        | 48,555 |  |   |        | 42,551 |  |   |        | 46,805 |  |   |        | 49,082 |  |   |        | 53,079 | 
|                                     | Six years later   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        | 49,958 |  |   |        | 44,244 |  |   |        | 48,012 |  |   |        | 50,206 |  |   |        | 55,146 | 
|                                     | Seven years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        | 45,412 |  |   |        | 49,419 |  |   |        | 51,244 |  |   |        | 56,069 | 
|                                     | Eight years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 50,399 |  |   |        | 52,483 |  |   |        | 57,014 | 
|                                     | Nine years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 53,418 |  |   |        | 58,136 | 
|                                     | Ten years later   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 59,011 | 
|Ultimate losses and LAE              |                   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|Reestimated as of:                   |                   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |       
|                                     | End of Year       |                         | $      | 88,709 |  |      |        | 88,247 |  |      |        | 82,867 |  |      |        | 78,320 |  |      |        | 78,444 |  |      |        | 74,115 |  |   |        | 70,470 |  |   |        | 65,970 |  |   |        | 64,211 |  |   |        | 59,720 |  |   |        | 59,354 | 
|                                     | One year later    |                         |        |        |  |      |        | 85,694 |  |      |        | 77,347 |  |      |        | 74,985 |  |      |        | 68,338 |  |      |        | 67,772 |  |   |        | 70,778 |  |   |        | 56,945 |  |   |        | 61,054 |  |   |        | 58,371 |  |   |        | 61,705 | 
|                                     | Two years later   |                         |        |        |  |      |        |        |  |      |        | 74,370 |  |      |        | 71,453 |  |      |        | 65,374 |  |      |        | 60,257 |  |   |        | 65,716 |  |   |        | 59,266 |  |   |        | 54,329 |  |   |        | 56,072 |  |   |        | 60,324 | 
|                                     | Three years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        | 70,278 |  |      |        | 63,674 |  |      |        | 58,693 |  |   |        | 61,121 |  |   |        | 57,047 |  |   |        | 60,145 |  |   |        | 50,916 |  |   |        | 59,397 | 
|                                     | Four years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 62,764 |  |      |        | 58,442 |  |   |        | 61,085 |  |   |        | 53,995 |  |   |        | 60,381 |  |   |        | 60,701 |  |   |        | 55,503 | 
|                                     | Five years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        | 57,800 |  |   |        | 61,030 |  |   |        | 54,732 |  |   |        | 58,217 |  |   |        | 61,685 |  |   |        | 65,761 | 
|                                     | Six years later   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        | 60,709 |  |   |        | 55,339 |  |   |        | 59,280 |  |   |        | 60,606 |  |   |        | 66,822 | 
|                                     | Seven years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        | 55,317 |  |   |        | 60,027 |  |   |        | 61,796 |  |   |        | 65,696 | 
|                                     | Eight years later |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 60,074 |  |   |        | 62,845 |  |   |        | 66,604 | 
|                                     | Nine years later  |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 62,971 |  |   |        | 67,974 | 
|                                     | Ten years later   |                         |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 68,289 | 
|Cumulative redundancy (deficiency)   |                   |                         |        |        |  | $    | 2,553  |        |  | $    | 8,497  |        |  | $    | 8,042  |        |  | $    | 15,680 |        |  | $    | 16,315 |        |  | $ | 9,761  |        |  | $ | 10,653 |        |  | $ | 4,137  |        |  | $ | (3,251 | )      |  | $ | (8,935 | )     
|                                     |                   |                         |        |        |  |      | 2.9    | %      |  |      | 10.3   | %      |  |      | 10.3   | %      |  |      | 20.0   | %      |  |      | 22.0   | %      |  |   | 13.9   | %      |  |   | 16.1   | %      |  |   | 6.4    | %      |  |   | -5.4   | %      |  |   | -15.1  | %     

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Bankers
Fidelity

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




Reinsurance

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

Casualty
Operations

American Southern.The limits of risks retained by
American Southern vary by type of policy and insured, and
amounts in excess of such limits are reinsured. The largest net
amount insured in any one risk is $100,000. Reinsurance is
generally maintained as follows: for fire, inland marine, and
commercial automobile physical damage, recovery of losses over
$40,000 up to $90,000. Net retentions for third party losses are
generally over $35,000 up to $100,000. Catastrophe coverage for
all lines except third party liability is for 95% of
$6.6 million over $400,000.

Association Casualty.Association Casualty retains a maximum
amount of $250,000 per occurrence on workers compensation
up to $20.0 million. Limits per occurrence within the
treaties are as follows: Automobile and general
liability  $2.0 million excess $150,000
retention; Property  $3.0 million excess
$100,000 retention. The property lines of coverage are protected
with an excess of loss treaty which affords recovery for
property losses in excess of $3.0 million up to a maximum
of $5.0 million.

Georgia Casualty.Georgia Casualtys basic treaties
cover all claims in excess of $200,000 per occurrence. Limits
per occurrence within the treaties and excess of the retention
are as follows: Workers compensation statutory limits;
Property per location  $10.0 million; Excess of
policy and extra contractual obligations 
$10.0 million; Liability  $6.0 million;
Surety  $3.0 million; and Auto
liability  $1.0 million. Georgia Casualty
maintains a property catastrophe treaty with a
$7.15 million limit excess of a $350,000 retention. In
2001, Georgia Casualty entered into a quota share reinsurance
program to cover 40% of the first $200,000 of occurrence losses
and the first $350,000 of catastrophe losses on policies written
after January 1, 2001.

Bankers
Fidelity

Bankers Fidelity has entered into reinsurance
contracts ceding the excess of their retention to several
primary reinsurers. Maximum retention by Bankers Fidelity on any
one individual in the case of life insurance policies is
$50,000. At December 31, 2001, Bankers Fidelitys
reinsured annualized premiums totaled $29.9 million of the
$305.9 million of life insurance then in force, generally
under yearly renewable term agreements. Certain reinsurance
agreements that are no longer active for new business remain in
force.

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##### Table of Contents






Competition

Casualty
Operations

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

Association Casualty.As a writer of workers
compensation insurance, Association Casualtys biggest
competition comes from carriers that can provide insureds with
all of their commercial insurance needs. In addition, the State
of Texas operates a state workers compensation fund that
competes directly with the carriers in the state. Association
Casualty counters these competitive issues by offering high
quality service. Additionally, Association Casualty began
writing additional commercial coverages in 2000 in an effort to
make itself more competitive and has continued to diversify its
book of business in 2001.

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

Bankers
Fidelity

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




Rating

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

In 1999, for the first time, Atlantic American
Corporation and its subsidiaries underwent a rating and review
process by Standard & Poors. As a result of the
review, each of the Companys insurance subsidiaries was
assigned a single A- counterparty credit and
financial strength rating. This rating was affirmed in 2000 and
now includes Association Casualty.

On November 1, 2000 these ratings were
placed on CreditWatch with negative implications. On
March 14, 2001, Standard & Poors removed the
Company from CreditWatch and lowered its

12



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##### Table of Contents



counterparty credit rating and financial strength
rating to BBB+/ Neg and BBB+,
respectively from a single A-. Currently, these
ratings remain unchanged.


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

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

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

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

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




Regulation

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

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

A state may require that acceptable securities be
deposited for the protection either of policyholders located in
those states or of all policyholders. As of December 31,
2001, $15.9 million of securities were on deposit either
directly with various state authorities or with third parties
pursuant to various custodial agreements on behalf of Bankers
Fidelity and the Casualty Operations.

Virtually all of the states in which the
Companys insurance subsidiaries are licensed to transact
business require participation in their respective guaranty
funds designed to cover claims against insolvent insurers.
Insurers authorized to transact business in these jurisdictions
are generally subject to assessments of up to 4% of annual
direct premiums written in that jurisdiction to pay such claims,
if any. The occurrence and amount of such assessments has
increased in recent years. The likelihood and amount of any
future assessments cannot be estimated until an insolvency has
occurred. For the last five years, the amount incurred by the
Company was not material.

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##### Table of Contents






NAIC Ratios

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

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

For the year ended December 31, 2001,
American Southern, Bankers Fidelity, and Georgia Casualty were
within the NAIC usual range for all 13 financial
ratios. Association Casualty was outside the usual
range on two ratios, the change in net writings and the two-year
overall operating ratio. The change in the net writings variance
resulted primarily from a change in the methodology used by
Association Casualty to recognize written premiums. During the
fourth quarter of 2000, Association Casualty began recognizing
written premiums on an annualized basis instead of using the
installment method. Significant premium rate increases during
2001 also contributed to the change in the net writings
variance. The two year overall operating ratio was outside the
usual range primarily due to adverse development on
prior year losses.




Risk-Based Capital

Risk-based capital (RBC) is used by
rating agencies and regulators as an early warning tool to
identify weakly capitalized companies for the purpose of
initiating further regulatory action. The RBC calculation
determines the amount of Adjusted Capital needed by a company to
avoid regulatory action. Authorized Control Level
Risk-Based Capital (ACL) is calculated; if a
companys adjusted capital is 200% or lower than ACL, it is
subject to regulatory action. At December 31, 2001, all of
the Companys insurance subsidiaries exceeded the RBC
regulatory levels.

14



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##### Table of Contents






Investments

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

|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |      |       |  
|------------------------------------- | ------------------------------------------------- | ------------------------- | ------ | ------- | ------- | ------ | ---- | ------- | ----- | ------ | ------ | ------- | ------- |  | ---- | ---- | ----- | - | ------ | ------- | ------- |  | ---- | ---- | ----- | -
|                                      |                                                   |                          
|                                      |                                                   | December 31,             
|                                      |                                                   |                          
|                                      |                                                   |                           |        |         |         |       
|                                      |                                                   | 2001                      |        | 2000    |         | 1999  
|                                      |                                                   |                           |        |         |         |       
|                                      |                                                   | Amount                    |        | Percent |         | Amount |      | Percent |       | Amount |        | Percent
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |        
|                                      |                                                   |                          
|                                      |                                                   | (Dollars in thousands)   
|Fixed maturities:                     |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|Bonds:                                |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      | U.S. Government agencies and authorities          |                           | $      | 81,440  |         |        |      | 34.2    | %     |        | $      | 117,564 |         |  |      | 50.9 | %     |   | $      | 106,816 |         |  |      | 48.3 | %    
|                                      | States, municipalities and political subdivisions |                           |        | 4,317   |         |        |      | 1.8     |       |        |        | 4,088   |         |  |      | 1.8  |       |   |        | 4,078   |         |  |      | 1.8  |      
|                                      | Public utilities                                  |                           |        | 4,229   |         |        |      | 1.8     |       |        |        | 3,671   |         |  |      | 1.6  |       |   |        | 2,009   |         |  |      | 0.9  |      
|                                      | Convertibles and bonds with warrants attached     |                           |        |        |         |        |      | NIL     |       |        |        |        |         |  |      | NIL  |       |   |        |        |         |  |      | NIL  |      
|                                      | All other corporate bonds                         |                           |        | 42,124  |         |        |      | 17.7    |       |        |        | 32,721  |         |  |      | 14.2 |       |   |        | 21,015  |         |  |      | 9.5  |      
|                                      | Certificates of deposit                           |                           |        | 1,360   |         |        |      | 0.6     |       |        |        | 1,360   |         |  |      | 0.6  |       |   |        | 3,082   |         |  |      | 1.4  |      
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      |                                                   | Total fixed maturities(1) |        |         | 133,470 |        |      |         | 56.1  |        |        |         | 159,404 |  |      |      | 69.1  |   |        |         | 137,000 |  |      |      | 61.9  |  
|Common and preferred stocks(2)        |                                                   |                           | 54,628 |         |         |        | 22.9 |         |       |        | 43,945 |         |         |  | 19.0 |      |       |   | 48,684 |         |         |  | 22.0 |     
|Mortgage, policy and student loans(3) |                                                   |                           | 6,134  |         |         |        | 2.6  |         |       |        | 6,636  |         |         |  | 2.9  |      |       |   | 7,394  |         |         |  | 3.3  |     
|Other invested assets(4)              |                                                   |                           | 4,854  |         |         |        | 2.0  |         |       |        | 5,862  |         |         |  | 2.5  |      |       |   | 5,717  |         |         |  | 2.6  |     
|Real estate                           |                                                   |                           | 46     |         |         |        | NIL  |         |       |        | 46     |         |         |  | NIL  |      |       |   | 46     |         |         |  | NIL  |     
|Short-term investments(5)             |                                                   |                           | 39,151 |         |         |        | 16.4 |         |       |        | 15,013 |         |         |  | 6.5  |      |       |   | 22,471 |         |         |  | 10.2 |     
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     
|                                      |                                                   | Total investments         |        | $       | 238,283 |        |      |         | 100.0 | %      |        | $       | 230,906 |  |      |      | 100.0 | % |        | $       | 221,312 |  |      |      | 100.0 | %
|                                      |                                                   |                           |        |         |         |        |      |         |       |        |        |         |         |  |      |      |       |   |        |         |         |  |      |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fixed maturities are carried on the balance sheet
	at market value. Total cost of fixed maturities was
	$132.2 million as of December 31, 2001,
	$160.6 million as of December 31, 2000, and
	$143.2 million as of December 31, 1999.                                                                                                                            
|   
|(2) | Equity securities are valued at market. Total
	cost of equity securities was $41.7 million as of
	December 31, 2001, $32.1 million as of
	December 31, 2000, and $31.2 million as of
	December 31, 1999.                                                                                                                                                         
|   
|(3) | Mortgage loans and policy and student loans are
	valued at historical cost.                                                                                                                                                                                                                                                                                      
|   
|(4) | Investments in other invested assets which are
	traded are valued at estimated market value and those in which
	the Company has significant influence are accounted for using
	the equity method. Total cost of other invested assets was
	$5.1 million as of December 31, 2001,
	$6.0 million as of December 31, 2000 and
	$4.9 million as of December 31, 1999.
|   
|(5) | Short-term investments are valued at cost, which
	approximates market value.                                                                                                                                                                                                                                                                                     

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##### Table of Contents



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

|                               |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                               |  |                        
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2001                    |         | 2000 |  | 1999
|                               |  |                         |         |      |  |     
|                               |  |                        
|                               |  | (Dollars in thousands) 
|Average investments(1)         |  | $                       | 227,922 |      |  | $    | 222,369 |   |  | $ | 205,387 |  
|Net investment income          |  |                         | 14,141  |      |  |      | 15,320  |   |  |   | 12,434  |  
|Average yield on investments   |  |                         | 6.20    | %    |  |      | 6.89    | % |  |   | 6.05    | %
|Realized investment gains, net |  |                         | 1,708   |      |  |      | 1,922   |   |  |   | 2,831   |  



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




Employees

The Company and its subsidiaries employed 264
people at December 31, 2001.




Financial Information By Industry
Segment

The Companys primary insurance subsidiaries
operate with relative autonomy and each company is evaluated
based on its individual performance. American Southern,
Association Casualty, and Georgia Casualty operate in the
Property and Casualty insurance market, while Bankers Fidelity
operates in the Life and Health insurance market. All segments
derive revenue from the collection of premiums, as well as from
investment income. Substantially all revenue other than those in
the corporate and other segment are from external sources. (See
Note 15 of Notes to Consolidated Financial Statements.)




Executive Officers of the Registrant

The table below and the information following the
table set forth, for each executive officer of the Company as of
March 1, 2002, his name, age, positions with the Company,
principal occupation, and business experience for the past five
years and prior service with the Company (based upon information
supplied by each of them).

|                      |  |     |    |                           |  |                           |  |  |      | 
|--------------------- |  | --- | -- | ------------------------- |  | ------------------------- |  |  | ---- | 
|                      |  |     |    |                           |  | Director or              
|Name                  |  | Age |    | Position with the Company |  | Officer Since            
|                      |  |     |    |                           |  |                          
|J. Mack Robinson      |  |     | 78 |                           |  | Chairman of the Board     |  |  | 1974 | 
|Hilton H. Howell, Jr. |  |     | 39 |                           |  | Director, President & CEO |  |  | 1992 | 

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

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

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




Forward-Looking Statements

Certain of the statements and subject matters
contained herein that are not based upon historical or current
facts deal with or may be impacted by potential future
circumstances and developments, and should be considered
forward-looking and subject to various risks and uncertainties.
Such forward-looking statements are made based upon
managements belief, as well as assumptions made by and
information currently available to management pursuant to
safe harbor provisions of the Private Securities
Litigation

16



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##### Table of Contents



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





Item 2.     Properties

Owned Properties.The Company owns two parcels of
unimproved property consisting of a total of approximately seven
acres located in Fulton and Washington Counties, Georgia. At
December 31, 2001, the aggregate book value of such
properties was approximately $46,000.

Leased Properties.The Company leases space for its
principal offices and for some of its insurance operations in an
office building located in Atlanta, Georgia, from Delta Life
Insurance Company, under leases which expire at various times
from May 31, 2002 to July 31, 2005. Under the current
terms of the leases, the Company occupies approximately 65,489
square feet of office space. Delta Life Insurance Company, the
owner of the building, is controlled by J. Mack Robinson,
Chairman of the Board of Directors and the largest shareholder
of the Company. The terms of the leases are believed by Company
management to be comparable to terms which could be obtained by
the Company from unrelated parties for comparable rental
property.

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

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

SIA, Inc. leases space for its principal offices
in a building located in Stone Mountain, Georgia. The lease term
expires December 31, 2003. Under the terms of the lease,
SIA, Inc. occupies 1,787 square feet.




Item 3.     Legal
Proceedings

Litigation

During 2000, American Southern renewed one of its
larger accounts. Although this contract was renewed through a
competitive bidding process, one of the parties bidding for this
particular contract contested the award of this business to
American Southern and filed a claim to obtain the nullification
of the contract. During the fourth quarter of 2000, American
Southern received an unfavorable judgment relating to this
litigation and has appealed the ruling. The contract, which
accounts for approximately 10% of annualized premium revenue, is
to remain in effect pending appeal. While management at this
time cannot predict the potential outcome in this case, or
quantify the actual impact of an adverse decision, it may have a
material impact on the future results of operations of the
Company.

17



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##### Table of Contents



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






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

There were no matters submitted to a vote of the
Companys shareholders during the quarter ended
December 31, 2001.




PART II






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

The Companys common stock is quoted on the
Nasdaq National Market (Symbol: AAME). As of March 19,
2002, there were 4,886 shareholders of record. The following
table sets forth for the periods indicated the high and low sale
prices of the Companys common stock as reported on the
Nasdaq National Market.

|                        |             |      |       |     |      
|----------------------- | ----------- | ---- | ----- | --- | -----
|Year Ending December 31 |             | High |       | Low
|                        |             |      |       |    
|2001                    |             |      |       |    
|                        | 1st quarter |      | $2.06 |     | $1.63
|                        | 2nd quarter |      | 2.06  |     | 1.00 
|                        | 3rd quarter |      | 2.31  |     | 0.75 
|                        | 4th quarter |      | 3.10  |     | 1.00 
|2000                    |             |      |       |    
|                        | 1st quarter |      | $2.94 |     | $2.25
|                        | 2nd quarter |      | 3.38  |     | 2.50 
|                        | 3rd quarter |      | 2.75  |     | 1.75 
|                        | 4th quarter |      | 2.50  |     | 1.75 

The Company has not paid dividends to its common
shareholders since the fourth quarter of 1988. Payment of
dividends in the future will be at the discretion of the
Companys Board of Directors and will depend upon the
financial condition, capital requirements, and earnings of the
Company as well as other factors as the Board of Directors may
deem relevant. The Companys primary sources of cash for
the payment of dividends are dividends from its subsidiaries.
Under the insurance code of the state of jurisdiction under
which each insurance subsidiary operates, cumulative dividend
payments to the Parent by its insurance subsidiaries are limited
to the greater of 10% of accumulated statutory earnings or
statutory net income before recognizing realized investment
gains of the insurance subsidiaries without the prior approval
of the Insurance Commissioner. The Companys principal
insurance subsidiaries had the following accumulated statutory
earnings as of December 31, 2001: Georgia
Casualty  $14.5 million, American
Southern  $33.7 million, Association
Casualty  $13.7 million, Bankers Fidelity
Life  $22.7 million. The Company has elected to
retain its earnings to grow its business and does not anticipate
paying cash dividends on its common stock in the foreseeable
future.

18



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##### Table of Contents






Item 6.     Selected
Financial Data

|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |       |         | 
|-------------------------------------------------------------------- | --------------------------------- | --------------------------------------------- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | ---- | ------- | ------ | ------- | - | ------- | ----- | ------- | - | ------- | ----- | ------- | 
|                                                                     |                                   | 2001                                          |         | 2000  |         | 1999 |         | 1998  |         | 1997
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |     
|                                                                     |                                   |                                              
|                                                                     |                                   | (Dollars in thousands, except per share data)
|Insurance premiums                                                   |                                   | $                                             | 145,589 |       |         | $    | 133,497 |       |         | $    | 107,594 |        |         | $ | 91,292  |       |         | $ | 88,682  |      
|Investment income                                                    |                                   |                                               | 14,317  |       |         |      | 15,552  |       |         |      | 12,724  |        |         |   | 11,499  |       |         |   | 11,256  |      
|Other income                                                         |                                   |                                               | 1,694   |       |         |      | 1,287   |       |         |      | 1,172   |        |         |   | 366     |       |         |   | 201     |      
|Realized investment gains, net                                       |                                   |                                               | 1,708   |       |         |      | 1,922   |       |         |      | 2,831   |        |         |   | 2,909   |       |         |   | 1,076   |      
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     |                                   | Total revenue                                 |         |       | 163,308 |      |         |       | 152,258 |      |         |        | 124,321 |   |         |       | 106,066 |   |         |       | 101,215 | 
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|Insurance benefits and losses incurred                               |                                   |                                               | 106,896 |       |         |      | 97,628  |       |         |      | 78,162  |        |         |   | 60,845  |       |         |   | 61,018  |      
|Other expenses                                                       |                                   |                                               | 52,159  |       |         |      | 49,874  |       |         |      | 42,237  |        |         |   | 36,518  |       |         |   | 32,026  |      
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     |                                   | Total benefits and expenses                   |         |       | 159,055 |      |         |       | 147,502 |      |         |        | 120,399 |   |         |       | 97,363  |   |         |       | 93,044  | 
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|Income from continuing operations before
	provision for income taxes |                                   |                                               | 4,253   |       |         |      | 4,756   |       |         |      | 3,922   |        |         |   | 8,703   |       |         |   | 8,171   |      
|Income tax provision (benefit)                                       |                                   |                                               | 656     |       |         |      | 1,124   |       |         |      | (6,988  | )      |         |   | 145     |       |         |   | 138     |      
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     | Income from continuing operations |                                               |         | 3,597 |         |      |         | 3,632 |         |      |         | 10,910 |         |   |         | 8,558 |         |   |         | 8,033 |        
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     |                                   | Net income                                    |         | $     | 3,597   |      |         | $     | 3,632   |      |         | $      | 10,910  |   |         | $     | 8,558   |   |         | $     | 8,033   | 
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|Basic net income per common share:                                   |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     | Income from continuing operations |                                               | $       | .10   |         |      | $       | .12   |         |      | $       | .48    |         |   | $       | .37   |         |   | $       | .35   |        
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     |                                   | Net income                                    |         | $     | .10     |      |         | $     | .12     |      |         | $      | .48     |   |         | $     | .37     |   |         | $     | .35     | 
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|Diluted net income per common share:                                 |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     | Income from continuing operations |                                               | $       | .10   |         |      | $       | .12   |         |      | $       | .46    |         |   | $       | .37   |         |   | $       | .35   |        
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|                                                                     |                                   | Net income                                    |         | $     | .10     |      |         | $     | .12     |      |         | $      | .46     |   |         | $     | .37     |   |         | $     | .35     | 
|                                                                     |                                   |                                               |         |       |         |      |         |       |         |      |         |        |         |   |         |       |         |   |         |      
|Book value per common share                                          |                                   | $                                             | 3.37    |       |         | $    | 3.18    |       |         | $    | 3.12    |        |         | $ | 3.60    |       |         | $ | 3.27    |      
|Common shares outstanding                                            |                                   |                                               | 21,246  |       |         |      | 21,157  |       |         |      | 21,027  |        |         |   | 19,120  |       |         |   | 18,907  |      
|Total assets                                                         |                                   | $                                             | 412,019 |       |         | $    | 375,777 |       |         | $    | 351,144 |        |         | $ | 273,131 |       |         | $ | 271,860 |      
|Total long-term debt                                                 |                                   | $                                             | 44,000  |       |         | $    | 46,500  |       |         | $    | 51,000  |        |         | $ | 23,600  |       |         | $ | 27,600  |      
|Total debt                                                           |                                   | $                                             | 44,000  |       |         | $    | 46,500  |       |         | $    | 51,000  |        |         | $ | 26,000  |       |         | $ | 28,600  |      
|Total shareholders equity                                           |                                   | $                                             | 87,526  |       |         | $    | 83,240  |       |         | $    | 78,948  |        |         | $ | 82,217  |       |         | $ | 78,183  |      






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

The following is managements discussion and
analysis of the financial condition and results of operations of
Atlantic American Corporation (Atlantic American or
the Company) and its subsidiaries for each of the
three years in the periods ended December 31, 2001, 2000
and 1999. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto included
elsewhere herein.

Atlantic American is an insurance holding company
whose operations are conducted through a group of regional
insurance companies: American Southern Insurance Company and
American Safety Insurance Company (together known as
American Southern); Association Casualty Insurance
Company and Association Risk Management General Agency, Inc.
(together known as Association Casualty); Georgia
Casualty & Surety Company (Georgia Casualty);
and Bankers Fidelity Life Insurance Company (Bankers
Fidelity). Each operating company is managed separately
based upon the geographic location or the type of products it
underwrites.

19



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##### Table of Contents



Significant Accounting Policies

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

Reinsurance receivables are amounts due from
reinsurers and comprise 12% of the Companys total assets
at December 31, 2001. Allowances for uncollectible amounts
are established against reinsurance receivables owed to the
Company under reinsurance contracts, if appropriate. Failure of
reinsurers to meet their obligations due to insolvencies or
disputes could result in uncollectible amounts and losses to the
Company.

Deferred income taxes comprise less than 1% of
the Companys total assets at December 31, 2001.
Deferred income taxes reflect the effect of temporary
differences between assets and liabilities that are recognized
for financial reporting purposes and the amounts that are
recognized for tax purposes. These deferred taxes are measured
by applying currently enacted tax laws. Valuation allowances are
recognized to reduce the deferred tax assets to the amount that
is more likely than not to be realized. In assessing the
likelihood of realization, management considers estimates of
future taxable income.

Deferred acquisition costs comprise 6% of the
Companys total assets at December 31, 2001. Deferred
acquisition costs are commissions, allowances, premium taxes,
and other costs that vary with and are primarily related to the
acquisition of new and renewal business and are generally
deferred and amortized. The deferred amounts are recorded as an
asset on the balance sheet and amortized to income in a
systematic manner. Traditional life insurance and long-duration
health insurance deferred policy acquisition costs are amortized
over the estimated premium-paying period of the related policies
using assumptions consistent with those used in computing policy
benefit reserves. The deferred acquisition costs for property
and casualty insurance and short-duration health insurance are
amortized over the effective period of the related insurance
policies. Deferred policy acquisition costs are expensed when
such costs are deemed not to be recoverable from future premiums
(for traditional life and long-duration health insurance) and
from the related unearned premiums and investment income (for
property and casualty and short-duration health insurance).

Unpaid claims and claim adjustment expenses
comprise 44% of the Companys total liabilities at
December 31, 2001. This obligation includes estimates for
both reported claims not yet paid, and claims incurred but not
yet reported. Unpaid claims and claim adjustment expense
reserves for reported claims are based on a case-by-case
evaluation of the type of claim involved, the circumstances
surrounding the claim, and the policy provisions relating to the
type of loss, along with anticipated future development.
Inflation and other factors which may affect claims payments are
implicitly reflected in the reserving process through analysis
of cost trends and reviews of historical reserve results.
Estimates of incurred but not reported claims is based on past
experience. If actual results differ from these assumptions, the
amount of the Companys recorded liability for unpaid
claims and claim adjustment expenses could require adjustment.

Future policy benefits comprise 14% of the
Companys total liabilities at December 31, 2001.
These liabilities relate to life insurance products, and are
based upon assumed future investment yields, mortality rates,
and withdrawal rates after giving effect to possible risks of
adverse deviation. The assumed mortality and withdrawal rates
are based upon the Companys experience. If actual results
differ from these assumptions, the amount of the Companys
recorded liability could require adjustment.

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

20



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##### Table of Contents






Overall Corporate Results

|                          |                      |                             |         |        |         |      |         |        |        |   |         |        |        | 
|------------------------- | -------------------- | --------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|Revenues                  |                      | 2001                        |         | 2000   |         | 1999
|                          |                      |                             |         |        |         |     
|                          |                      |                            
|                          |                      | (Dollars in thousands)     
|Property and Casualty:    |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          | American Southern    |                             | $       | 43,779 |         |      | $       | 42,487 |        |   | $       | 42,926 |       
|                          | Association Casualty |                             |         | 29,668 |         |      |         | 23,290 |        |   |         | 9,844  |       
|                          | Georgia Casualty     |                             |         | 28,515 |         |      |         | 32,048 |        |   |         | 23,214 |       
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          |                      | Total property and casualty |         |        | 101,962 |      |         |        | 97,825 |   |         |        | 75,984 | 
|Life and Health:          |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          | Bankers Fidelity     |                             |         | 60,244 |         |      |         | 53,587 |        |   |         | 47,511 |       
|Corporate and Other       |                      |                             | 1,102   |        |         |      | 846     |        |        |   | 826     |       
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       
|Total Revenues            |                      | $                           | 163,308 |        |         | $    | 152,258 |        |        | $ | 124,321 |       
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       
|Income before taxes       |                      |                             |         |        |         |      |         |        |        |   |         |       
|Property and Casualty:    |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          | American Southern    |                             | $       | 6,796  |         |      | $       | 6,130  |        |   | $       | 6,336  |       
|                          | Association Casualty |                             |         | (2,925 | )       |      |         | 256    |        |   |         | 301    |       
|                          | Georgia Casualty     |                             |         | 2,106  |         |      |         | (1,084 | )      |   |         | (1,271 | )     
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          |                      | Total property and casualty |         |        | 5,977   |      |         |        | 5,302  |   |         |        | 5,366  | 
|Life and Health:          |                      |                             |         |        |         |      |         |        |        |   |         |       
|                          | Bankers Fidelity     |                             |         | 3,370  |         |      |         | 4,371  |        |   |         | 3,982  |       
|Corporate and Other       |                      |                             | (5,094  | )      |         |      | (4,917  | )      |        |   | (5,426  | )     
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       
|Total income before taxes |                      | $                           | 4,253   |        |         | $    | 4,756   |        |        | $ | 3,922   |       
|                          |                      |                             |         |        |         |      |         |        |        |   |         |       

On a consolidated basis the Companys net
income for 2001 was $3.6 million or $.10 per diluted
share. Net income was $3.6 million ($.12 per diluted
share) in 2000 and $10.9 million ($.46 per diluted
share) in 1999. In 1999, net income was favorably impacted by a
$7.0 million deferred tax benefit related primarily to a
reduction in the Companys valuation allowance that had
previously been established against its net deferred tax asset
as compared to a benefit of $0.5 million in 2000 and
$0.8 million in 2001. Pre-tax income decreased from
$4.8 million in 2000 to $4.3 million in 2001. The
decline in pre-tax income for 2001 was due primarily to
unsatisfactory underwriting results in Association Casualty
related to adverse development on prior year losses. Excluding
Association Casualty, all of the Companys operating units
reported profitable results.

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

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##### Table of Contents



Underwriting Results



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

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

|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2001 |        | 2000 |  | 1999
|                                        |  |      |        |      |  |     
|Gross written premiums                  |  | $    | 45,490 |      |  | $    | 47,643 |   |  | $ | 44,070 |  
|Ceded premiums                          |  |      | (5,931 | )    |  |      | (4,603 | ) |  |   | (5,540 | )
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Net written premiums                    |  | $    | 39,559 |      |  | $    | 43,040 |   |  | $ | 38,530 |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Net earned premiums                     |  | $    | 39,023 |      |  | $    | 37,172 |   |  | $ | 38,166 |  
|Net losses and loss adjustment expenses |  |      | 26,069 |      |  |      | 26,185 |   |  |   | 26,934 |  
|Underwriting expenses                   |  |      | 10,914 |      |  |      | 10,172 |   |  |   | 9,656  |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Underwriting income                     |  | $    | 2,040  |      |  | $    | 815    |   |  | $ | 1,576  |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Loss ratio                              |  |      | 66.8   | %    |  |      | 70.4   | % |  |   | 70.6   | %
|Expense ratio                           |  |      | 28.0   | %    |  |      | 27.4   | % |  |   | 25.3   | %
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Combined ratio                          |  |      | 94.8   | %    |  |      | 97.8   | % |  |   | 95.9   | %
|                                        |  |      |        |      |  |      |        |   |  |   |        |  

Gross written premiums at American Southern
decreased $2.2 million during 2001 primarily as a result of
the loss of one of its state contracts. The loss of this
particular contract will result in a reduction in annualized
premium revenue of approximately $4.0 million. In addition,
the American Auto Club Insurance Agency (the Agency)
produced lower than expected gross written premiums during 2001.
The Agency is a joint venture between American Southern and the
AAA of the Carolinas motor club. American Southern holds a 50%
interest in the joint venture and underwrites the majority of
the standard automobile business written by the Agency. The
Agency was formed in 1998 to market personal automobile
insurance to members of the auto club. This program, which began
writing business in 1999, had gross written premiums of
approximately $6.1 million for 2001, a decrease of
$1.1 million or 15.3% from 2000.

Ceded premiums at American Southern increased
$1.3 million or 28.9% during 2001. The increase in ceded
premiums is due to several factors. First, the rates charged by
reinsurance companies increased approximately 10% over 2000. In
addition, American Southerns premiums are ceded on an
earned basis as opposed to on a written basis, which results in
an increase in ceded premiums when earned premiums increase.
Lastly, the company collected $0.4 million in penalty
premiums from a specific reinsurance agreement (the
Reinsurance Agreement) and remitted them to the
reinsurer. The Reinsurance Agreement is related to certain
program business and provides for additional penalty premiums
based on losses. During 2000, there were no penalty premiums
collected by American Southern and, as a result, ceded premiums
increased in 2001 over ceded premiums in 2000.

Gross written premiums at American Southern
increased $3.6 million in 2000 as compared to 1999
principally as a result of business produced by the Agency. The
decrease in ceded premiums of $0.9 million during 2000 was
primarily due to the Reinsurance Agreement. In 1999, American
Southern collected $0.8 million in penalty premiums and
remitted them to the reinsurer. As mentioned previously, there
were no penalty premiums collected in 2000 which resulted in the
decrease in ceded premiums during 2000 as compared to 1999.

In 2001, net earned premiums increased by 5.0% or
$1.9 million. The increase in net earned premiums was
primarily attributable to the higher gross written premium in
2000.

In addition to the business written through the
joint venture, American Southern produces much of its business
through contracts with various states and municipalities, some
of which represent significant amounts of revenue for the
company. These contracts are periodically subject to competitive
renewal

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##### Table of Contents



quotes and the loss of a significant contract
could have a material adverse effect on the business or
financial condition of American Southern and of the Company. In
an effort to increase the number of programs underwritten by
American Southern and to insulate it from the loss of any one
program, American Southern is continually evaluating new
underwriting programs. There can be no assurance, however, that
new programs or new accounts will offset lost business resulting
from non-renewals of accounts.


During 2000, American Southern renewed one of its
larger accounts. Although this contract was renewed through a
competitive bidding process, one of the parties bidding for this
particular contract contested the award of this business to
American Southern and filed a claim to obtain the nullification
of the contract. During the fourth quarter of 2000, American
Southern received an unfavorable judgment and has appealed the
ruling. The contract, which accounts for approximately 10% of
annualized premium revenue, is to remain in effect pending
appeal. While management at this time cannot predict the
potential outcome in this case, or quantify the actual impact of
an adverse decision, an adverse outcome may have a material
adverse affect on the companys financial position or
results of operations.

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

|                           |  |      |        |      |  |      |        |  |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                           |  | 2001 |        | 2000 |  | 1999
|                           |  |      |        |      |  |     
|Automobile liability       |  | $    | 23,677 |      |  | $    | 22,795 |  |  | $ | 24,573 | 
|Automobile physical damage |  |      | 8,732  |      |  |      | 7,397  |  |  |   | 6,112  | 
|General liability          |  |      | 3,161  |      |  |      | 3,536  |  |  |   | 4,302  | 
|Property                   |  |      | 3,386  |      |  |      | 3,383  |  |  |   | 3,118  | 
|Surety                     |  |      | 67     |      |  |      | 61     |  |  |   | 61     | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium       |  | $    | 39,023 |      |  | $    | 37,172 |  |  | $ | 38,166 | 
|                           |  |      |        |      |  |      |        |  |  |   |        | 

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

The combined ratio for American Southern
decreased from 97.8% in 2000 to a combined ratio of 94.8% in
2001. The loss ratio decreased from 70.4% in 2000 to 66.8% in
2001. During 2001, American Southern released approximately $1.4
million of redundant reserves related to certain program
business that favorably impacted the loss ratio for 2001. The
expense ratio for 2001 is up to 28.0% from 27.4% in 2000. The
combined ratio for American Southern for 2000 was 97.8%, up
slightly from the 1999 combined ratio of 95.9%. The loss ratio
decreased slightly to 70.4% in 2000 from 70.6% in 1999. The
decrease in the loss ratio was the result of lower than
anticipated losses on the personal auto line of business. The
expense ratio for 2000 was 27.4% compared to 25.3% in 1999. The
increase in the expense ratio in 2001 and 2000 is a direct
result of American Southerns business structure. The
majority of American Southerns business is structured in
such a way that the agents are rewarded or penalized based upon
the loss ratio of the business they submit to the company. By
structuring its business in this manner, American Southern
provides its agents with an economic incentive to place
profitable business with the company. As a result of this
arrangement, in periods where losses and the loss ratio
decrease, commission and underwriting expenses increase.

23



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##### Table of Contents



Association
Casualty

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

|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|--------------------------------------- |  | ---- | ------ | ---- |  | ------- | ------ | ---- |  | - | ----- | ----
|                                        |  | 2001 |        | 2000 |  | 1999(1)
|                                        |  |      |        |      |  |        
|Gross written premiums                  |  | $    | 34,648 |      |  | $       | 24,967 |      |  | $ | 9,299 |     
|Ceded premiums                          |  |      | (3,692 | )    |  |         | (2,314 | )    |  |   | (775  | )   
|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|Net written premiums                    |  | $    | 30,956 |      |  | $       | 22,653 |      |  | $ | 8,524 |     
|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|Net earned premiums                     |  | $    | 25,711 |      |  | $       | 20,110 |      |  | $ | 8,498 |     
|Net losses and loss adjustment expenses |  |      | 23,613 |      |  |         | 15,799 |      |  |   | 6,380 |     
|Underwriting expenses                   |  |      | 8,155  | (2)  |  |         | 6,410  | (2)  |  |   | 2,751 | (2) 
|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|Underwriting loss                       |  | $    | (6,057 | )    |  | $       | (2,099 | )    |  | $ | (633  | )   
|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|Loss ratio                              |  |      | 91.8   | %    |  |         | 78.5   | %    |  |   | 75.1  | %   
|Expense ratio                           |  |      | 31.7   | %(2) |  |         | 31.9   | %(2) |  |   | 32.4  | %(2)
|                                        |  |      |        |      |  |         |        |      |  |   |       |     
|Combined ratio                          |  |      | 123.5  | %    |  |         | 110.4  | %    |  |   | 107.5 | %   
|                                        |  |      |        |      |  |         |        |      |  |   |       |     



---



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | Includes results for the period July 1, 1999
	through December 31, 1999.                                                
|   
|(2) | Excludes the interest expense on an intercompany
	surplus note associated with the acquisition of Association
	Casualty.

Gross written premiums at Association Casualty
increased $9.7 million or 38.8% during 2001. During the
fourth quarter of 2000, the company began recognizing written
premiums on an annualized basis instead of using the installment
method resulting in a significant increase in gross written
premiums. The impact to earned premiums was not significant. In
addition, Association Casualty is aggressively increasing rates
on renewal business, in some cases up to 30%. The company has
also added premium related to commercial lines other than
workers compensation such as general liability, property,
and other commercial coverage to compliment its existing book of
business. While Association Casualty currently writes
predominately workers compensation insurance in the state
of Texas, the company intends to market itself as a complete
commercial lines carrier.

In 2000, Association Casualty began increasing
the rates it was charging for renewal business and was
successful in attracting new business. As a result of these
efforts, the company was able to increase gross written
premiums. The company also added approximately $0.7 million
of written premiums for general liability, property, and
business automobile.

In 2001, the company had net earned premiums of
$25.7 million of which 88.6% was workers compensation
business compared to 94.7% during 2000 as illustrated in the
following table.

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

|                          |  |      |        |      |  |         |        |  |  |   |       | 
|------------------------- |  | ---- | ------ | ---- |  | ------- | ------ |  |  | - | ----- | 
|                          |  | 2001 |        | 2000 |  | 1999(1)
|                          |  |      |        |      |  |        
|Workers compensation     |  | $    | 22,784 |      |  | $       | 19,051 |  |  | $ | 8,158 | 
|Business automobile       |  |      | 671    |      |  |         | 64     |  |  |   | -     | 
|General liability         |  |      | 117    |      |  |         | 5      |  |  |   | -     | 
|Property                  |  |      | 1,001  |      |  |         | 81     |  |  |   | -     | 
|Group accident and health |  |      | 1,138  |      |  |         | 909    |  |  |   | 340   | 
|                          |  |      |        |      |  |         |        |  |  |   |       | 
|Total earned premium      |  | $    | 25,711 |      |  | $       | 20,110 |  |  | $ | 8,498 | 
|                          |  |      |        |      |  |         |        |  |  |   |       | 



---



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

24



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##### Table of Contents



The combined ratio for Association Casualty
increased to 123.5% in 2001 from a combined ratio of 110.4% in
2000. The loss ratio increased to 91.8% in 2001 from 78.5% in
2000. The primary reason for the increase can be attributable to
adverse development on prior year losses, specifically accident
year 2000. Additionally, current year losses were reviewed and
increased to levels deemed more appropriate by management. The
company continues to be adversely impacted by the liberal
interpretation of the workers compensation laws in the
state of Texas. As the law has matured, factors such as
life time medical and the impairment
rating structure have become significant in contributing
to the increased medical cost. To help mitigate these costs and
achieve an underwriting profit, Association Casualty continues
to increase pricing and improve underwriting criteria. The
expense ratio decreased from 31.9% in 2000 to 31.7% in 2001. The
decline in the expense ratio is primarily attributable to the
increase in earned premiums and only a moderate increase in
fixed expenses.

The combined ratio for Association Casualty
during 2000 of 110.4% was higher than is desired by management.
The higher than expected losses in 2000 were largely due to
negative development stemming from second and third surgeries on
previously closed claims as well as a continuing rise in medical
costs. Expenses as a percentage of earned premiums declined
slightly, primarily as a result of the increase in earned
premiums and only a moderate increase in fixed expenses.

Georgia
Casualty

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

|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2001 |         | 2000 |  | 1999
|                                        |  |      |         |      |  |     
|Gross written premiums                  |  | $    | 40,966  |      |  | $    | 35,031 |   |  | $ | 26,798 |  
|Ceded premiums                          |  |      | (15,702 | )    |  |      | (3,925 | ) |  |   | (5,928 | )
|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Net written premiums                    |  | $    | 25,264  |      |  | $    | 31,106 |   |  | $ | 20,870 |  
|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Net earned premiums                     |  | $    | 25,579  |      |  | $    | 28,576 |   |  | $ | 19,403 |  
|Net losses and loss adjustment expenses |  |      | 17,644  |      |  |      | 22,192 |   |  |   | 16,535 |  
|Underwriting expenses                   |  |      | 8,765   |      |  |      | 10,940 |   |  |   | 7,950  |  
|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Underwriting loss                       |  | $    | (830    | )    |  | $    | (4,556 | ) |  | $ | (5,082 | )
|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Loss ratio                              |  |      | 69.0    | %    |  |      | 77.7   | % |  |   | 85.2   | %
|Expense ratio                           |  |      | 34.3    | %    |  |      | 38.3   | % |  |   | 41.0   | %
|                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Combined ratio                          |  |      | 103.3   | %    |  |      | 116.0  | % |  |   | 126.2  | %
|                                        |  |      |         |      |  |      |        |   |  |   |        |  

Gross written premiums at Georgia Casualty
increased 16.9% or $5.9 million in 2001. The increase in
gross written premiums is mostly attributable to significant
rate increases, new business with established agents in addition
to the added premiums by new agency appointments. The increase
in ceded premiums of $11.8 million during 2001 is the
result of a 40% quota share reinsurance agreement that the
company put into place in 2001 to allow for premium growth and
surplus protection.

During 2000, gross written premiums increased
30.7% or $8.2 million. The increase in premiums in 2000
from 1999 was due to aggressive rate increases on its new and
renewal business in addition to the new management team at
Georgia Casualty increasing the agency force through its
relationships in the insurance industry. The decline in ceded
premiums during 2000 compared to 1999 was the result of the
discontinuation of the stop-loss reinsurance agreement that the
company put into place in 1999.

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

|                      |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                      |  | 2001 |        | 2000 |  | 1999
|                      |  |      |        |      |  |     
|Workers compensation |  | $    | 10,744 |      |  | $    | 16,741 |  |  | $ | 13,157 | 
|Business automobile   |  |      | 5,412  |      |  |      | 4,918  |  |  |   | 2,876  | 
|General liability     |  |      | 2,610  |      |  |      | 2,531  |  |  |   | 1,251  | 
|Property              |  |      | 6,813  |      |  |      | 4,386  |  |  |   | 2,119  | 
|                      |  |      |        |      |  |      |        |  |  |   |        | 
|Total earned premium  |  | $    | 25,579 |      |  | $    | 28,576 |  |  | $ | 19,403 | 
|                      |  |      |        |      |  |      |        |  |  |   |        | 

Net earned premiums declined 10.5% or
$3.0 million during 2001 primarily due to the quota share
reinsurance agreement discussed previously. As presented in the
table above, Georgia Casualty continues to diversify its book of
business into commercial lines other that workers
compensation, repositioning the company as a one-stop commercial
lines carrier. Furthermore, the company is attempting to spread
its geographical exposure by reducing its concentration in
Georgia and expanding in its other key southeastern states.

The combined ratio for Georgia Casualty decreased
from 116.0% in 2000 to 103.3% in 2001. The loss ratio declined
from 77.7% in 2000 to 69.0% in 2001. During 2000, in an effort
to strengthen loss reserves and better position the company to
capitalize on market opportunities, a comprehensive review of
all loss reserves and open claims was performed. These
initiatives resulted in reserve increases and consequently, an
unusually high loss ratio which accounts for the decline in the
loss ratio during 2001. In addition, the decrease is also
attributable to the companys strict adherence to
underwriting discipline and premium rate increases. The expense
ratio decreased from 38.3% in 2000 to 34.3% in 2001 primarily as
a result of the ceding commission the company is receiving from
the quota share contract put into place during 2001.

The combined ratio for Georgia Casualty for 2000
decreased to 116.0% from 126.2% in 1999. The loss ratio declined
from 85.2% in 1999 to 77.7% in 2000. The primary reason for the
decline was the complete elimination during the latter part of
1999 of two underwriting programs, the performance of which was
substandard. In addition, the company benefited in 2000 from the
increased premium rates that began during 1999. Also, the mix of
business that Georgia Casualty underwrites had changed from one
of higher hazards to low and moderate hazards.

The expense ratio decreased from 41.0% in 1999 to
38.3% in 2000. The decline in the expense ratio was primarily
attributable to the increase in earned premiums associated with
the new growth and only a moderate increase in fixed expenses.

Bankers
Fidelity

The following summarizes Bankers Fidelitys
premiums and operating results (dollars in thousands):

Premiums

|                                     |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                     |  | 2001 |        | 2000 |  | 1999
|                                     |  |      |        |      |  |     
|Medicare supplement                  |  | $    | 38,268 |      |  | $    | 31,295 |  |  | $ | 25,822 | 
|Other health products                |  |      | 2,912  |      |  |      | 2,899  |  |  |   | 3,206  | 
|Life insurance                       |  |      | 14,096 |      |  |      | 13,445 |  |  |   | 12,499 | 
|                                     |  |      |        |      |  |      |        |  |  |   |        | 
|Total premiums                       |  |      | 55,276 |      |  |      | 47,639 |  |  |   | 41,527 | 
|Investment income                    |  |      | 4,420  |      |  |      | 5,003  |  |  |   | 4,763  | 
|                                     |  |      |        |      |  |      |        |  |  |   |        | 
|Total premiums and investment income |  | $    | 59,696 |      |  | $    | 52,642 |  |  | $ | 46,290 | 
|                                     |  |      |        |      |  |      |        |  |  |   |        | 

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##### Table of Contents



Operating Expenses

|                                      |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                      |  | 2001 |        | 2000 |  | 1999
|                                      |  |      |        |      |  |     
|Insurance benefits and losses         |  | $    | 39,570 |      |  | $    | 33,452 |  |  | $ | 28,313 | 
|Commissions and underwriting expenses |  |      | 17,304 |      |  |      | 15,764 |  |  |   | 15,216 | 
|                                      |  |      |        |      |  |      |        |  |  |   |        | 
|Total expenses                        |  | $    | 56,874 |      |  | $    | 49,216 |  |  | $ | 43,529 | 
|                                      |  |      |        |      |  |      |        |  |  |   |        | 

Premium revenue at Bankers Fidelity for 2001
increased 16.0% or $7.6 million over 2000 results. The most
significant increase in premiums arose in the Medicare
supplement line of business, which increased 22.3% during 2001.
Bankers Fidelity has continued to expand its market presence
throughout the Southeast, mid-Atlantic Region, especially in
Pennsylvania, and in the Western Region. In 2001, the company
added additional Medicare supplemental premium for Pennsylvania
of approximately $3.3 million. In addition, during 2000 and
2001, Bankers Fidelity implemented rate increases on the
Medicare supplement product, in some cases up to 30%, which are
reflected in the current year increases for premium revenues.

For the year 2000, premium revenue at Bankers
Fidelity increased 14.7%, or $6.1 million over 1999
results. The most significant increase in premiums during 2000
was in the Medicare supplement line of business. The increase in
premium revenue from 1999 to 2000 was primarily due to the
expansion of the companys market presence in the
Mid-Atlantic and Western regions in addition to significant rate
increases.

The increase in both benefits and
losses and commissions and other expenses is
primarily attributable to the increase in new business. As a
percentage of premiums, benefits and losses were 71.6% in 2001
compared to 70.2% in 2000. The increase is primarily due to
continued aging of the life business and higher medical trends
than expected for the health business. Additionally, the company
continues to implement rate increases on the Medicare supplement
line of business to help to mitigate the impact of higher
medical costs.

Insurance benefits and losses at Bankers Fidelity
increased 18.2% or $5.1 million during 2000. The increase in
benefits and losses from 1999 to 2000 was directly attributable
to the increase in new business.

The company has been successful in keeping
operating costs lower, while continuing to add new business. As
a percentage of premiums, commissions and underwriting expenses
were 31.3% in 2001 compared to 33.1% in 2000 and 36.6% in 1999.

Investment Income and Realized Gains

Investment income for 2001 of $14.3 million
decreased $1.2 million or 7.9% from 2000. The decrease in
investment income is primarily attributable to falling interest
rates. The decline in interest rates resulted in several of the
Companys higher yielding callable fixed income securities
to be redeemed by the issuers prior to maturity. The proceeds
received from the early redemption of these fixed income
securities was reinvested at a lower yield. In addition, during
2001, the carrying value of the Companys investment in the
joint venture with the AAA of the Carolinas, was reduced by
$0.2 million to reflect lower than expected premium
production and higher expenses. Also contributing to the
decrease in 2001 was a significant gain in a real estate
partnership the Company benefited from during 2000. The
investment, which is accounted for under the equity method, sold
several pieces of property resulting in income of approximately
$0.4 million.

Investment income increased 22.2% or
$2.8 million in 2000 from 1999. The inclusion of the
operating results of Association Casualty is responsible for
$1.5 million of this increase. The Company also benefited
from a significant gain in a real estate partnership discussed
previously. This investment generated income of approximately
$0.6 million during 2000. The remaining increase in
investment income in 2000 as compared to 1999 was the result of
the Company shifting securities from short-term to longer-term
securities to take advantage of the higher long-term interest
rates in the first half of 2000.

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

Interest Expense

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

Other Expenses

Other expenses (commissions, underwriting
expenses, and other expenses) increased $3.5 million or
7.6% in 2001. The increase in other expenses is due to the
following items: First, beginning in the fourth quarter of 2000,
Association Casualty began recognizing written premiums on an
annualized basis instead of using the installment method thus
increasing commissions and premium taxes in conjunction with
written premiums. In 2001, Association Casualty also experienced
an increase in overall operating expenses as it sought to
diversify into commercial lines of business other than
workers compensation. In addition, Bankers Fidelitys
commissions have increased significantly as a result of
additional new business. Lastly, during 2000, the bad debt
reserve was reduced by $0.5 million due to improvements as
to the collectibility of certain receivables. Partially
offsetting this increase in other expenses was a significant
reduction in commission expense American Southern pays on one of
its larger accounts in addition to the ceding commission Georgia
Casualty is receiving from the quota share contract. On a
consolidated basis, as a percentage of earned premiums, other
expenses decreased from 34.1% in 2000 to 33.6% in 2001.

The increase in other expenses in 2000 as
compared to 1999 was primarily attributable to the inclusion of
the operating results of Association Casualty.

Liquidity and Capital Resources

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

Dividend payments to the Company by its insurance
subsidiaries are subject to annual limitations and are
restricted to the greater of 10% of statutory surplus or
statutory earnings before recognizing realized investment gains
of the individual insurance subsidiaries. At December 31,
2001, the Companys insurance subsidiaries had statutory
surplus of $84.7 million.

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The Company provides certain administrative,
purchasing and other services for each of its subsidiaries. The
amount charged to and paid by the subsidiaries was
$8.4 million, $7.6 million, and $6.7 million in
2001, 2000, and 1999, respectively. In addition, the Company has
a formal tax-sharing agreement with each of its insurance
subsidiaries. A net total of $1.3 million, $1.0 million and
$2.0 million was paid to the Company under the tax sharing
agreement in 2001, 2000, and 1999, respectively. Dividends were
paid to Atlantic American by one of its subsidiaries totaling
$4.6 million in 2001, and $3.6 million in 2000 and
1999. As a result of the Companys tax loss carryforwards,
which totaled approximately $30.0 million at
December 31, 2001, it is anticipated that the tax sharing
agreement will provide the Company with additional funds with
which to meet its cash flow obligations.

The Company is a party to a five-year revolving
credit facility (the Revolving Credit Facility) with
Wachovia that provides for borrowings up to $30.0 million.
The interest rate on the borrowings under this facility may be
fixed, at the Companys option, for a period of one, three,
six or twelve months and is based upon the London Interbank
Offered Rate (LIBOR) plus an applicable margin,
2.50% at December 31, 2001. The margin varies based upon
the Companys leverage ratio (debt to earnings before
interest, taxes, depreciation and amortization
(EBITDA), as defined under the facility agreements)
and ranges from 1.75% to 3.75%. Interest on the Revolving Credit
Facility is currently payable quarterly. The Revolving Credit
Facility provides for the payment of all of the outstanding
principal balance at June 30, 2004 with no required principal
payments prior to that time. The interest rate including the
applicable margin on this facility at December 31, 2001 and
2000 was 6.35% and 9.12%, respectively.

The Company also has outstanding
$25.0 million of Series 1999, Variable Rate Demand
Bonds (the Bonds) due July 1, 2009 issued
through a private placement. The Bonds, which are redeemable at
the Companys option, pay a variable interest rate that
approximates 30-day LIBOR. The Bonds are backed by a letter of
credit issued by Wachovia Bank, N.A., which is automatically
renewable on a monthly basis until thirteen months after such
time as Wachovia gives the Company notice of its option not to
renew the letter of credit. The Bonds are subject to mandatory
redemption upon termination of the letter of credit, if an
alternative letter of credit facility is not secured. The
Company expects that it would be able to replace the letter of
credit facility within the prescribed period if Wachovia should
give notice of its intention not to renew the existing facility.
The cost of the letter of credit and its associated fees are
2.50% making the effective rate on the Bonds LIBOR plus 2.50% at
December 31, 2001. The interest on the Bonds is payable
monthly and the letter of credit fees are payable quarterly. The
interest rate on the Bonds, along with the related fees, at
December 31, 2001 and 2000 was 4.63% and 9.15%,
respectively. The Bonds do not require the repayment of any
principal prior to maturity, except as provided above.

The Company is required, under both instruments,
to maintain certain covenants including, among others, ratios
that relate funded debt to total capitalization and interest
coverage. The Company must also comply with limitations on
capital expenditures and additional debt obligations.

Effective December 31, 2001, the Revolving
Credit Facility and letter of credit were both amended by
Wachovia. The amendment establishes new covenants pertaining to
ratios related to interest coverage and eliminates funded debt
to EBITDA except for use in determining the applicable margin.
In addition, the Company is required to consolidate the
Revolving Credit Facility and the Bonds into a term loan
(Term Loan), effective on April 2, 2002, which
will mature June 30, 2004. The Company has notified the
holders of the Bonds that they will be redeemed as of
April 2, 2002. The Company must repay the principal of the
Term Loan in annual installments in the amount of
$2.0 million on or before December 31 of 2002 and
2003, together with one final installment at maturity in 2004.
As of December 31, 2001, the Company was in compliance with
all debt covenants, as revised on December 31, 2001.

The Company intends to repay its obligations
under the Term Loan using dividend and tax sharing payments from
its subsidiaries. In addition, the Company believes that, if
necessary, at maturity, the Term Loan can be refinanced with the
current lender, although there can be no assurance of the terms
or conditions of such a refinancing.

The Company also has outstanding
$15.9 million of preferred stock issued to affiliates. The
preferred stock accrues a dividend of 9.0% per year, and at
December 31, 2001 the Company had accrued but

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unpaid dividends on the preferred stock totaling
$7.2 million. Net cash provided by operating activities
totaled $15.8 million in 2001, $16.7 million in 2000
and $5.4 million in 1999. Cash and short-term investments
at December 31, 2001 were $68.8 million and are
believed to be more than sufficient to meet the Companys
near-term needs.


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

In 1999, the NAIC completed a process to codify
statutory accounting practices for certain insurance enterprises
(Codification). The Company adopted Codification on
January 1, 2001. The cumulative effect of this accounting
change increased statutory surplus by approximately
$1.4 million. The most significant increase to statutory
surplus was the recognition of deferred taxes. The Codification
did not impact the Companys financial statements prepared
in accordance with generally accepted accounting principles in
the United States.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS No. 133). SFAS No. 133 requires the
recognition of the fair value of all derivative instruments on
the balance sheet and establishes specific accounting methods
for hedges. The Company adopted SFAS No. 133 and the
corresponding amendments under SFAS No. 138 on January 1,
2001. The adoption did not have a material effect on the
Companys financial condition or results of operations.

In June 2001, the FASB issued SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other tangible
assets arising from business combinations completed after
June 30, 2001. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives.
Under the new rules, goodwill (and intangible assets deemed to
have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the
statement. Other intangible assets will continue to be amortized
over their remaining useful lives. As of December 31, 2001,
the Company had unamortized goodwill of $18.8 million all
of which will be subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was
$0.8 million, $0.8 million, and $0.6 million for
the years ended December 31, 2001, 2000, and 1999,
respectively. The Company will adopt SFAS No. 142 on
January 1, 2002. Goodwill shall be tested for impairment
using the two-step process prescribed in SFAS No. 142. The
first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any. Any
impairment loss that is required to be recognized when adopting
SFAS No. 142 will be reflected as a cumulative effect of
change in accounting principle during the first quarter of 2002.
The impact of adopting SFAS No. 142 on the Companys
financial statements has not yet been determined; however, it
could have a material impact on the Companys results of
operations in 2002.

In August 2001, SFAS No. 143,
Accounting for Asset Retirement Obligations
(effective for fiscal periods commencing after June 15,
2002) and SFAS No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets (effective for fiscal
periods commencing after December 15, 2001) were issued.
SFAS No. 143 requires that entities recognize the fair
value of a liability for an asset retirement obligation in the
period in which it is incurred if a reasonable estimate of fair
value can be made. SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. The statement
superseded SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of and among other factors, establishes criteria beyond
that previously specified in Statement 121 to determine when a
long-lived asset is to be considered

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as held for sale. The Company believes that the
adoption of SFAS No. 143 and SFAS No. 144 will not
have significant impact on the Companys financial
statements.


Impact of Inflation

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




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Interest Rate and Market Risk

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

The Company is also subject to risk from changes
in equity prices. Atlantic American owned $14.4 million of
common stock of Wachovia Corporation at December 31, 2001.
A 10% decrease in the share price of the common stock of
Wachovia Corporation would result in a decrease of approximately
$0.9 million to shareholders equity.

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

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

|                  |  |                        |         |        |  |            |         |        |  |        |         |  |  |   |         |  |  |   |         | 
|----------------- |  | ---------------------- | ------- | ------ |  | ---------- | ------- | ------ |  | ------ | ------- |  |  | - | ------- |  |  | - | ------- | 
|                  |  | +200bp                 |         | +100bp |  | Fair value |         | -100bp |  | -200bp
|                  |  |                        |         |        |  |            |         |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2001 |  | $                      | 122,347 |        |  | $          | 128,168 |        |  | $      | 133,470 |  |  | $ | 138,642 |  |  | $ | 141,788 | 
|December 31, 2000 |  | $                      | 148,749 |        |  | $          | 154,357 |        |  | $      | 159,404 |  |  | $ | 163,215 |  |  | $ | 166,020 | 

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

|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | +20%                   |        | +10% |  | Fair Value |        | -10% |  | -20%
|                                   |  |                        |        |      |  |            |        |      |  |     
|                                   |  |                       
|                                   |  | (Dollars in thousands)
|December 31, 2001                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 17,220 |      |  | $          | 15,785 |      |  | $    | 14,350 |  |  | $ | 12,915 |  |  | $ | 11,480 | 
|Other equity holdings              |  |                        | 48,334 |      |  |            | 44,306 |      |  |      | 40,278 |  |  |   | 36,250 |  |  |   | 32,222 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 65,554 |      |  | $          | 60,091 |      |  | $    | 54,628 |  |  | $ | 49,165 |  |  | $ | 43,702 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|December 31, 2000                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 17,005 |      |  | $          | 15,588 |      |  | $    | 14,171 |  |  | $ | 12,754 |  |  | $ | 11,337 | 
|Other equity holdings              |  |                        | 35,729 |      |  |            | 32,751 |      |  |      | 29,774 |  |  |   | 26,797 |  |  |   | 23,819 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 52,734 |      |  | $          | 48,339 |      |  | $    | 43,945 |  |  | $ | 39,551 |  |  | $ | 35,156 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 

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

|                  |  |                        |     |        |  |                   |     |        |  |        |        |  |  |   |      |   |  |   |      |  
|----------------- |  | ---------------------- | --- | ------ |  | ----------------- | --- | ------ |  | ------ | ------ |  |  | - | ---- | - |  | - | ---- | -
|                  |  |                        |     |        |  |                  
|                  |  | Interest Expense       |     |        |  | Interest Expense?
|                  |  |                        |     |        |  |                  
|                  |  | +200bp                 |     | +100bp |  | Debt              |     | -100bp |  | -200bp
|                  |  |                        |     |        |  |                   |     |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2001 |  | $                      | 580 |        |  | $                 | 290 |        |  | $      | 44,000 |  |  | $ | (290 | ) |  | $ | (580 | )
|December 31, 2000 |  | $                      | 930 |        |  | $                 | 465 |        |  | $      | 46,500 |  |  | $ | (465 | ) |  | $ | (930 | )

Deferred Taxes

At December 31, 2001, the Company had a net
deferred tax asset of $2.3 million, comprised of a deferred tax
asset of $19.7 million, a deferred tax liability of
$11.8 million and a valuation allowance of
$5.6 million. The valuation allowance was established
against deferred tax assets relating to net operating loss
carryforwards that might not be realized.

Until the end of 1999, the Company established a
full valuation allowance against these deferred income tax
benefits as they were not considered realizable from expected
future reversals of existing taxable temporary differences. The
Company believed that it was more likely than not that the net
deferred income tax benefits would not be realized through
future taxable income prior to the expiration dates of net
operating loss carryforwards. However, with the acquisition of
Association Casualty and several years of profitability, the
Company believes it is now more likely than not that a portion
of its net deferred income tax benefits relating to net
operating loss carryforwards scheduled to expire between 2006
and 2010 will be realized based on future taxable income.
Management also can and would implement tax-planning strategies
to prevent these carryforwards from expiring. As of
December 31, 2001, a valuation allowance has been
established for deferred income tax benefits relating primarily
to net operating loss carryforwards scheduled to expire between
2002 and 2003. Since the Companys ability to generate
taxable income from operations and utilize available
tax-planning strategies in the near term is dependent upon
various factors, many of which are beyond managements
control, management believes that it is more likely than not
that the deferred income tax benefits relating to these
carryforwards will not be realized. However, realization of the
remaining deferred income tax benefits will be assessed
periodically based on the Companys current and anticipated
results of operations and amounts could increase or decrease in
the near term if estimates of future taxable income change. The
Company has a formal tax-sharing agreement and files a
consolidated income tax return with its subsidiaries.

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

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                    |  |      |    | 
|------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                    |  | Page
|                                                                                                                    |  |     
|ATLANTIC AMERICAN CORPORATION                                                                                       |  |      |    | 
|Independent Auditors Report                                                                                        |  |      | 34 | 
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                                       |  |      | 35 | 
|Consolidated Statements of Operations for each of
	the three years in the period ended December 31, 2001            |  |      | 36 | 
|Consolidated Statements of Shareholders
	Equity for each of the three years in the period ended
	December 31, 2001 |  |      | 37 | 
|Consolidated Statements of Cash Flows for each of
	the three years in the period ended December 31, 2001            |  |      | 38 | 
|Notes to Consolidated Financial Statements                                                                          |  |      | 39 | 

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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Atlantic American Corporation:

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

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

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

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

ARTHUR ANDERSEN LLP

Atlanta, Georgia

March 25, 2002


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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |        |         |         | 
|------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                   
|                                                                                                                   |                                                                                                                                                                                      | December 31,                                                                                      
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                   
|                                                                                                                   |                                                                                                                                                                                      | 2001                                                                                               |                                            | 2000  
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |       
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                   
|                                                                                                                   |                                                                                                                                                                                      | (Dollars in thousands,                                                                            
|                                                                                                                   |                                                                                                                                                                                      | except share and per                                                                              
|                                                                                                                   |                                                                                                                                                                                      | share data)                                                                                       
|ASSETS                                                                                                            
|Cash and cash equivalents, including short-term
	investments of $39,151 and $15,013 in 2001 and 2000, respectively |                                                                                                                                                                                      | $                                                                                                  | 68,846                                     |        |         | $       | 31,914  |       
|Investments                                                                                                        |                                                                                                                                                                                      |                                                                                                    | 199,132                                    |        |         |         | 215,893 |       
|Receivables:                                                                                                       |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   |                                                                                                                                                                                      | Reinsurance                                                                                        |                                            |        | 48,946  |         |         |        | 39,088  |        
|                                                                                                                   |                                                                                                                                                                                      | Other, net of allowance for doubtful accounts of
	$1,119 and $1,269 in 2001 and 2000, respectively |                                            |        | 39,055  |         |         |        | 37,261  |        
|Deferred income taxes, net                                                                                         |                                                                                                                                                                                      |                                                                                                    | 2,294                                      |        |         |         | 3,839   |       
|Deferred acquisition costs                                                                                         |                                                                                                                                                                                      |                                                                                                    | 24,681                                     |        |         |         | 23,398  |       
|Other assets                                                                                                       |                                                                                                                                                                                      |                                                                                                    | 10,241                                     |        |         |         | 4,886   |       
|Goodwill, net of amortization of $802 and $798 in
	2001 and 2000, respectively                                     |                                                                                                                                                                                      |                                                                                                    | 18,824                                     |        |         |         | 19,498  |       
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   |                                                                                                                                                                                      | Total assets                                                                                       |                                            | $      | 412,019 |         |         | $      | 375,777 |        
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|LIABILITIES AND SHAREHOLDERS
	EQUITY                                                                             
|Insurance reserves and policyholder funds                                                                          |                                                                                                                                                                                      | $                                                                                                  | 243,199                                    |        |         | $       | 225,164 |       
|Accounts payable and accrued expenses                                                                              |                                                                                                                                                                                      |                                                                                                    | 37,294                                     |        |         |         | 20,873  |       
|Debt payable                                                                                                       |                                                                                                                                                                                      |                                                                                                    | 44,000                                     |        |         |         | 46,500  |       
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   |                                                                                                                                                                                      | Total liabilities                                                                                  |                                            |        | 324,493 |         |         |        | 292,537 |        
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|Commitments and contingencies (Note 9)                                                                             |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|Shareholders equity:                                                                                              |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   | Preferred stock, $1 par, 4,000,000 shares
	authorized;                                                                                                                               |                                                                                                    |                                            |        |         |         |         |        |        
|                                                                                                                   |                                                                                                                                                                                      | Series B preferred, 134,000 shares issued
	and outstanding, $13,400 redemption value               |                                            |        | 134     |         |         |        | 134     |        
|                                                                                                                   |                                                                                                                                                                                      | Series C preferred, 25,000 shares issued and
	outstanding, $2,500 redemption value                 |                                            |        | 25      |         |         |        | 25      |        
|                                                                                                                   | Common stock, $1 par, 30,000,000 shares
	authorized; 21,412,138 shares issued in 2001 and 2000 and
	21,245,711 shares outstanding in 2001 and 21,157,250 shares
	outstanding in 2000 |                                                                                                    |                                            | 21,412 |         |         |         | 21,412 |        
|                                                                                                                   | Additional paid-in capital                                                                                                                                                           |                                                                                                    |                                            | 56,606 |         |         |         | 56,997 |        
|                                                                                                                   | Retained earnings (deficit)                                                                                                                                                          |                                                                                                    |                                            | 1,097  |         |         |         | (1,248 | )      
|                                                                                                                   | Accumulated other comprehensive income                                                                                                                                               |                                                                                                    |                                            | 8,748  |         |         |         | 6,820  |        
|                                                                                                                   | Treasury stock, at cost, 166,427 shares in 2001
	and 254,888 shares in 2000                                                                                                          |                                                                                                    |                                            | (496   | )       |         |         | (900   | )      
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   |                                                                                                                                                                                      | Total shareholders equity                                                                         |                                            |        | 87,526  |         |         |        | 83,240  |        
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    | Total liabilities and shareholders equity |        | $       | 412,019 |         |        | $       | 375,777 | 
|                                                                                                                   |                                                                                                                                                                                      |                                                                                                    |                                            |        |         |         |         |       

The accompanying notes are an integral part of
these consolidated balance sheets.

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |         |         | 
|--------------------------------- | -------------------------------------- | -------------------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                  |                                        |                                             
|                                  |                                        | Year Ended December 31,                     
|                                  |                                        |                                             
|                                  |                                        | 2001                                         |        | 2000    |         | 1999
|                                  |                                        |                                              |        |         |         |     
|                                  |                                        |                                             
|                                  |                                        | (Dollars in thousands,                      
|                                  |                                        | except per share data)                      
|Revenue:                          |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  | Insurance premiums                     |                                              | $      | 145,589 |         |      | $      | 133,497 |         |   | $      | 107,594 |        
|                                  | Investment income                      |                                              |        | 14,317  |         |      |        | 15,552  |         |   |        | 12,724  |        
|                                  | Other income                           |                                              |        | 1,694   |         |      |        | 1,287   |         |   |        | 1,172   |        
|                                  | Realized investment gains, net         |                                              |        | 1,708   |         |      |        | 1,922   |         |   |        | 2,831   |        
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  |                                        | Total revenue                                |        |         | 163,308 |      |        |         | 152,258 |   |        |         | 124,321 | 
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|Benefits and expenses:            |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  | Insurance benefits and losses incurred |                                              |        | 106,896 |         |      |        | 97,628  |         |   |        | 78,162  |        
|                                  | Commissions and underwriting expenses  |                                              |        | 37,317  |         |      |        | 36,677  |         |   |        | 29,713  |        
|                                  | Interest expense                       |                                              |        | 3,234   |         |      |        | 4,408   |         |   |        | 2,819   |        
|                                  | Other                                  |                                              |        | 11,608  |         |      |        | 8,789   |         |   |        | 9,705   |        
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  |                                        | Total benefits and expenses                  |        |         | 159,055 |      |        |         | 147,502 |   |        |         | 120,399 | 
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  |                                        | Income before income tax provision (benefit) |        |         | 4,253   |      |        |         | 4,756   |   |        |         | 3,922   | 
|Income tax provision (benefit)    |                                        |                                              | 656    |         |         |      | 1,124  |         |         |   | (6,988 | )      
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  |                                        | Net income before preferred stock dividends  |        |         | 3,597   |      |        |         | 3,632   |   |        |         | 10,910  | 
|Preferred stock dividends         |                                        |                                              | (1,431 | )       |         |      | (1,206 | )       |         |   | (1,206 | )      
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|                                  |                                        | Net income applicable to common stock        |        | $       | 2,166   |      |        | $       | 2,426   |   |        | $       | 9,704   | 
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|Basic earnings per common share   |                                        | $                                            | .10    |         |         | $    | .12    |         |         | $ | .48    |        
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        
|Diluted earnings per common share |                                        | $                                            | .10    |         |         | $    | .12    |         |         | $ | .46    |        
|                                  |                                        |                                              |        |         |         |      |        |         |         |   |        |        

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

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       |         |        |  
|--------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------------------- | ------ | - | ---------- | ------ | ------------ | - | ------------- | ------ | -------- | - | ----- | ------- | ---- | ------ | ----- | ------ | - | ------- | ------ | ------ | --- | - | - | ------ | ----- | ------- | ------ | -
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        | Retained     |   | Accumulated   |        |          |   |      
|                                                                                        |                                                                         |                                                                         |                                         |        |   | Additional |        | Earnings     |   | Other         |        |          |   |      
|                                                                                        |                                                                         | Preferred                                                               |                                         | Common |   | Paid-In    |        | (Accumulated |   | Comprehensive |        | Treasury |   |      
|                                                                                        |                                                                         | Stock                                                                   |                                         | Stock  |   | Capital    |        | Deficit)     |   | Income        |        | Stock    |   | Total
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |      
|                                                                                        |                                                                         |                                                                        
|                                                                                        |                                                                         | (Dollars in thousands, except share data)                              
|Balance, December 31, 1998                                                              |                                                                         | $                                                                       | 134                                     |        |   | $          | 19,406 |              |   | $             | 50,406 |          |   | $     | (15,213 | )    |        | $     | 28,786 |   |         | $      | (1,302 | )   |   | $ | 82,217 |      
|                                                                                        | Comprehensive loss:                                                     |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       |        
|                                                                                        |                                                                         | Net income                                                              |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      | 10,910 |       |        |   |        |        |        |     |  |   |        |       | 10,910  |       
|                                                                                        |                                                                         | Decrease in unrealized investment gains                                 |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | (16,731 | )      |        |     |  |   |        |       | (16,731 | )     
|                                                                                        |                                                                         | Deferred income tax attributable to other
	comprehensive loss           |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | (4,219  | )      |        |     |  |   |        |       | (4,219  | )     
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|                                                                                        |                                                                         | Total comprehensive loss                                                |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       | (10,040 | )     
|Dividends accrued on preferred stock                                                    |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               | (1,206 | )        |   |       |        |      |        |       |       |   |         |        |       |     |   |   | (1,206 | )    
|Purchase of 213,392 shares for treasury                                                 |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               |       |          |   |       |        |      |        |       |       |   |         |        | (779   | )   |   |   | (779   | )    
|Issuance of 113,608 shares for employee benefit
	plans and stock options                |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               |       |          |   |       | (255    | )    |        |       |       |   |         |        | 528    |     |   |   | 273    |      
|Issuance of 2,006,385 shares for acquisition of
	Association Casualty Insurance Company |                                                                         |                                                                         |                                        |        |   |            | 2,006  |              |   |               | 6,477  |          |   |       |        |      |        |       |       |   |         |        |       |     |   |   | 8,483  |      
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|Balance, December 31, 1999                                                              |                                                                         |                                                                         | 134                                     |        |   |            | 21,412 |              |   |               | 55,677 |          |   |       | (4,558  | )    |        |       | 7,836  |   |         |        | (1,553 | )   |   |   | 78,948 |      
|                                                                                        | Comprehensive income:                                                   |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       |        
|                                                                                        |                                                                         |                                                                         | Net income                              |        |   |           |        |              |   |              |        |          |   |      |         |      |        | 3,632 |        |   |         |       |        |     |   |  |        |       |         | 3,632  |  
|                                                                                        |                                                                         |                                                                         | Decrease in unrealized investment gains |        |   |           |        |              |   |              |        |          |   |      |         |      |        |      |        |   |         | (1,563 | )      |     |   |  |        |       |         | (1,563 | )
|                                                                                        |                                                                         | Deferred income tax benefit attributable to other
	comprehensive loss   |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | 547     |        |        |     |  |   |        |       | 547     |       
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|                                                                                        |                                                                         | Total comprehensive income                                              |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       | 2,616   |       
|                                                                                        | Issuance of 25,000 shares of preferred stock                            |                                                                         |                                         | 25     |   |            |        |             |   |               |        | 2,475    |   |       |         |     |        |       |        |  |         |        |        |    |   |   |        | 2,500 |        
|Dividends accrued on preferred stock                                                    |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               | (1,206 | )        |   |       |        |      |        |       |       |   |         |        |       |     |   |   | (1,206 | )    
|Compensation expense related to stock grants                                            |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               | 51     |          |   |       |        |      |        |       |       |   |         |        |       |     |   |   | 51     |      
|Purchase of 33,206 shares for treasury                                                  |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               |       |          |   |       |        |      |        |       |       |   |         |        | (79    | )   |   |   | (79    | )    
|Issuance of 163,670 shares for employee benefit
	plans and stock options                |                                                                         |                                                                         |                                        |        |   |            |       |              |   |               |       |          |   |       | (322    | )    |        |       |       |   |         |        | 732    |     |   |   | 410    |      
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|Balance, December 31, 2000                                                              |                                                                         |                                                                         | 159                                     |        |   |            | 21,412 |              |   |               | 56,997 |          |   |       | (1,248  | )    |        |       | 6,820  |   |         |        | (900   | )   |   |   | 83,240 |      
|                                                                                        | Comprehensive income:                                                   |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |       |        
|                                                                                        |                                                                         | Net income                                                              |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      | 3,597  |       |        |   |        |        |        |     |  |   |        |       | 3,597   |       
|                                                                                        |                                                                         | Increase in unrealized investment gains                                 |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | 3,498   |        |        |     |  |   |        |       | 3,498   |       
|                                                                                        |                                                                         | Fair value adjustment to interest rate swap                             |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | (532    | )      |        |     |  |   |        |       | (532    | )     
|                                                                                        |                                                                         | Deferred income tax expense attributable to other
	comprehensive income |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   | (1,038  | )      |        |     |  |   |        |       | (1,038  | )     
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|                                                                                        |                                                                         | Total comprehensive income                                              |                                         |        |  |            |        |              |  |               |        |          |  |       |         |      |       |       |        |   |        |        |        |     |  |   |        |       | 5,525   |       
|                                                                                        |                                                                         |                                                                         | Dividends accrued on preferred stock    |        |   |           |        |              |   |              |        |          |   | (436  | )       |      |        | (995  | )      |   |         |       |        |     |   |  |        |       |         | (1,431 | )
|                                                                                        | Compensation expense related to stock grants                            |                                                                         |                                         |       |   |            |        |             |   |               |        | 45       |   |       |         |     |        |       |        |  |         |        |        |    |   |   |        | 45    |        
|                                                                                        | Purchase of 5,999 shares for treasury                                   |                                                                         |                                         |       |   |            |        |             |   |               |        |         |   |       |         |     |        |       |        |  |         |        |        | (11 | ) |   |        | (11   | )      
|                                                                                        | Issuance of 94,460 shares for employee benefit
	plans and stock options |                                                                         |                                         |       |   |            |        |             |   |               |        |         |   |       |         | (257 | )      |       |        |  |         |        |        | 415 |   |   |        | 158   |        
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      
|Balance, December 31, 2001                                                              |                                                                         | $                                                                       | 159                                     |        |   | $          | 21,412 |              |   | $             | 56,606 |          |   | $     | 1,097   |      |        | $     | 8,748  |   |         | $      | (496   | )   |   | $ | 87,526 |      
|                                                                                        |                                                                         |                                                                         |                                         |        |   |            |        |              |   |               |        |          |   |       |         |      |        |       |        |   |         |        |        |     |   |   |        |      

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

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##### Table of Contents



ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |         |       | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------- | ------ | -------- | ------ | ---- | ------ | ------- | ------ | - | ------ | ------- | ----- | 
|                                                     |                                                                                    |                                                      
|                                                     |                                                                                    | Year Ended December 31,                              
|                                                     |                                                                                    |                                                      
|                                                     |                                                                                    | 2001                                                  |        | 2000     |        | 1999
|                                                     |                                                                                    |                                                       |        |          |        |     
|                                                     |                                                                                    |                                                      
|                                                     |                                                                                    | (Dollars in thousands)                               
|Cash flows from operating
	activities:               |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Net income                                                                         |                                                       | $      | 3,597    |        |      | $      | 3,632   |        |   | $      | 10,910  |      
|                                                     | Adjustments to reconcile net income to net cash
	provided by operating activities: |                                                       |        |          |        |      |        |         |        |   |        |         |      
|                                                     | Amortization of deferred acquisition costs                                         |                                                       |        | 16,892   |        |      |        | 15,804  |        |   |        | 11,947  |      
|                                                     | Acquisition costs deferred                                                         |                                                       |        | (18,175  | )      |      |        | (18,804 | )      |   |        | (14,003 | )    
|                                                     | Realized investment gains, net                                                     |                                                       |        | (1,708   | )      |      |        | (1,922  | )      |   |        | (2,831  | )    
|                                                     | Increase in insurance reserves and policyholder
	funds                             |                                                       |        | 18,035   |        |      |        | 20,019  |        |   |        | 14,036  |      
|                                                     | Compensation expense related to stock grants                                       |                                                       |        | 45       |        |      |        | 51      |        |   |        |        |      
|                                                     | Depreciation and amortization                                                      |                                                       |        | 1,680    |        |      |        | 1,744   |        |   |        | 1,435   |      
|                                                     | Deferred income tax expense (benefit)                                              |                                                       |        | 507      |        |      |        | 1,007   |        |   |        | (6,997  | )    
|                                                     | Increase in receivables, net                                                       |                                                       |        | (12,402  | )      |      |        | (8,584  | )      |   |        | (8,404  | )    
|                                                     | Increase in other liabilities                                                      |                                                       |        | 12,681   |        |      |        | 3,617   |        |   |        | 73      |      
|                                                     | Other, net                                                                         |                                                       |        | (5,305   | )      |      |        | 142     |        |   |        | (768    | )    
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|Net cash provided by operating activities            |                                                                                    |                                                       | 15,847 |          |        |      | 16,706 |         |        |   | 5,398  |        
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|Cash flows from investing
	activities:               |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Proceeds from investments sold                                                     |                                                       |        | 39,122   |        |      |        | 3,447   |        |   |        | 8,482   |      
|                                                     | Proceeds from investments matured, called or
	redeemed                             |                                                       |        | 94,098   |        |      |        | 11,877  |        |   |        | 35,594  |      
|                                                     | Investments purchased                                                              |                                                       |        | (109,249 | )      |      |        | (31,290 | )      |   |        | (53,211 | )    
|                                                     | Additions to property and equipment                                                |                                                       |        | (930     | )      |      |        | (619    | )      |   |        | (829    | )    
|                                                     | Acquisition of American Independent, net of
	$1,946 cash acquired                  |                                                       |        |         |        |      |        |        |        |   |        | 198     |      
|                                                     | Acquisition of Association Casualty, net of
	$6,270 cash acquired                  |                                                       |        | (128     | )      |      |        | (94     | )      |   |        | (18,205 | )    
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Net cash provided by (used in) investing
	activities                               |                                                       |        | 22,913   |        |      |        | (16,679 | )      |   |        | (27,971 | )    
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|Cash flows from financing
	activities:               |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Proceeds from issuance of bank financing                                           |                                                       |        |         |        |      |        |        |        |   |        | 51,000  |      
|                                                     | Proceeds from issuance of Series C Preferred Stock                                 |                                                       |        | 750      |        |      |        | 1,750   |        |   |        |        |      
|                                                     | Preferred stock dividends                                                          |                                                       |        | (225     | )      |      |        |        |        |   |        |        |      
|                                                     | Proceeds from exercise of stock options                                            |                                                       |        | 158      |        |      |        | 410     |        |   |        | 273     |      
|                                                     | Purchase of treasury shares                                                        |                                                       |        | (11      | )      |      |        | (79     | )      |   |        | (779    | )    
|                                                     | Repayments of debt                                                                 |                                                       |        | (2,500   | )      |      |        | (4,500  | )      |   |        | (26,000 | )    
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|Net cash (used in) provided by financing
	activities |                                                                                    |                                                       | (1,828 | )        |        |      | (2,419 | )       |        |   | 24,494 |        
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     |                                                                                    | Net increase (decrease) in cash and cash
	equivalents |        |          | 36,932 |      |        |         | (2,392 | ) |        |         | 1,921 | 
|                                                     | Cash and cash equivalents at beginning of year                                     |                                                       |        | 31,914   |        |      |        | 34,306  |        |   |        | 32,385  |      
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Cash and cash equivalents at end of year                                           |                                                       | $      | 68,846   |        |      | $      | 31,914  |        |   | $      | 34,306  |      
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|Supplemental cash flow information:                  |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Cash paid for interest                                                             |                                                       | $      | 3,394    |        |      | $      | 4,170   |        |   | $      | 2,510   |      
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        
|                                                     | Cash paid for income taxes                                                         |                                                       | $      | 176      |        |      | $      | 166     |        |   | $      | 131     |      
|                                                     |                                                                                    |                                                       |        |          |        |      |        |         |        |   |        |        

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

38



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2001, 2000 and
1999


(Dollars in thousands, except share and per
share data)


Note 1.     Summary
of Significant Accounting Policies



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

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

At December 31, 2001, the Company had five
insurance subsidiaries, including Bankers Fidelity Life
Insurance Company (Bankers Fidelity), American
Southern Insurance Company and its wholly-owned subsidiary,
American Safety Insurance Company (together known as
American Southern), Association Casualty Insurance
Company (ACIC) and Georgia Casualty &
Surety Company (Georgia Casualty), in addition to
two non-risk bearing subsidiaries, Association Risk Management
General Agency, Inc. (ARMGA) and Self-Insurance
Administrators, Inc. (SIA, Inc.). ACIC and ARMGA
(together known as Association Casualty) were
acquired on July 1, 1999. The results of operations of
Association Casualty are included in the consolidated results of
operations since the date of acquisition.



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

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

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



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

Goodwill is amortized over a period of fifteen to
forty years using the straight-line method. The Company
periodically evaluates whether events and circumstances have
occurred that indicate that the remaining estimated useful life
of goodwill may warrant revision. Should factors indicate that
goodwill be evaluated for possible impairment, the Company will
compare the recoverability of goodwill to a projection of the
acquired companies undiscounted cash flow over the
estimated remaining life of the goodwill in assessing whether
the goodwill is recoverable. (See Impact of Recently Issued
Accounting Standards provided below).

39



---



##### Table of Contents





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

All of the Companys debt and equity
securities are classified as available for sale and are carried
at market value. Mortgage loans, policy and student loans, and
real estate are carried at historical cost. Other invested
assets are comprised of investments in limited partnerships,
limited liability companies, and real estate joint ventures;
those which are publicly traded are carried at estimated market
value and those for which the Company has the ability to
exercise significant influence (equity investees)
are accounted for using the equity method. If the value of a
common stock, preferred stock, other invested asset, or publicly
traded bond declines below its cost or amortized cost, and the
decline is considered to be other than temporary, a realized
loss is recorded to reduce the carrying value of the investment
to its estimated net realizable value, which becomes the new
cost basis. Premiums and discounts related to investments are
amortized or accreted over the life of the related investment as
an adjustment to yield using the effective interest method.
Dividends and interest income are recognized when earned or
declared.

The cost of securities sold is based on specific
identification. Unrealized gains (losses) in the value of
invested assets, are accounted for as a direct increase
(decrease) in accumulated other comprehensive income in
shareholders equity, net of deferred tax and, accordingly,
have no effect on net income.



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

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



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

Basic earnings per common share are based on the
weighted average number of common shares outstanding during each
period. Diluted earnings per common share are based on the
weighted average number of common shares outstanding during each
period, plus common shares calculated for stock options
outstanding using the treasury stock method and assumed
conversion of the Series B and C Preferred Stock, if
dilutive. Unless otherwise indicated, earnings per common share
amounts are presented on a diluted basis.



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

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



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

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS
No. 133 requires the recognition of the fair value of all
derivative instruments on the balance sheet and establishes
specific accounting methods for hedges. The Company adopted SFAS
No. 133 and the corresponding amendments under SFAS
No. 138 on January 1, 2001. The adoption did not have
a material effect on the Companys financial condition or
results of operations.

In June 2001, the FASB issued SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other tangible
assets arising from business combinations completed after
June 30, 2001. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives.
Under the new rules, goodwill (and intangible assets deemed to
have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in

40



---



##### Table of Contents



accordance with the statement. Other intangible
assets will continue to be amortized over their remaining useful
lives. As of December 31, 2001, the Company had unamortized
goodwill of $18,824 all of which will be subject to the
transition provisions of SFAS No. 142. Amortization expense
related to goodwill was $802, $798, and $604 for the years ended
December 31, 2001, 2000, and 1999, respectively. The
Company will adopt SFAS No. 142 on January 1, 2002.
Goodwill shall be tested for impairment using the two-step
process prescribed in SFAS No. 142. The first step is a
screen for potential impairment, while the second step measures
the amount of the impairment, if any. Any impairment loss that
is required to be recognized when adopting SFAS No. 142
will be reflected as a cumulative effect of change in accounting
principle during the first quarter of 2002. The impact of
adopting SFAS No. 142 on the Companys financial
statements has not yet been determined; however, it could have a
material impact on the Companys results of operations in
2002.


In August 2001, SFAS No. 143,
Accounting for Asset Retirement Obligations
(effective for fiscal periods commencing after June 15,
2002) and SFAS No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets (effective for fiscal
periods commencing after December 15, 2001) were issued.
SFAS No. 143 requires that entities recognize the fair
value of a liability for an asset retirement obligation in the
period in which it is incurred if a reasonable estimate of fair
value can be made. SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. The statement
superseded SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of and among other factors, establishes criteria beyond
that previously specified in Statement 121 to determine when a
long-lived asset is to be considered as held for sale. The
Company believes that the adoption of SFAS No. 143 and SFAS
No. 144 will not have significant impact on the
Companys financial statements.



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

The preparation of financial statements and
related disclosures in conformity with GAAP requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual
results could differ from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain prior year balances have been
reclassified to conform with the current year presentation.

41



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##### Table of Contents



Note 2.     Investments

Investments are comprised of the following:

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

|                                                |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |         | 
|----------------------------------------------- | ---------------------------------------------------------------------------------------- | ------ | ------- | ---------- |  | ---------- | ------ | --------- |  |  | ----- | ----- |  |  | ------- | ------- | 
|                                                |                                                                                          |       
|                                                |                                                                                          | 2000  
|                                                |                                                                                          |       
|                                                |                                                                                          |        |         | Gross      |  | Gross      |        |          
|                                                |                                                                                          | Market |         | Unrealized |  | Unrealized |        | Amortized
|                                                |                                                                                          | Value  |         | Gains      |  | Losses     |        | Cost     
|                                                |                                                                                          |        |         |            |  |            |        |          
|Bonds:                                          |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | U. S. Treasury Securities and Obligations of U.
	S. Government Corporations and Agencies |        | $       | 111,198    |  |            | $      | 608       |  |  | $     | 1,517 |  |  | $       | 112,107 | 
|                                                | Obligations of states and political subdivisions                                         |        |         | 4,088      |  |            |        | 37        |  |  |       | 2     |  |  |         | 4,053   | 
|                                                | Corporate securities                                                                     |        |         | 37,752     |  |            |        | 563       |  |  |       | 921   |  |  |         | 38,110  | 
|                                                | Mortgage-backed securities (government guaranteed)                                       |        |         | 6,366      |  |            |        | 71        |  |  |       | 9     |  |  |         | 6,304   | 
|                                                |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                |                                                                                          |        | 159,404 |            |  |            | 1,279  |           |  |  | 2,449 |       |  |  | 160,574 |        
|Common and preferred stocks                     |                                                                                          |        | 43,945  |            |  |            | 14,566 |           |  |  | 2,730 |       |  |  | 32,109  |        
|Other invested assets                           |                                                                                          |        | 5,862   |            |  |            |       |           |  |  | 174   |       |  |  | 6,036   |        
|Mortgage loans (estimated fair value of $4,040) |                                                                                          |        | 3,538   |            |  |            |       |           |  |  |      |       |  |  | 3,538   |        
|Policy and student loans                        |                                                                                          |        | 3,098   |            |  |            |       |           |  |  |      |       |  |  | 3,098   |        
|Real estate                                     |                                                                                          |        | 46      |            |  |            |       |           |  |  |      |       |  |  | 46      |        
|                                                |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | Investments                                                                              |        |         | 215,893    |  |            |        | 15,845    |  |  |       | 5,353 |  |  |         | 205,401 | 
|Short-term investments                          |                                                                                          |        | 15,013  |            |  |            |       |           |  |  |      |       |  |  | 15,013  |        
|                                                |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |        
|                                                | Total investments                                                                        |        | $       | 230,906    |  |            | $      | 15,845    |  |  | $     | 5,353 |  |  | $       | 220,414 | 
|                                                |                                                                                          |        |         |            |  |            |        |           |  |  |       |       |  |  |         |        

Bonds and cash having an amortized cost of
$15,925 and $16,187 were on deposit with insurance regulatory
authorities at December 31, 2001 and 2000, respectively, in
accordance with statutory requirements.

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The amortized cost and carrying value of bonds
and short-term investments at December 31, 2001 by
contractual maturity are as follows. Actual maturities may
differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.

|                                        |        |        |        |           |  |   |        |         | 
|--------------------------------------- | ------ | ------ | ------ | --------- |  | - | ------ | ------- | 
|                                        |        | Market |        | Amortized
|                                        |        | Value  |        | Cost     
|                                        |        |        |        |          
|Due in one year or less                 |        | $      | 58,033 |           |  | $ | 57,805 |        
|Due after one year through five
	years  |        |        | 36,490 |           |  |   | 36,167 |        
|Due after five years through ten
	years |        |        | 31,884 |           |  |   | 31,199 |        
|Due after ten years                     |        |        | 30,052 |           |  |   | 30,341 |        
|Varying maturities                      |        |        | 16,162 |           |  |   | 15,881 |        
|                                        |        |        |        |           |  |   |        |        
|                                        | Totals |        | $      | 172,621   |  |   | $      | 171,393 | 
|                                        |        |        |        |           |  |   |        |        

Investment income was earned from the following
sources:

|                            |                         |      |        |        |  |      |        |        |  |   |       |        | 
|--------------------------- | ----------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ----- | ------ | 
|                            |                         | 2001 |        | 2000   |  | 1999
|                            |                         |      |        |        |  |     
|Bonds                       |                         | $    | 10,530 |        |  | $    | 10,882 |        |  | $ | 8,447 |       
|Common and preferred stocks |                         |      | 2,438  |        |  |      | 2,470  |        |  |   | 2,388 |       
|Mortgage loans              |                         |      | 323    |        |  |      | 333    |        |  |   | 352   |       
|CDs and commercial paper    |                         |      | 1,071  |        |  |      | 849    |        |  |   | 933   |       
|Other                       |                         |      | (45    | )      |  |      | 1,018  |        |  |   | 604   |       
|                            |                         |      |        |        |  |      |        |        |  |   |       |       
|                            | Total investment income |      |        | 14,317 |  |      |        | 15,552 |  |   |       | 12,724 | 
|Less investment expenses    |                         |      | (176   | )      |  |      | (232   | )      |  |   | (290  | )     
|                            |                         |      |        |        |  |      |        |        |  |   |       |       
|                            | Net investment income   |      | $      | 14,141 |  |      | $      | 15,320 |  |   | $     | 12,434 | 
|                            |                         |      |        |        |  |      |        |        |  |   |       |       

A summary of realized investment gains
(losses) follows:

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

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

|       |                                              |        |       |       |  |                 |      |       |   |   |     |     |  |   |       |       | 
|------ | -------------------------------------------- | ------ | ----- | ----- |  | --------------- | ---- | ----- | - | - | --- | --- |  | - | ----- | ----- | 
|       |                                              |       
|       |                                              | 1999  
|       |                                              |       
|       |                                              |        |       | Other |  |                
|       |                                              | Stocks |       | Bonds |  | Invested Assets |      | Total
|       |                                              |        |       |       |  |                 |      |      
|Gains  |                                              | $      | 2,526 |       |  | $               | 10   |       |   | $ | 585 |     |  | $ | 3,121 |      
|Losses |                                              |        | (52   | )     |  |                 | (238 | )     |   |   |    |     |  |   | (290  | )    
|       |                                              |        |       |       |  |                 |      |       |   |   |     |     |  |   |       |      
|       | Total realized investment gains (losses) net |        | $     | 2,474 |  |                 | $    | (228  | ) |   | $   | 585 |  |   | $     | 2,831 | 
|       |                                              |        |       |       |  |                 |      |       |   |   |     |     |  |   |       |      

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

|                            |                |      |        |        |  |      |       |       |  |   |       |       | 
|--------------------------- | -------------- | ---- | ------ | ------ |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                            |                | 2001 |        | 2000   |  | 1999
|                            |                |      |        |        |  |     
|Common and preferred stocks |                | $    | 18,194 |        |  | $    | 2,595 |       |  | $ | 5,960 |      
|Bonds                       |                |      | 19,717 |        |  |      |      |       |  |   | 1,379 |      
|Student loans               |                |      | 385    |        |  |      | 651   |       |  |   | 519   |      
|Other investments           |                |      | 826    |        |  |      | 201   |       |  |   | 624   |      
|                            |                |      |        |        |  |      |       |       |  |   |       |      
|                            | Total proceeds |      | $      | 39,122 |  |      | $     | 3,447 |  |   | $     | 8,482 | 
|                            |                |      |        |        |  |      |       |       |  |   |       |      

The Companys investment in the common stock
of Wachovia Corporation exceeds 10% of shareholders equity
at December 31, 2001. The carrying value of this investment
at December 31, 2001 was $14,350 with a cost basis of
$3,579. The Companys bond portfolio included 96%
investment grade securities at December 31, 2001 as defined
by the National Association of Insurance Commissioners
(NAIC).

Note 3.     Insurance
Reserves and Policyholder Funds

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

|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------------- | ------------------------ | ---- | ------- | ------- |  | ------------------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |                          |      |         |         |  |                    
|                                       |                          |      |         |         |  | Amount of Insurance
|                                       |                          |      |         |         |  | in Force           
|                                       |                          |      |         |         |  |                    
|                                       |                          | 2001 |         | 2000    |  | 2001                |         | 2000   
|                                       |                          |      |         |         |  |                     |         |        
|Future policy benefits                 |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Life insurance policies:               |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Ordinary                 |      | $       | 34,213  |  |                     | $       | 31,542  |  |   | $       | 262,891 |  |   | $       | 253,721 | 
|                                       | Mass market              |      |         | 7,102   |  |                     |         | 7,529   |  |   |         | 13,146  |  |   |         | 12,250  | 
|                                       | Individual annuities     |      |         | 843     |  |                     |         | 855     |  |   |         |        |  |   |         |        | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 42,158  |         |  |                     | 39,926  |         |  | $ | 276,037 |         |  | $ | 265,971 |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Accident and health insurance policies |                          |      | 2,197   |         |  |                     | 2,180   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 44,355  |         |  |                     | 42,106  |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Unearned premiums                      |                          |      | 51,025  |         |  |                     | 45,421  |         |  |   |         |         |  |   |         |        
|Losses and claims                      |                          |      | 143,515 |         |  |                     | 133,220 |         |  |   |         |         |  |   |         |        
|Other policy liabilities               |                          |      | 4,304   |         |  |                     | 4,417   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Total policy liabilities |      | $       | 243,199 |  |                     | $       | 225,164 |  |   |         |         |  |   |         |         | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        

Annualized premiums for accident and health
insurance policies were $44,763 and $39,361 at December 31,
2001 and 2000, respectively.

Future Policy
Benefits

Liabilities for life insurance future policy
benefits are based upon assumed future investment yields,
mortality rates, and withdrawal rates after giving effect to
possible risks of adverse deviation. The assumed mortality and
withdrawal rates are based upon the Companys experience.
The interest rates assumed for life, accident and health are
generally: (i) 2.5% to 5.5% for issues prior to 1977,
(ii) 7% graded to 5.5% for 1977 through 1979 issues,
(iii) 9% for 1980 through 1987 issues, and (iv) 5% to
7% for 1988 and later issues.

Loss and
Claim Reserves

Loss and claim reserves represent estimates of
projected ultimate losses and are based upon:
(a) managements estimate of ultimate liability and
claim adjusters evaluations for unpaid claims reported
prior to the close of the accounting period, (b) estimates
of incurred but not reported claims based on past

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experience, and (c) estimates of loss
adjustment expenses. The estimated liability is continually
reviewed by management and independent consulting actuaries and
updated with changes to the estimated liability recorded in the
statement of operations in the year in which such changes are
known.


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

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

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

|                                                                            |                                              |      |         |         |  |   |        |        | 
|--------------------------------------------------------------------------- | -------------------------------------------- | ---- | ------- | ------- |  | - | ------ | ------ | 
|                                                                            |                                              | 2001 |         | 2000   
|                                                                            |                                              |      |         |        
|Total incurred claims                                                       |                                              | $    | 105,653 |         |  | $ | 96,251 |       
|State residual pool refunds and adjustments to
	loss portfolio arrangements |                                              |      | (150    | )       |  |   | (59    | )     
|Cash surrender value and matured endowments                                 |                                              |      | 1,393   |         |  |   | 1,436  |       
|                                                                            |                                              |      |         |         |  |   |        |       
|                                                                            | Total insurance benefits and losses incurred |      | $       | 106,896 |  |   | $      | 97,628 | 
|                                                                            |                                              |      |         |         |  |   |        |       

Note 4.     Reinsurance

In accordance with general practice in the
insurance industry, portions of the life, property and casualty
insurance written by the Company are reinsured; however, the
Company remains contingently liable with respect to reinsurance
ceded should any reinsurer be unable to meet its obligations.
Approximately 93% of the reinsurance receivables are due from
three reinsurers as of December 31, 2001. Reinsurance
receivables of $24,215 are with General Reinsurance Corporation,
rated AAA by Standard & Poors and
A++ (Superior) by A.M. Best, $2,271 are with First
Colony Life Insurance Company, rated AA by Standard
& Poors and A++ (Superior) by A.M. Best,
and $19,099 are with Pennsylvania Manufacturers Association
Insurance Company, rated A- (Excellent) by A.M.
Best. Allowances for uncollectible amounts are established
against reinsurance receivables, if appropriate. Premiums
assumed of $22,708, $25,439, and $24,903 in 2001, 2000, and 1999
respectively, include a state contract with premiums of $14,054,
$17,198, and $15,064. The contract premiums represent 9.7%,
12.9% and 14.0% of net premiums earned for the years ended 2001,
2000, and 1999, respectively. The following

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


|                                           |                                 |      |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------ | ------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                           |                                 | 2001 |         | 2000    |   | 1999
|                                           |                                 |      |         |         |   |     
|Direct premiums written                    |                                 | $    | 153,743 |         |   | $    | 130,089 |         |   | $ | 97,909  |        
|Plus  premiums assumed                    |                                 |      | 22,708  |         |   |      | 25,439  |         |   |   | 24,903  |        
|Less  premiums ceded                      |                                 |      | (25,399 | )       |   |      | (10,916 | )       |   |   | (13,189 | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Net premiums written                       |                                 |      | 151,052 |         |   |      | 144,612 |         |   |   | 109,623 |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Change in unearned premiums                |                                 |      | (11,889 | )       |   |      | (11,408 | )       |   |   | (1,802  | )      
|Change in unearned premiums ceded          |                                 |      | 6,426   |         |   |      | 293     |         |   |   | (227    | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net change in unearned premiums |      |         | (5,463  | ) |      |         | (11,115 | ) |   |         | (2,029  | )
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net premiums earned             |      | $       | 145,589 |   |      | $       | 133,497 |   |   | $       | 107,594 |  
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Provision for benefits and losses incurred |                                 | $    | 132,724 |         |   | $    | 107,340 |         |   | $ | 88,848  |        
|Reinsurance loss recoveries                |                                 |      | (25,828 | )       |   |      | (9,712  | )       |   |   | (10,686 | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Insurance benefits and losses incurred     |                                 | $    | 106,896 |         |   | $    | 97,628  |         |   | $ | 78,162  |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        

Components of reinsurance receivables are as
follows:

|                            |  |      |        |      |  |   |        | 
|--------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                            |  | 2001 |        | 2000
|                            |  |      |        |     
|Receivable on unpaid losses |  | $    | 47,729 |      |  | $ | 38,851 | 
|Receivable on paid losses   |  |      | 1,217  |      |  |   | 237    | 
|                            |  |      |        |      |  |   |        | 
|                            |  | $    | 48,946 |      |  | $ | 39,088 | 
|                            |  |      |        |      |  |   |        | 

Note 5.     Income
Taxes

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

|                                                       |                                                                                |                                            |       |      |     |      |       |      |       |   |       |        |        |  
|------------------------------------------------------ | ------------------------------------------------------------------------------ | ------------------------------------------ | ----- | ---- | --- | ---- | ----- | ---- | ----- | - | ----- | ------ | ------ | -
|                                                       |                                                                                | 2001                                       |       | 2000 |     | 1999
|                                                       |                                                                                |                                            |       |      |     |     
|Federal income tax provision at statutory rate of
	35% |                                                                                | $                                          | 1,489 |      |     | $    | 1,665 |      |       | $ | 1,373 |       
|Tax exempt interest and dividends received
	deductions |                                                                                |                                            | (469  | )    |     |      | (484  | )    |       |   | (400  | )     
|Other permanent differences                            |                                                                                |                                            | 314   |      |     |      | 363   |      |       |   |      |       
|Change in asset valuation allowance due to:            |                                                                                |                                            |       |      |     |      |       |      |       |   |       |       
|                                                       | Utilization of net operating loss carryforwards                                |                                            |       |     |     |      |       |     |       |   |       | (973   | )     
|                                                       | Recognition of deferred tax liability relating to
	unrealized investment gains |                                            |       |     |     |      |       |     |       |   |       | (4,219 | )     
|                                                       | Change in judgment relating to realizability of
	deferred tax assets           |                                            |       | (827 | )   |      |       | (537 | )     |   |       | (2,778 | )     
|State income taxes                                     |                                                                                |                                            | 81    |      |     |      |      |      |       |   | -     |       
|Alternative minimum tax                                |                                                                                |                                            | 68    |      |     |      | 117   |      |       |   | 9     |       
|                                                       |                                                                                |                                            |       |      |     |      |       |      |       |   |       |       
|                                                       |                                                                                | Total provision (benefit) for income taxes |       | $    | 656 |      |       | $    | 1,124 |   |       | $      | (6,988 | )
|                                                       |                                                                                |                                            |       |      |     |      |       |      |       |   |       |       

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Deferred tax liabilities and assets at
December 31, 2001 and 2000 are comprised of the following:

|                          |                                  |                                |   |        |         |   |   |        |         |  
|------------------------- | -------------------------------- | ------------------------------ | - | ------ | ------- | - | - | ------ | ------- | -
|                          |                                  | 2001                           |   | 2000  
|                          |                                  |                                |   |       
|Deferred tax liabilities: |                                  |                                |   |        |         |   |   |       
|                          | Deferred acquisition costs       |                                | $ | (5,506 | )       |   | $ | (5,137 | )      
|                          | Net unrealized investment gains  |                                |   | (4,897 | )       |   |   | (3,672 | )      
|                          | Deferred and uncollected premium |                                |   | (1,321 | )       |   |   | (1,214 | )      
|                          | Other                            |                                |   | (99    | )       |   |   | (374   | )      
|                          |                                  |                                |   |        |         |   |   |       
|                          |                                  | Total deferred tax liabilities |   |        | (11,823 | ) |   |        | (10,397 | )
|                          |                                  |                                |   |        |         |   |   |       
|Deferred tax assets:      |                                  |                                |   |        |         |   |   |       
|                          | Net operating loss carryforwards |                                |   | 10,515 |         |   |   | 11,265 |        
|                          | Insurance reserves               |                                |   | 8,587  |         |   |   | 8,946  |        
|                          | Bad debts and other              |                                |   | 625    |         |   |   | 462    |        
|                          |                                  |                                |   |        |         |   |   |       
|                          |                                  | Total deferred tax assets      |   |        | 19,727  |   |   |        | 20,673  |  
|                          |                                  |                                |   |        |         |   |   |       
|                          | Asset valuation allowance        |                                |   | (5,610 | )       |   |   | (6,437 | )      
|                          |                                  |                                |   |        |         |   |   |       
|                          | Net deferred tax assets          |                                | $ | 2,294  |         |   | $ | 3,839  |        
|                          |                                  |                                |   |        |         |   |   |       

The components of the provision
(benefit) are:

|                   |       |      |     |      |  |      |       |       |  |   |        |        |  
|------------------ | ----- | ---- | --- | ---- |  | ---- | ----- | ----- |  | - | ------ | ------ | -
|                   |       | 2001 |     | 2000 |  | 1999
|                   |       |      |     |      |  |     
|Current  Federal  |       | $    | 68  |      |  | $    | 117   |       |  | $ | 9      |       
|Current  State    |       |      | 81  |      |  |      |      |       |  |   |       |       
|Deferred  Federal |       |      | 507 |      |  |      | 1,007 |       |  |   | (6,997 | )     
|                   |       |      |     |      |  |      |       |       |  |   |        |       
|                   | Total |      | $   | 656  |  |      | $     | 1,124 |  |   | $      | (6,988 | )
|                   |       |      |     |      |  |      |       |       |  |   |        |       

At December 31, 2001, the Company had
regular federal net operating loss carryforwards of
approximately $30,000 expiring generally between 2002 and 2010.
Until the end of 1999, the Company established a full valuation
allowance against its net deferred income tax benefits as they
were not considered realizable from expected future reversals of
existing taxable temporary differences. The Company believed
that it was more likely than not that the deferred income tax
benefits would not be realized through future taxable income
prior to the expiration dates of net operating loss
carryforwards. However, with the acquisition of Association
Casualty and several years of profitability, in the fourth
quarter of 1999 the Company determined that it was more likely
than not that a portion of its net deferred income tax benefits
relating to net operating loss carryforwards scheduled to expire
between 2006 and 2010 would be realized based on future taxable
income. Management also can and would implement tax-planning
strategies to prevent these carryforwards from expiring.

As of December 31, 2001 and 2000, a
valuation allowance of $5,610 and $6,437, respectively, has been
established for deferred income tax benefits relating primarily
to net operating loss carryforwards scheduled to expire between
2002 and 2003 that may not be realized. In 2001 and 2000,
respectively, the decrease of $827 and $537 in the valuation
allowance is due primarily to the utilization of a portion of
these benefits that were previously reserved for. Since the
Companys ability to generate taxable income from
operations and utilize available tax-planning strategies in the
near term is dependent upon various factors, many of which are
beyond managements control, management believes that it is
more likely than not that the remaining deferred income tax
benefits relating primarily to the carryforwards scheduled to
expire in 2002 and 2003 will not be realized. However,
realization of the remaining deferred income tax benefits will
be assessed periodically based on the Companys current and
anticipated results of operations and amounts could increase or
decrease in the near term if estimates of future taxable income
change. The Company has formal tax-sharing agreements and files
a consolidated income tax return with its subsidiaries.

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Note 6.     Credit
Arrangements

The Company is a party to a five-year revolving
credit facility (the Revolving Credit Facility) with
Wachovia Bank that provides for borrowings up to $30,000. The
interest rate on the borrowings under this facility may be
fixed, at the Companys option, for a period of one, three,
six or twelve months and is based upon the London Interbank
Offered Rate (LIBOR) plus an applicable margin,
2.50% at December 31, 2001. The margin varies based upon
the Companys leverage ratio (debt to earnings before
interest, taxes, depreciation and amortization
(EBITDA), as defined under the facility agreements)
and ranges from 1.75% to 3.75%. Interest on the Revolving Credit
Facility is currently payable quarterly. The Revolving Credit
Facility provides for the payment of all of the outstanding
principal balance at June 30, 2004 with no required
principal payments prior to that time. The interest rate
including the applicable margin on this facility at
December 31, 2001 and 2000 was 6.35% and 9.12%,
respectively.

The Company also has outstanding $25,000 of
Series 1999, Variable Rate Demand Bonds (the
Bonds) due July 1, 2009 issued through a
private placement. The Bonds, which are redeemable at the
Companys option, pay a variable interest rate that
approximates 30-day LIBOR. The Bonds are backed by a letter of
credit issued by Wachovia, which is automatically renewable on a
monthly basis until thirteen months after such time as Wachovia
gives the Company notice of its option not to renew the letter
of credit. The Bonds are subject to mandatory redemption upon
termination of the letter of credit, if an alternative letter of
credit facility is not secured. The Company expects that it
would be able to replace the letter of credit facility within
the prescribed period if Wachovia should give notice of its
intention not to renew the existing facility. The cost of the
letter of credit and its associated fees are 2.50% making the
effective rate on the Bonds LIBOR plus 2.50% at December 31,
2001. The interest on the Bonds is payable monthly and the
letter of credit fees are payable quarterly. The interest rate
on the Bonds, along with the related fees, at December 31,
2001 and 2000 was 4.63% and 9.15%, respectively. The Bonds do
not require the repayment of any principal prior to maturity,
except as provided above.

The Company is required, under both instruments,
to maintain certain covenants including, among others, ratios
that relate funded debt to total capitalization and interest
coverage. The Company must also comply with limitations on
capital expenditures and additional debt obligations.

Effective December 31, 2001, the Revolving
Credit Facility and letter of credit were both amended by
Wachovia. The amendment establishes new covenants pertaining to
ratios related to interest coverage and eliminates funded debt
to EBITDA except in determining the applicable margin. In
addition, the Company is required to consolidate the Revolving
Credit Facility and the Bonds into a term loan (Term
Loan), effective on April 2, 2002 which will mature
June 30, 2004. The Company has notified the holders of the
Bonds that they will be redeemed as of April 2, 2002. The
Company must repay the principal of the Term Loan in annual
installments in the amount of $2,000 on or before
December 31 of 2002 and 2003, together with one final
installment at maturity in 2004.

Note 7.     Derivative
Financial Instruments

On March 21, 2001, the Company entered into
an interest rate swap agreement with Wachovia to hedge its
interest rate risk on a portion of the outstanding borrowings
under the revolving credit facility. The interest rate swap was
effective on April 2, 2001 and matures on June 30,
2004. The Company has agreed to pay a fixed rate of 5.1% and
receive 3-month LIBOR until maturity. The settlement date and
the reset date will occur every 90 days following
April 2, 2001 until maturity. The following table
summarizes the notional amount, fair value and carrying value of
the Companys derivative financial instruments at
December 31, 2001, as follows:

|                             |  |          |        |       |  |             |      |   |  |   |      |  
|---------------------------- |  | -------- | ------ | ----- |  | ----------- | ---- | - |  | - | ---- | -
|                             |  |          |        |       |  | Carrying   
|                             |  | Notional |        | Fair  |  | Value      
|                             |  | Amount   |        | Value |  | (Liability)
|                             |  |          |        |       |  |            
|Interest rate swap agreement |  | $        | 15,000 |       |  | $           | (532 | ) |  | $ | (532 | )

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Note 8.     Acquisitions

On July 1, 1999, the Company acquired 100%
of the outstanding stock of ACIC and ARMGA for a combined price
of $33,052 with $8,483 of the purchase price paid in the form of
common stock of the Company and the remaining $24,569 paid in
cash obtained from borrowings under the Revolving Credit
Facility. The acquisition of ACIC and ARMGA were accounted for
using the purchase method of accounting. Accordingly, the
Company has allocated the purchase price of the companies based
on the fair value of the assets acquired and liabilities assumed
and their results of operations are included in the consolidated
results of operations since the date of acquisition.

The following summarizes the Companys
proforma unaudited results of operations for the year ended
December 31, 1999 assuming the purchase of ACIC and ARMGA
had been consummated as of January 1, 1999.

|                       |                                   |              |         |     | 
|---------------------- | --------------------------------- | ------------ | ------- | --- | 
|                       |                                   | Consolidated
|                       |                                   | 1999        
|                       |                                   |             
|Revenue                |                                   | $            | 136,459 |    
|Net income             |                                   |              | 9,656   |    
|Per common share data: |                                   |              |         |    
|                       | Basic earnings per common share   |              |         | .40 | 
|                       | Diluted earnings per common share |              |         | .39 | 

This proforma financial information has been
prepared for informational purposes only and is not necessarily
indicative of the results of operations had the transaction been
consummated on January 1, 1999, nor is it indicative of
results of operations that may be obtained in the future.

Note 9.     Commitments
and Contingencies



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

During 2000, American Southern renewed one of its
larger accounts. Although this contract was renewed through a
competitive bidding process, one of the parties bidding for this
particular contract contested the award of this business to
American Southern and filed a claim to obtain the nullification
of the contract. During the fourth quarter of 2000, American
Southern received an unfavorable judgment relating to this
litigation and has appealed the ruling. The contract, which
accounts for approximately 10% of annualized premium revenue, is
to remain in effect pending appeal. While management at this
time cannot predict the potential outcome in this case, or
quantify the actual impact of an adverse decision, it may have a
material impact on the future results of operations of the
Company.

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

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

The Companys rental expense, including
common area charges, for operating leases was $1,732, $1,534,
and $1,271 in 2001, 2000, and 1999 respectively. The
Companys future minimum lease obligations under
non-cancelable operating leases are as follows:

|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|Year Ending December 31, |       |   |       |      
|2002                     |       | $ | 1,381 |      
|2003                     |       |   | 1,310 |      
|2004                     |       |   | 1,312 |      
|2005                     |       |   | 1,181 |      
|2006                     |       |   | 491   |      
|Thereafter               |       |   | 1,789 |      
|                         |       |   |       |      
|                         | Total |   | $     | 7,464 | 
|                         |       |   |       |      

Note 10.     Employee
Benefit Plans



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

In accordance with the Companys 1992
Incentive Plan, the Board of Directors may grant up to 1,800,000
stock options or share awards. The Board of Directors may grant:
(a) incentive stock options within the meaning of
Section 422 of the Internal Revenue Code;
(b) non-qualified stock options; (c) performance
units; (d) awards of restricted shares of the
Companys common stock and other stock unit awards;
(e) deferred shares of common stock; or (f) all or any
combination of the foregoing to officers and key employees.
Options granted under this plan expire five or ten years from
the date of grant. Vesting occurs at 50% upon issuance of an
option, and the remaining portion is vested at 25% increments in
each of the following two years. In accordance with the
Companys 1996 Director Stock Option Plan, a maximum of
200,000 stock options may be granted that fully vest six months
after the grant date. As of December 31, 2001, an aggregate
of sixty-six employees, officers and directors held options
under the two plans.

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

|                                       |  |        |           |                |  |        |      |                |  |  |           |   |  |   |      | 
|-------------------------------------- |  | ------ | --------- | -------------- |  | ------ | ---- | -------------- |  |  | --------- | - |  | - | ---- | 
|                                       |  |        |           |               
|                                       |  | 2001   |           | 2000          
|                                       |  |        |           |               
|                                       |  |        |           | Weighted Avg.  |  |        |      | Weighted Avg. 
|                                       |  | Shares |           | Exercise Price |  | Shares |      | Exercise Price
|                                       |  |        |           |                |  |        |      |               
|Options outstanding, beginning of year |  |        | 1,024,000 |                |  | $      | 3.43 |                |  |  | 1,170,000 |   |  | $ | 3.34 | 
|Options granted                        |  |        | 572,000   |                |  |        | 1.26 |                |  |  | 12,000    |   |  |   | 3.18 | 
|Options exercised                      |  |        |          |                |  |        |     |                |  |  | (120,000  | ) |  |   | 2.50 | 
|Options canceled or expired            |  |        | (321,000  | )              |  |        | 2.75 |                |  |  | (38,000   | ) |  |   | 3.63 | 
|                                       |  |        |           |                |  |        |      |                |  |  |           |   |  |   |      | 
|Options outstanding, end of year       |  |        | 1,275,000 |                |  |        | 2.63 |                |  |  | 1,024,000 |   |  |   | 3.43 | 
|                                       |  |        |           |                |  |        |      |                |  |  |           |   |  |   |      | 
|Options exercisable                    |  |        | 991,250   |                |  |        | 3.02 |                |  |  | 992,125   |   |  |   | 3.41 | 
|                                       |  |        |           |                |  |        |      |                |  |  |           |   |  |   |      | 
|Options available for future grant     |  |        | 194,150   |                |  |        |      |                |  |  | 435,150   |   |  |   |      | 
|                                       |  |        |           |                |  |        |      |                |  |  |           |   |  |   |      | 

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The Company does not recognize compensation for
stock options cost since the option price approximates fair
value on the date of grant. If compensation cost had been
recognized, the Companys net income and earnings per share
would have been as follows:

|                                   |             |      |       |       |  |      |       |       |  |  |        |        | 
|---------------------------------- | ----------- | ---- | ----- | ----- |  | ---- | ----- | ----- |  |  | ------ | ------ | 
|                                   |             | 2001 |       | 2000  |  | 1999
|                                   |             |      |       |       |  |     
|Net income:                        |             |      |       |       |  |      |       |       |  |  |        |       
|                                   | As reported |      | $     | 3,597 |  |      | $     | 3,632 |  |  | $      | 10,910 | 
|Pro forma                          |             |      | 3,398 |       |  |      | 3,480 |       |  |  | 10,477 |       
|Basic earnings per common share:   |             |      |       |       |  |      |       |       |  |  |        |       
|                                   | As reported |      | $     | .10   |  |      | $     | .12   |  |  | $      | .48    | 
|                                   | Pro forma   |      |       | .09   |  |      |       | .11   |  |  |        | .46    | 
|Diluted earnings per common share: |             |      |       |       |  |      |       |       |  |  |        |       
|                                   | As reported |      | $     | .10   |  |      | $     | .12   |  |  | $      | .46    | 
|                                   | Pro forma   |      |       | .09   |  |      |       | .11   |  |  |        | .44    | 

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

|                        |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|----------------------- |  | --------- | --------- | ---------------- |  | ---------------- | ----- | --------- |  | ---------------- | ---- |  |  |  | ------- |  |  | - | ---- | 
|                        |  |           |           |                  |  |                 
|                        |  |           |           | Outstanding      |  | Exercisable     
|                        |  |           |           |                  |  |                 
|                        |  | Number of |           | Weighted Average |  | Weighted Average |       | Number of |  | Weighted Average
|Range of Exercise Price |  | Options   |           | Remaining Life   |  | Exercise Price   |       | Options   |  | Exercise Price  
|                        |  |           |           |                  |  |                  |       |           |  |                 
|$1.00 to $1.50          |  |           | 562,500   |                  |  |                  | 9.79  |           |  | $                | 1.25 |  |  |  | 281,250 |  |  | $ | 1.25 | 
|$1.51 to $2.00          |  |           | 9,500     |                  |  |                  | 4.31  |           |  | $                | 1.86 |  |  |  | 8,250   |  |  | $ | 1.88 | 
|$2.51 to $3.00          |  |           | 12,000    |                  |  |                  | 2.09  |           |  | $                | 2.82 |  |  |  | 12,000  |  |  | $ | 2.82 | 
|$3.01 to $3.50          |  |           | 37,500    |                  |  |                  | <1.00 |           |  | $                | 3.22 |  |  |  | 37,500  |  |  | $ | 3.22 | 
|$3.51 to $4.00          |  |           | 637,500   |                  |  |                  | 1.56  |           |  | $                | 3.77 |  |  |  | 636,250 |  |  | $ | 3.77 | 
|$4.01 to $4.50          |  |           | 11,000    |                  |  |                  | 1.87  |           |  | $                | 4.27 |  |  |  | 11,000  |  |  | $ | 4.27 | 
|$4.51 to $5.00          |  |           | 5,000     |                  |  |                  | 1.57  |           |  | $                | 4.94 |  |  |  | 5,000   |  |  | $ | 4.94 | 
|                        |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|                        |  |           | 1,275,000 |                  |  |                  |       |           |  |                  |      |  |  |  | 991,250 |  |  |   |      | 
|                        |  |           |           |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 

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



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

The Company initiated an employees savings
plan under Section 401(k) of the Internal Revenue Code in
May 1995. The plan covers substantially all of the
Companys employees, except employees of American Southern
and Association Casualty. Under the plan, employees generally
may elect to contribute up to 16% of their compensation to the
plan. The Company makes a matching contribution to each employee
in an amount equal to 50% of the first 6% of such contributions.
The Companys matching contribution is in Company stock and
with a value of approximately $159, $155, and $133 in 2001,
2000, and 1999, respectively. Association Casualty has a
comparable savings plan covering substantially all of its
employees.



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

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

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Net periodic pension cost for American
Southerns qualified and non-qualified defined benefit
plans for the years ended December 31, 2001, 2000, and 1999
included the following components:

|                               |  |      |      |      |  |      |      |   |  |   |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                               |  | 2001 |      | 2000 |  | 1999
|                               |  |      |      |      |  |     
|Service cost                   |  | $    | 136  |      |  | $    | 119  |   |  | $ | 134  |  
|Interest cost                  |  |      | 263  |      |  |      | 239  |   |  |   | 232  |  
|Expected return on plan assets |  |      | (192 | )    |  |      | (209 | ) |  |   | (219 | )
|Net amortization               |  |      | 35   |      |  |      | 2    |   |  |   | (27  | )
|                               |  |      |      |      |  |      |      |   |  |   |      |  
|                               |  | $    | 242  |      |  | $    | 151  |   |  | $ | 120  |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  

The following assumptions were used to measure
the projected benefit obligation for the benefit plans at
December 31, 2001, 2000, and 1999:

|                                                                                              |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                              |  | 2001 |      | 2000 |  | 1999
|                                                                                              |  |      |      |      |  |     
|Discount rate to determine the projected benefit
	obligation                                  |  |      | 7.00 | %    |  |      | 7.00 | % |  |  | 8.00 | %
|Expected long-term rate of return on plan assets
	used to determine net periodic pension cost |  |      | 8.00 | %    |  |      | 8.00 | % |  |  | 8.00 | %
|Projected annual salary increases                                                             |  |      | 4.50 | %    |  |      | 4.50 | % |  |  | 4.50 | %

The following table sets forth the benefit
plans funded status at December 31, 2001 and 2000:

|                             |                                                |      |   |        |   |  |   |        |  
|---------------------------- | ---------------------------------------------- | ---- | - | ------ | - |  | - | ------ | -
|                             |                                                | 2001 |   | 2000  
|                             |                                                |      |   |       
|Change in Benefit Obligation |                                                |      |   |        |   |  |   |       
|                             | Net benefit obligation at beginning of year    |      | $ | 3,792  |   |  | $ | 2,923  |  
|                             | Service cost                                   |      |   | 136    |   |  |   | 119    |  
|                             | Interest cost                                  |      |   | 263    |   |  |   | 239    |  
|                             | Actuarial loss (gain)                          |      |   | 73     |   |  |   | 614    |  
|                             | Gross benefits paid                            |      |   | (47    | ) |  |   | (103   | )
|                             |                                                |      |   |        |   |  |   |       
|                             | Net benefit obligation at end of year          |      | $ | 4,217  |   |  | $ | 3,792  |  
|                             |                                                |      |   |        |   |  |   |       
|Change in Plan Assets        |                                                |      |   |        |   |  |   |       
|                             | Fair value of plan assets at beginning of year |      | $ | 2,485  |   |  | $ | 2,676  |  
|                             | Employer contributions                         |      |   | 173    |   |  |   | 11     |  
|                             | Actual return on plan assets                   |      |   | (428   | ) |  |   | (99    | )
|                             | Gross benefits paid                            |      |   | (47    | ) |  |   | (103   | )
|                             |                                                |      |   |        |   |  |   |       
|                             | Fair value of plan assets at end of year       |      | $ | 2,183  |   |  | $ | 2,485  |  
|                             |                                                |      |   |        |   |  |   |       
|Funded Status of Plan        |                                                |      |   |        |   |  |   |       
|                             | Funded status at end of year                   |      | $ | (2,034 | ) |  | $ | (1,307 | )
|                             | Unrecognized net actuarial loss                |      |   | 1,382  |   |  |   | 721    |  
|                             | Unrecognized prior service cost                |      |   | (5     | ) |  |   | (4     | )
|                             | Unrecognized net transition obligation         |      |   | 3      |   |  |   | 5      |  
|                             |                                                |      |   |        |   |  |   |       
|                             | Net amount recognized at end of year           |      | $ | (654   | ) |  | $ | (585   | )
|                             |                                                |      |   |        |   |  |   |       

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|                                                                       |                                      |      |   |      |   |  |   |      |  
|---------------------------------------------------------------------- | ------------------------------------ | ---- | - | ---- | - |  | - | ---- | -
|                                                                       |                                      | 2001 |   | 2000
|                                                                       |                                      |      |   |     
|Amounts recognized in the statement of financial
	position consist of: |                                      |      |   |      |   |  |   |     
|                                                                       | Prepaid benefit cost                 |      | $ |     |   |  | $ |     |  
|                                                                       | Accrued benefit cost                 |      |   | (654 | ) |  |   | (585 | )
|                                                                       | Additional minimum liability         |      |   | (85  | ) |  |   | (116 | )
|                                                                       |                                      |      |   |      |   |  |   |     
|                                                                       | Net amount recognized at end of year |      | $ | (739 | ) |  | $ | (701 | )
|                                                                       |                                      |      |   |      |   |  |   |     

Included in the above is one plan which is
unfunded. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for this plan were
$921, $701, and $0, respectively, as of December 31, 2001
and $905, $653, and $0, respectively, as of December 31,
2000.

Note 11.     Preferred
Stock

The Company has 134,000 shares of Series B
Preferred Stock (Series B Preferred Stock)
outstanding, having a stated value of $100 per share. Annual
dividends on the Series B Preferred Stock are $9.00 per
share and are cumulative. Dividends accrue whether or not
declared by the Board of Directors. The Series B Preferred
Stock is not currently convertible, but may become convertible
into shares of the Companys common stock under certain
circumstances. In such event, the Series B Preferred Stock
would be convertible into an aggregate of approximately
3,358,000 shares of the common stock at a conversion rate of
$3.99 per share. The Series B Preferred Stock is redeemable
at the option of the Company. As of December 31, 2001 and
2000, the Company had accrued but unpaid dividends on the
Series B Preferred Stock of $7,236 and $6,030,
respectively. For all periods in which the Company had an
accumulated deficit, dividends on the Series B Preferred
Stock were accrued out of additional paid in capital.

The Company has 25,000 shares of Series C
Preferred Stock (Series C Preferred Stock)
outstanding, having a stated value of $100 per share. Annual
dividends are $9.00 per share and are cumulative. The
Series C Preferred Stock is not currently convertible but
may become convertible into shares of the Companys common
stock under certain circumstances. In such event, the Series C
Preferred Stock would be convertible into an aggregate of
approximately 627,000 shares of the common stock at a conversion
price of $3.99 per share. The Series C Preferred Stock is
redeemable at the option of the Company. The Company paid $225
in dividends to the holders of the Series C Preferred Stock
during 2001.

Note 12.     Earnings
Per Common Share

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

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

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

|                                            |                                                                       |                                      |        |           |  |        |        |        |  |  |   |     | 
|------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------ | ------ | --------- |  | ------ | ------ | ------ |  |  | - | --- | 
|                                            |                                                                       |                                     
|                                            |                                                                       | For the Year Ended December 31, 1999
|                                            |                                                                       |                                     
|                                            |                                                                       |                                      |        | Per Share
|                                            |                                                                       | Income                               |        | Shares    |  | Amount
|                                            |                                                                       |                                      |        |           |  |       
|Basic Earnings Per Common Share             |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    
|Net income before preferred stock dividends |                                                                       | $                                    | 10,910 |           |  |        | 20,030 |        |  |  |   |    
|Less preferred dividends                    |                                                                       |                                      | (1,206 | )         |  |        |       |        |  |  |   |    
|                                            |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income available to common shareholders                           |                                      |        | 9,704     |  |        |        | 20,030 |  |  | $ | .48 | 
|                                            |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    
|Diluted Earnings Per Common Share           |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    
|Effect of dilutive stock options            |                                                                       |                                      |       |           |  |        | 122    |        |  |  |   |    
|Effect of Series B Preferred Stock          |                                                                       |                                      | 1,206  |           |  |        | 3,358  |        |  |  |   |    
|                                            |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    
|                                            | Net income available to common shareholders plus
	assumed conversions |                                      | $      | 10,910    |  |        |        | 23,510 |  |  | $ | .46 | 
|                                            |                                                                       |                                      |        |           |  |        |        |        |  |  |   |    

Outstanding stock options of 712,500, 804,000,
and 748,000 were excluded from the earnings per common share
calculation in 2001, 2000 and 1999, respectively, since their
impact was antidilutive. The assumed conversion of the
Series B and Series C Preferred Stock was excluded
from the earnings per common share calculation for 2001 and 2000
since its impact was antidilutive.

Note 13.     Statutory
Reporting

The assets, liabilities and results of operations
have been reported on the basis of GAAP, which varies from
statutory accounting practices (SAP) prescribed or
permitted by insurance regulatory authorities. The principal
differences between SAP and GAAP are that under SAP:
(i) certain assets that are non-admitted assets are
eliminated from the balance sheet; (ii) acquisition costs
for policies are expensed as incurred, while they are deferred
and amortized over the estimated life of the policies under
GAAP; (iii) the provision that is made for deferred income
taxes is different than under GAAP; (iv) the timing of
establishing certain reserves is different than under GAAP; and
(v) valuation allowances are established against
investments.

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

|                                  |                      |      |        |        |  |      |        |        |  |   |        |        | 
|--------------------------------- | -------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                  |                      | 2001 |        | 2000   |  | 1999
|                                  |                      |      |        |        |  |     
|Life and Health, net income       |                      | $    | 2,948  |        |  | $    | 2,515  |        |  | $ | 2,866  |       
|Property and Casualty, net income |                      |      | 3,539  |        |  |      | 2,420  |        |  |   | 3,909  |       
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|                                  | Statutory net income |      | $      | 6,487  |  |      | $      | 4,935  |  |   | $      | 6,775  | 
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|Life and Health, surplus          |                      | $    | 22,739 |        |  | $    | 23,726 |        |  | $ | 26,462 |       
|Property and Casualty, surplus    |                      |      | 61,922 |        |  |      | 58,206 |        |  |   | 62,145 |       
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       
|                                  | Total surplus        |      | $      | 84,661 |  |      | $      | 81,932 |  |   | $      | 88,607 | 
|                                  |                      |      |        |        |  |      |        |        |  |   |        |       

Under the insurance code of the state of
jurisdiction under which each insurance subsidiary operates,
dividend payments to the Company by its insurance subsidiaries
are subject to certain limitations without the prior approval of
the Insurance Commissioner. The Company received dividends of
$7,099 and $6,082 in 2001 and 2000, respectively, from its
insurance subsidiaries. In 2002, dividend payments by the
insurance subsidiaries in excess of $9,835 would require prior
approval.

In 1999, the NAIC completed a process to codify
statutory accounting practices for certain insurance enterprises
(Codification). The Company adopted Codification on
January 1, 2001. The cumulative effect of this accounting
change increased statutory surplus by approximately $1,432. The
most significant increase to statutory surplus was the
recognition of deferred taxes. Codification did not impact the
Companys financial statements prepared in accordance with
GAAP.

Note 14.     Related
Party and Other Transactions

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

The Company leases approximately 65,489 square
feet of office and covered garage space from an affiliated
company. In the years ended December 31, 2001, 2000, and
1999, the Company paid $961, $904 and $898, respectively, under
the leases.

Financing for the Company has been provided
through affiliates of the Company or its Chairman, in the form
of the Series B Preferred Stock and Series C Preferred
Stock. (See note 11).

The Company made mortgage loans in 1999 to
finance properties owned by its subsidiary at the time, Leath
Furniture, LLC (Leath), which is now owned by an
affiliate of the Chairman. At December 31, 2001 and 2000,
the balance of mortgage loans owed by Leath to various of the
Companys insurance subsidiaries was $3,421 and $3,538,
respectively. For 2001, 2000, and 1999, interest paid by Leath
on the mortgage loans totaled $323, $333, and $352, respectively.

Certain members of management are on the Boards
of Directors of Bull Run Corporation (Bull Run) and
Gray Communications Systems, Inc. (Gray). At
December 31, 2001 and 2000, the Company owned 1,116,667 and
650,000 common shares of Bull Run, respectively, and 354,060
shares of Grays Series A Common Stock and 6,000
shares of Grays Series B Common Stock. The Company
also owned 350 shares of Grays Series A Preferred
Stock and 2,000 shares of Bull Runs Series A
Preferred Stock at December 31, 2001. In addition, the
Company held $4,010 in Grays 10.65% debentures at
December 31, 2001 and 2000 that were redeemed in January
2002.

In 1998, Georgia Casualty began assuming
workers compensation premiums from Delta Fire &
Casualty Insurance Company which is controlled by certain
affiliates of the Company. Premiums assumed and commissions paid
in 2001 were $1,554 and $212, respectively, and in 2000 were
$2,238 and $288, respectively.

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

Note 15.     Segment
Information

The Companys primary insurance subsidiaries
operate with relative autonomy and each company is evaluated
based on its individual performance. American Southern,
Association Casualty, and Georgia Casualty operate in the
Property and Casualty insurance market, while Bankers Fidelity
operates in the Life and Health insurance market. All segments
derive revenue from the collection of premiums, as well as from
investment income. Substantially all revenue other than those in
the corporate and other segment are from external sources. One
account at American Southern, with the State of South Carolina,
accounted for approximately $14,054, $17,198, and $15,064 of
total revenue in 2001, 2000 and 1999, respectively.

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

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

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|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |         | 
|----------------------------------------------- | -------------- | -------- | ------ | -------- |  | -------- | ------ | ----------- |  | --------- | ------- | -------------- |  | ------------ | ------ | ----- |  | - | ------- | ------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                |                | American |        | Georgia  |  | Bankers  |        | Association |  | Corporate |         | Adjustments    |  |             
|                                                |                | Southern |        | Casualty |  | Fidelity |        | Casualty    |  | & Other   |         | & Eliminations |  | Consolidated
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |             
|As of December 31, 1999                         |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance premiums                              |                | $        | 38,166 |          |  | $        | 19,403 |             |  | $         | 41,527  |                |  | $            | 8,498  |       |  | $ |        |        |  | $ |         |        |   | $ | 107,594 |        
|Investment income, including net realized gains |                |          | 4,587  |          |  |          | 3,759  |             |  |           | 5,984   |                |  |              | 981    |       |  |   | 656     |        |  |   | (412     | )      |   |   | 15,555  |        
|Other income                                    |                |          | 173    |          |  |          | 52     |             |  |           |        |                |  |              | 365    |       |  |   | 5,573   |        |  |   | (4,991   | )      |   |   | 1,172   |        
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total revenue  |          |        | 42,926   |  |          |        | 23,214      |  |           |         | 47,511         |  |              |        | 9,844 |  |   |         | 6,229  |  |   |          | (5,403 | ) |   |         | 124,321 | 
|Insurance benefits and losses incurred          |                |          | 26,934 |          |  |          | 16,535 |             |  |           | 28,313  |                |  |              | 6,380  |       |  |   |        |        |  |   |         |        |   |   | 78,162  |        
|Expenses deferred                               |                |          | (5,091 | )        |  |          | (4,026 | )           |  |           | (3,437  | )              |  |              | (1,449 | )     |  |   |        |        |  |   |         |        |   |   | (14,003 | )      
|Amortization expense                            |                |          | 5,429  |          |  |          | 3,893  |             |  |           | 2,068   |                |  |              | 1,852  |       |  |   | 140     |        |  |   |         |        |   |   | 13,382  |        
|Other expenses                                  |                |          | 9,318  |          |  |          | 8,083  |             |  |           | 16,585  |                |  |              | 2,760  |       |  |   | 11,515  |        |  |   | (5,403   | )      |   |   | 42,858  |        
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        
|                                                | Total expenses |          |        | 36,590   |  |          |        | 24,485      |  |           |         | 43,529         |  |              |        | 9,543 |  |   |         | 11,655 |  |   |          | (5,403 | ) |   |         | 120,399 | 
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes               |                | $        | 6,336  |          |  | $        | (1,271 | )           |  | $         | 3,982   |                |  | $            | 301    |       |  | $ | (5,426  | )      |  | $ |         |        |   | $ | 3,922   |        
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        
|Total assets                                    |                | $        | 99,421 |          |  | $        | 70,207 |             |  | $         | 100,702 |                |  | $            | 73,912 |       |  | $ | 137,828 |        |  | $ | (130,926 | )      |   | $ | 351,144 |        
|                                                |                |          |        |          |  |          |        |             |  |           |         |                |  |              |        |       |  |   |         |        |  |   |          |        |   |   |         |        

Note 16.     Disclosures
About Fair Value of Financial Instruments

The estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. However, considerable
judgment is necessary to interpret market data and to develop
the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts
which the Company could realize in a current market exchange.
The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair
value amounts.

|             |                                                              |          |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|------------ | ------------------------------------------------------------ | -------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|             |                                                              |          |   |           
|             |                                                              | 2001     |   | 2000      
|             |                                                              |          |   |           
|             |                                                              | Carrying |   | Estimated  |  | Carrying |   | Estimated 
|             |                                                              | Amount   |   | Fair Value |  | Amount   |   | Fair Value
|             |                                                              |          |   |            |  |          |   |           
|Assets:      |                                                              |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Cash and cash equivalents, including short-term
	investments |          | $ | 68,846     |  |          | $ | 68,846     |  |  | $ | 31,914  |  |  | $ | 31,914  | 
|             | Bonds                                                        |          |   | 133,470    |  |          |   | 133,470    |  |  |   | 159,404 |  |  |   | 159,404 | 
|             | Common and preferred stocks                                  |          |   | 54,628     |  |          |   | 54,628     |  |  |   | 43,945  |  |  |   | 43,945  | 
|             | Mortgage loans                                               |          |   | 3,421      |  |          |   | 4,126      |  |  |   | 3,538   |  |  |   | 4,040   | 
|             | Policy and student loans                                     |          |   | 2,713      |  |          |   | 2,713      |  |  |   | 3,098   |  |  |   | 3,098   | 
|             | Other invested assets                                        |          |   | 4,854      |  |          |   | 4,854      |  |  |   | 5,862   |  |  |   | 5,862   | 
|Liabilities: |                                                              |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Debt                                                         |          |   | 44,000     |  |          |   | 44,000     |  |  |   | 46,500  |  |  |   | 46,500  | 

The fair value estimates as of December 31,
2001 and 2000 are based on pertinent information available to
management as of the respective dates. Although management is
not aware of any factors that would significantly affect the
estimated fair value amounts, current estimates of fair value
may differ significantly from amounts that might ultimately be
realized.

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



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

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



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

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

57



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##### Table of Contents





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

The carrying amount approximates fair value.



| |               
| | --------------
| | Mortgage Loans

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



| |             
| | ------------
| | Debt Payable

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

Note 17.     Reconciliation
of Other Comprehensive Income

The Companys comprehensive income consists
of net income and unrealized gains and losses on securities
available for sale, net of applicable income taxes.

Other than net income, the other components of
comprehensive income (loss) for the years ended
December 31, 2001, 2000 and 1999 are as follows:

|                                                       |                                                                                          |              |       |        |   |      |       |        |   |   |       |         |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------ | ----- | ------ | - | ---- | ----- | ------ | - | - | ----- | ------- | -
|                                                       |                                                                                          |             
|                                                       |                                                                                          | December 31,
|                                                       |                                                                                          |             
|                                                       |                                                                                          | 2001         |       | 2000   |   | 1999
|                                                       |                                                                                          |              |       |        |   |     
|Gain on the sale of securities included in net
	income |                                                                                          | $            | 1,708 |        |   | $    | 1,922 |        |   | $ | 2,831 |        
|                                                       |                                                                                          |              |       |        |   |      |       |        |   |   |       |        
|Other comprehensive income (loss):                     |                                                                                          |              |       |        |   |      |       |        |   |   |       |        
|                                                       | Net pre-tax unrealized gain (loss) arising
	during year                                  |              | $     | 5,206  |   |      | $     | 359    |   |   | $     | (13,900 | )
|                                                       | Reclassification adjustment                                                              |              |       | (1,708 | ) |      |       | (1,922 | ) |   |       | (2,831  | )
|                                                       |                                                                                          |              |       |        |   |      |       |        |   |   |       |        
|                                                       | Net pre-tax unrealized loss recognized in other
	comprehensive income (loss)             |              |       | 3,498  |   |      |       | (1,563 | ) |   |       | (16,731 | )
|                                                       | Fair value adjustment to interest rate swap                                              |              |       | (532   | ) |      |       |       |   |   |       |        |  
|                                                       | Deferred income tax (expense) benefit
	attributable to other comprehensive income (loss) |              |       | (1,038 | ) |      |       | 547    |   |   |       | (4,219  | )
|                                                       |                                                                                          |              |       |        |   |      |       |        |   |   |       |        
|                                                       | Net unrealized gain (loss) recognized in
	other comprehensive income (loss)              |              | $     | 1,928  |   |      | $     | (1,016 | ) |   | $     | (20,950 | )
|                                                       |                                                                                          |              |       |        |   |      |       |        |   |   |       |        



|         |                                             
|-------- | --------------------------------------------
|Note 18. | Quarterly Financial Information
	(Unaudited)

The following table sets forth a summary of the
quarterly unaudited results of operations for the two years
ended December 31, 2001 and 2000:

|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |      |     | 
|----------------------------------- | ---------------------------------------------------- | ----------------- | ------ | ------- | --- | ------- | ------ | ------- | --- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | ---- | - | ------ | ----- | ----- | - | ------ | ----- | --- | - | ------ | ----- | ----- | - | ------ | ---- | --- | 
|                                    |                                                      |                   |        |        
|                                    |                                                      | 2001              |        | 2000   
|                                    |                                                      |                   |        |        
|                                    |                                                      | First             |        | Second  |     | Third   |        | Fourth  |     | First   |        | Second  |       | Third   |        | Fourth 
|                                    |                                                      | Quarter           |        | Quarter |     | Quarter |        | Quarter |     | Quarter |        | Quarter |       | Quarter |        | Quarter
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |        
|Revenue                             |                                                      | $                 | 40,221 |         |     | $       | 41,060 |         |     | $       | 40,540 |         |       | $       | 41,487 |         |      | $ | 36,891 |       |       | $ | 36,845 |       |     | $ | 38,658 |       |       | $ | 39,864 |     
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|Income (loss):                      |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|                                    | Income (loss) before income tax
	(provision) benefit |                   | $      | 1,599   |     |         | $      | 1,029   |     |         | $      | 1,886   |       |         | $      | (261    | )    |   | $      | 1,726 |       |   | $      | 1,075 |     |   | $      | 1,447 |       |   | $      | 508  |    
|                                    | Income tax (provision) benefit                       |                   |        | (609    | )   |         |        | (389    | )   |         |        | 215     |       |         |        | 127     |      |   |        | (574  | )     |   |        | (364  | )   |   |        | 48    |       |   |        | (234 | )  
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|                                    |                                                      | Net income (loss) |        | $       | 990 |         |        | $       | 640 |         |        | $       | 2,101 |         |        | $       | (134 | ) |        | $     | 1,152 |   |        | $     | 711 |   |        | $     | 1,495 |   |        | $    | 274 | 
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|Per common share data:              |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|Basic net income (loss) per share   |                                                      | $                 | .03    |         |     | $       | .01    |         |     | $       | .08    |         |       | $       | (.02   | )       |      | $ | .04    |       |       | $ | .02    |       |     | $ | .06    |       |       | $ | .00    |     
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     
|Diluted net income (loss) per share |                                                      | $                 | .03    |         |     | $       | .01    |         |     | $       | .08    |         |       | $       | (.02   | )       |      | $ | .04    |       |       | $ | .02    |       |     | $ | .06    |       |       | $ | .00    |     
|                                    |                                                      |                   |        |         |     |         |        |         |     |         |        |         |       |         |        |         |      |   |        |       |       |   |        |       |     |   |        |       |       |   |        |     

58



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

None.




PART III

With the exception of information relating to the
Executive Officers of the Company, which is provided in
Part I hereof, all information required by Part III
(Items 10, 11, 12, and 13) is incorporated by reference to
the sections entitled Election of Directors,
Security Ownership of Management,
Section 16(a) Beneficial Ownership Compliance,
Executive Compensation, and Certain
Relationships and Related Transactions contained in the
Companys definitive proxy statement to be delivered in
connection with the Companys Annual Meeting of
Shareholders to be held on May 7, 2002.






PART IV




|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K

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

Financial Statement Schedules

|    |  |   |  |                                                                                                                          |  |  |  | 
|--- |  | - |  | ------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|I   |  |  |  | Report of Independent Public Accountants included
	in report under Item 8.                                               |  |  |  | 
|II  |  |  |  | Condensed financial information of Registrant for
	the three years ended December 31, 2001                               |  |  |  | 
|III |  |  |  | Supplementary Insurance Information for the three
	years ended December 31, 2001                                         |  |  |  | 
|IV  |  |  |  | Reinsurance for the three years ended
	December 31, 2001                                                                 |  |  |  | 
|VI  |  |  |  | Supplemental Information concerning
	property-casualty insurance operations for the three years ended
	December 31, 2001 |  |  |  | 

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

EXHIBITS

| |       |  |  |   |  |                                                                                                                                                                                                                                                       
| | ----- |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1   |  |  |  |  | Restated and Amended Articles of Incorporation of
	the registrant                                                                                                                                                                                     
| | 3.2   |  |  |  |  | Bylaws of the registrant [incorporated by
	reference to Exhibit 3.2 to the registrants
	Form 10-K for the year ended December 31, 1993].                                                                                                             
| | 10.01 |  |  |  |  | Lease Contract between registrant and Delta Life
	Insurance Company dated June 1, 1992 [incorporated by
	reference to Exhibit 10.11 to the registrants
	Form 10-K for the year ended December 31, 1992].                                             
| | 10.02 |  |  |  |  | First Amendment to Lease Contract between
	registrant and Delta Life Insurance Company dated June 1,
	1993 [incorporated by reference to Exhibit 10.11.1 to the
	registrants Form 10Q for the quarter ended
	June 30, 1993].                         
| | 10.03 |  |  |  |  | Second Amendment to Lease Contract between
	registrant and Delta Life Insurance Company dated August 1,
	1994 [incorporated by reference to Exhibit 10.11.2 to the
	registrants Form 10Q for the quarter ended
	September 30, 1994].                 
| | 10.04 |  |  |  |  | Lease Agreement between Georgia Casualty &
	Surety Company and Delta Life Insurance Company dated
	September 1, 1991 [incorporated by reference to
	Exhibit 10.12 to the registrants Form 10-K for
	the year ended December 31, 1992].               
| | 10.05 |  |  |  |  | First Amendment to Lease Agreement between
	Georgia Casualty & Surety Company and Delta Life Insurance
	Company dated June 1,1992 [incorporated by reference to
	Exhibit 10.12.1 to the registrants Form 10-K for
	the year ended December 31, 1992].
| | 10.06 |  |  |  |  | Management Agreement between registrant and
	Georgia Casualty & Surety Company dated April 1, 1983
	[incorporated by reference to Exhibit 10.16 to the
	registrants Form 10-K for the year ended
	December 31, 1986].                                

59



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| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                               
| | ------ |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and
	Leath Furniture, Inc. [incorporated by reference to
	Exhibit 10.38 to the registrants Form 10-K for
	the year ended December 31, 1992].                                                           
| | 10.09  |  |  |  |  | First amendment to the amended and reissued
	mortgage note dated January 1, 1992, [incorporated by
	reference to Exhibit 10.38.1 to the registrants
	Form 10-K for the year ended December 31, 1992].                                                                                                        
| | 10.10  |  |  |  |  | Intercreditor Agreement dated August 26,
	1991, between Leath Furniture, Inc., the registrant and the
	registrants three insurance subsidiaries [incorporated by
	reference to Exhibit 10.39 to the registrants Form
	10-K for the year ended December 31, 1992].                                           
| | 10.11  |  |  |  |  | Management Agreement between 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  |  |  |  |  | Acquisition Agreement by and among Atlantic
	American Corporation, Association Casualty Insurance Company,
	Association Risk Management General Agency, Inc. and Harold K.
	Fischer, dated as of April 21, 1999 [incorporated by
	reference to Exhibit 2.1 to the registrants
	Form 8-K dated July 16, 1999].
| | 10.14  |  |  |  |  | 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].                                                                            
| | 10.15  |  |  |  |  | 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].                                                                   
| | 10.16  |  |  |  |  | Revolving Credit Facility, dated as of
	July 1, 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].                                                                                
| | 10.17  |  |  |  |  | First Amendment, dated as of March 24, 2000,
	to Credit Agreement, dated as of July 1, 1999, between
	Atlantic American Corporation and Wachovia Bank of Georgia, N.A.
	[incorporated by reference to Exhibit 10.1 to the
	registrants Form 10-Q for the quarter ended
	June 30, 2000].                      
| | 10.18  |  |  |  |  | Second Amendment, dated February 9, 2001, to
	Credit Agreement, dated as of July 1, 1999, between
	Atlantic American Corporation and Wachovia Bank of Georgia, N.A.
	[Incorporated by reference to Exhibit 10.18 to the
	registrants Form 10K for the year ended December 31,
	2000].                        
| | 10.19  |  |  |  |  | Third Amendment, date February 22, 2002 to
	Credit Agreement, dated as of July 1, 1999, between
	Atlantic American Corporation and Wachovia Bank of Georgia, N.A.                                                                                                                                             
| | 10.20  |  |  |  |  | Atlantic American Corporation 1992 Incentive Plan
	[ incorporated by reference to Exhibit 4 to the
	registrants Form S-8 filed on November 1, 1999].                                                                                                                                                         
| | 10.21  |  |  |  |  | Atlantic American Corporation 1996 Director Stock
	Option Plan [incorporated by reference to Exhibit 4 to the
	registrants Form S-8 filed on November 1, 1999].                                                                                                                                              
| | 21.1   |  |  |  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                               
| | 23.1   |  |  |  |  | Consent of Arthur Andersen LLP, Independent
	Public Accountants.                                                                                                                                                                                                                                              
| | 99     |  |  |  |  | Letter dated March 27, 2002 regarding
	representations of Arthur Andersen L.L.P.                                                                                                                                                                                                                              



---



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

(b) Reports on Form 8-K.

None.

60



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##### Table of Contents






SIGNATURES

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



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



| |     |                          
| | --- | -------------------------
| | By: | /s/ HILTON H. HOWELL, JR.

| |                                       
| | --------------------------------------
| |                                       
| | Hilton H. Howell, Jr.                 
| | President and Chief Executive
	Officer

Date: March 29, 2002

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

|                                                   |  |                                                                                              |  |               
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Signature                                          |  | Title                                                                                        |  | Date          
|                                                   |  |                                                                                              |  |               
|/s/ J. MACK ROBINSONJ. Mack Robinson               |  | Chairman of the Board                                                                        |  | March 29, 2002
|                                                  
|/s/ HILTON H. HOWELL, JR.Hilton H. Howell, Jr.     |  | President, Chief Executive Officer and Director
	(Principal Executive and Financial Officer) |  | March 29, 2002
|                                                  
|/s/ CASEY B. HUDSONCasey B. Hudson                 |  | Assistant Vice President and Controller
	(Principal Accounting Officer)                      |  | March 29, 2002
|                                                  
|/s/ EDWARD E. ELSONEdward E. Elson                 |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ SAMUEL E. HUDGINSSamuel E. Hudgins             |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ D. RAYMOND RIDDLED. Raymond Riddle             |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ HARRIETT J. ROBINSONHarriett J. Robinson       |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ SCOTT G. THOMPSONScott G. Thompson             |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ MARK C. WESTMark C. West                       |  | Director                                                                                     |  | March 29, 2002
|                                                  
|/s/ WILLIAM H. WHALEY, M.D.William H. Whaley, M.D. |  | Director                                                                                     |  | March 29, 2002

61



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##### Table of Contents



|                                       |  |          |  |               
|-------------------------------------- |  | -------- |  | --------------
|Signature                              |  | Title    |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ DOM H. WYANTDom H. Wyant           |  | Director |  | March 29, 2002
|                                      
|/s/ HAROLD K. FISCHERHarold K. Fischer |  | Director |  | March 29, 2002

62



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##### Table of Contents



SCHEDULE II

ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

BALANCE SHEETS

|                                          |                                 |                           |         |       |       |   |         |       |       | 
|----------------------------------------- | ------------------------------- | ------------------------- | ------- | ----- | ----- | - | ------- | ----- | ----- | 
|                                          |                                 |                          
|                                          |                                 | December 31,             
|                                          |                                 |                          
|                                          |                                 | 2001                      |         | 2000 
|                                          |                                 |                           |         |      
|                                          |                                 |                          
|                                          |                                 | (In thousands)           
|ASSETS                                   
|Current assets:                           |                                 |                           |         |       |       |   |         |      
|                                          | Cash and short-term investments |                           | $       | 517   |       |   | $       |      |      
|Investment in insurance subsidiaries      |                                 |                           | 135,026 |       |       |   | 131,080 |      
|Deferred income taxes, net                |                                 |                           | 773     |       |       |   | 2,318   |      
|Income taxes receivable from subsidiaries |                                 |                           | 2,041   |       |       |   | 1,209   |      
|Other assets                              |                                 |                           | 2,462   |       |       |   | 2,983   |      
|                                          |                                 |                           |         |       |       |   |         |      
|                                          |                                 | $                         | 140,819 |       |       | $ | 137,590 |      
|                                          |                                 |                           |         |       |       |   |         |      
|LIABILITIES AND SHAREHOLDERS
	EQUITY    
|Current liabilities:                      |                                 |                           |         |       |       |   |         |      
|                                          | Other payables                  |                           | $       | 9,293 |       |   | $       | 7,850 |      
|                                          |                                 |                           |         |       |       |   |         |      
|                                          |                                 | Total current liabilities |         |       | 9,293 |   |         |       | 7,850 | 
|Long-term debt                            |                                 |                           | 44,000  |       |       |   | 46,500  |      
|Shareholders equity                      |                                 |                           | 87,526  |       |       |   | 83,240  |      
|                                          |                                 |                           |         |       |       |   |         |      
|                                          |                                 | $                         | 140,819 |       |       | $ | 137,590 |      
|                                          |                                 |                           |         |       |       |   |         |      

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

63



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##### Table of Contents



ATLANTIC AMERICAN CORPORATION


(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT  (Continued)

STATEMENTS OF OPERATIONS

|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |       |        | 
|------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | ----- | ----- | ------ | ---- | ----- | ----- | ------ |  | ----- | ----- | ------ | 
|                                                                    |                                                      |                        
|                                                                    |                                                      | Year Ended December 31,
|                                                                    |                                                      |                        
|                                                                    |                                                      | 2001                    |       | 2000  |        | 1999
|                                                                    |                                                      |                         |       |       |        |     
|                                                                    |                                                      |                        
|                                                                    |                                                      | (In thousands)         
|Revenue                                                             |                                                      |                         |       |       |        |      |       |       |        |  |       |      
|                                                                    | Fees, rentals and interest income from
	subsidiaries |                         | $     | 5,933 |        |      | $     | 5,148 |        |  | $     | 4,980 |       
|                                                                    | Distributed earnings from subsidiaries               |                         |       | 7,099 |        |      |       | 6,382 |        |  |       | 5,706 |       
|                                                                    | Other                                                |                         |       | 1,299 |        |      |       | 1,094 |        |  |       | 651   |       
|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |      
|                                                                    |                                                      | Total revenue           |       |       | 14,331 |      |       |       | 12,624 |  |       |       | 11,337 | 
|General and administrative expenses                                 |                                                      |                         | 9,318 |       |        |      | 6,991 |       |        |  | 8,441 |      
|Interest expense                                                    |                                                      |                         | 3,234 |       |        |      | 4,408 |       |        |  | 2,819 |      
|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |      
|                                                                    |                                                      |                         | 1,779 |       |        |      | 1,225 |       |        |  | 77    |      
|Income tax benefit(1)                                               |                                                      |                         | 1,606 |       |        |      | 1,032 |       |        |  | 8,963 |      
|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |      
|                                                                    |                                                      |                         | 3,385 |       |        |      | 2,257 |       |        |  | 9,040 |      
|Equity in undistributed earnings of consolidated
	subsidiaries, net |                                                      |                         | 212   |       |        |      | 1,375 |       |        |  | 1,870 |      
|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |      
|                                                                    |                                                      | Net income              |       | $     | 3,597  |      |       | $     | 3,632  |  |       | $     | 10,910 | 
|                                                                    |                                                      |                         |       |       |        |      |       |       |        |  |       |      



---



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

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

64



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##### Table of Contents



ATLANTIC AMERICAN CORPORATION


(Parent Company Only)


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT  (Continued)

STATEMENTS OF CASH FLOWS

|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |         |        |         |  
|------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------- | ------ | ---- | ------ | ------ | ------ | ------ | ------ | ----- | ------- | ------ | ------- | -
|                                      |                                                                                    |                                                               
|                                      |                                                                                    | Year Ended December 31,                                       
|                                      |                                                                                    |                                                               
|                                      |                                                                                    | 2001                                                           |                                                      | 2000   |      | 1999  
|                                      |                                                                                    |                                                                |                                                      |        |      |       
|                                      |                                                                                    |                                                               
|                                      |                                                                                    | (In thousands)                                                
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Net income                                                                         |                                                                | $                                                    | 3,597  |      |        | $      | 3,632  |        |        | $     | 10,910  |       
|                                      | Adjustments to reconcile net income to net cash
	provided by operating activities: |                                                                |                                                      |        |      |        |        |        |        |        |       |         |       
|                                      |                                                                                    | Realized investment gains                                      |                                                      |        | (118 | )      |        |        | (270   | )      |       |         | (239   | )      
|                                      |                                                                                    | Depreciation and amortization                                  |                                                      |        | 631  |        |        |        | 620    |        |       |         | 599    |        
|                                      |                                                                                    | Compensation expense related to stock grants                   |                                                      |        | 45   |        |        |        | 51     |        |       |         |       |        
|                                      |                                                                                    | Equity in undistributed earnings of consolidated
	subsidiaries |                                                      |        | (212 | )      |        |        | (1,375 | )      |       |         | (1,870 | )      
|                                      |                                                                                    | Change in intercompany taxes                                   |                                                      |        | (832 | )      |        |        | (1,212 | )      |       |         | (60    | )      
|                                      |                                                                                    | Deferred income tax benefit                                    |                                                      |        | 507  |        |        |        | 1,007  |        |       |         | (6,997 | )      
|                                      |                                                                                    | (Decrease) increase in other liabilities                       |                                                      |        | (296 | )      |        |        | 318    |        |       |         | 798    |        
|                                      |                                                                                    | Other, net                                                     |                                                      |        | (46  | )      |        |        | (734   | )      |       |         | 186    |        
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      |                                                                                    |                                                                | Net cash provided by operating activities            |        |      | 3,276  |        |        |        | 2,037  |       |         |        | 3,327   |  
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Investments purchased                                                              |                                                                |                                                      |       |      |        |        | (47    | )      |        |       |        |       
|                                      | Acquisition of Association Casualty                                                |                                                                |                                                      | (128   | )    |        |        | (94    | )      |        |       | (24,475 | )     
|                                      | Capital contribution to Georgia Casualty                                           |                                                                |                                                      |       |      |        |        |       |        |        |       | (2,000  | )     
|                                      | Additions to property and equipment                                                |                                                                |                                                      | (803   | )    |        |        | (507   | )      |        |       | (446    | )     
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      |                                                                                    |                                                                | Net cash used in investing activities                |        |      | (931   | )      |        |        | (648   | )     |         |        | (26,921 | )
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Proceeds from issuance of bank financing                                           |                                                                |                                                      |       |      |        |        |       |        |        |       | 51,000  |       
|                                      | Preferred stock dividends to affiliated
	shareholders                              |                                                                |                                                      | (225   | )    |        |        |       |        |        |       |        |       
|                                      | Purchase of treasury shares                                                        |                                                                |                                                      | (11    | )    |        |        | (79    | )      |        |       | (779    | )     
|                                      | Repayments of short-term debt                                                      |                                                                |                                                      |       |      |        |        |       |        |        |       | (2,400  | )     
|                                      | Retirements and payments of long-term debt                                         |                                                                |                                                      | (2,500 | )    |        |        | (4,500 | )      |        |       | (23,600 | )     
|                                      | Issuance of preferred stocks                                                       |                                                                |                                                      | 750    |      |        |        | 1,750  |        |        |       |        |       
|                                      | Proceeds from exercise of stock options                                            |                                                                |                                                      | 158    |      |        |        | 410    |        |        |       | 273     |       
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      |                                                                                    |                                                                | Net cash (used in) provided by financing
	activities |        |      | (1,828 | )      |        |        | (2,419 | )     |         |        | 24,494  |  
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|Net increase (decrease) in cash       |                                                                                    |                                                                | 517                                                  |        |      |        | (1,030 | )      |        |        | 900   |        
|Cash at beginning of year             |                                                                                    |                                                                |                                                     |        |      |        | 1,030  |        |        |        | 130   |        
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|Cash at end of year                   |                                                                                    | $                                                              | 517                                                  |        |      | $      |       |        |        | $      | 1,030 |        
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|Supplemental disclosure:              |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Cash paid for interest                                                             |                                                                | $                                                    | 3,394  |      |        | $      | 4,170  |        |        | $     | 2,510   |       
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Cash paid for income taxes                                                         |                                                                | $                                                    | 100    |      |        | $      | 166    |        |        | $     | 131     |       
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        
|                                      | Issuance of stock to acquire Association Casualty                                  |                                                                | $                                                    |       |      |        | $      |       |        |        | $     | 8,483   |       
|                                      |                                                                                    |                                                                |                                                      |        |      |        |        |        |        |        |       |        

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

65



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##### Table of Contents



SCHEDULE III

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, 2001: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,554            |  |          | $       | 51,932           |  |   | $      | 3,219  |  |   | $     | 2,153 | 
|                   | American Southern    |                   |        | 2,024             |  |          |         | 46,235           |  |   |        | 18,598 |  |   |       | 2,151 | 
|                   | Association Casualty |                   |        | 1,799             |  |          |         | 38,489           |  |   |        | 11,590 |  |   |       | -0-   | 
|                   | Georgia Casualty     |                   |        | 2,304             |  |          |         | 51,214           |  |   |        | 17,618 |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 24,681 |                   |  | $        | 187,870 | (1)              |  | $ | 51,025 |        |  | $ | 4,304 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 2000: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 17,333            |  |          | $       | 49,078           |  |   | $      | 3,221  |  |   | $     | 2,370 | 
|                   | American Southern    |                   |        | 1,805             |  |          |         | 48,340           |  |   |        | 18,063 |  |   |       | 2,047 | 
|                   | Association Casualty |                   |        | 1,929             |  |          |         | 31,175           |  |   |        | 11,854 |  |   |       | -0-   | 
|                   | Georgia Casualty     |                   |        | 2,331             |  |          |         | 46,733           |  |   |        | 12,283 |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 23,398 |                   |  | $        | 175,326 | (2)              |  | $ | 45,421 |        |  | $ | 4,417 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 1999: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 15,644            |  |          | $       | 46,427           |  |   | $      | 3,046  |  |   | $     | 2,120 | 
|                   | American Southern    |                   |        | 1,401             |  |          |         | 48,751           |  |   |        | 12,235 |  |   |       | 1,795 | 
|                   | Association Casualty |                   |        | 1,478             |  |          |         | 30,000           |  |   |        | 9,241  |  |   |       | 288   | 
|                   | Georgia Casualty     |                   |        | 1,875             |  |          |         | 41,471           |  |   |        | 9,771  |  |   |       | -0-   | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 20,398 |                   |  | $        | 166,649 | (3)              |  | $ | 34,293 |        |  | $ | 4,203 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      



---



|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(1) | Includes future policy benefits of $44,355 and
	losses and claims of $143,515.
|   
|(2) | Includes future policy benefits of $42,106 and
	losses and claims of $133,220.
|   
|(3) | Includes future policy benefits of $40,093 and
	losses and claims of $126,556.

66



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##### Table of Contents



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, 2001: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 55,276     |  |                | $      | 4,318        |  |           | $       | 39,570   |  |   | $      | 2,173 |  |   | $      | 15,131 |  |   | $      |       | 
|                   | American Southern    |                |         | 39,023     |  |                |        | 4,590        |  |           |         | 26,069   |  |   |        | 4,282 |  |   |        | 6,632  |  |   |        | 39,558 | 
|                   | Association Casualty |                |         | 25,711     |  |                |        | 2,591        |  |           |         | 23,613   |  |   |        | 5,534 |  |   |        | 3,446  |  |   |        | 30,956 | 
|                   | Georgia Casualty     |                |         | 25,579     |  |                |        | 2,639        |  |           |         | 17,644   |  |   |        | 4,903 |  |   |        | 3,862  |  |   |        | 25,264 | 
|                   | Other                |                |         |           |  |                |        | 3            |  |           |         |         |  |   |        |      |  |   |        | 6,196  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 145,589 |            |  | $              | 14,141 |              |  | $         | 106,896 |          |  | $ | 16,892 |       |  | $ | 35,267 |        |  | $ | 95,778 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 2000: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 47,639     |  |                | $      | 4,886        |  |           | $       | 33,452   |  |   | $      | 1,854 |  |   | $      | 13,910 |  |   | $      |       | 
|                   | American Southern    |                |         | 37,172     |  |                |        | 5,205        |  |           |         | 26,185   |  |   |        | 4,838 |  |   |        | 5,334  |  |   |        | 43,040 | 
|                   | Association Casualty |                |         | 20,110     |  |                |        | 2,510        |  |           |         | 15,799   |  |   |        | 3,650 |  |   |        | 3,585  |  |   |        | 22,653 | 
|                   | Georgia Casualty     |                |         | 28,576     |  |                |        | 2,710        |  |           |         | 22,192   |  |   |        | 5,462 |  |   |        | 5,478  |  |   |        | 31,106 | 
|                   | Other                |                |         |           |  |                |        | 9            |  |           |         |         |  |   |        |      |  |   |        | 5,763  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 133,497 |            |  | $              | 15,320 |              |  | $         | 97,628  |          |  | $ | 15,804 |       |  | $ | 34,070 |        |  | $ | 96,799 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 1999: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 41,527     |  |                | $      | 4,676        |  |           | $       | 28,313   |  |   | $      | 1,766 |  |   | $      | 13,450 |  |   | $      |       | 
|                   | American Southern    |                |         | 38,166     |  |                |        | 4,614        |  |           |         | 26,934   |  |   |        | 5,068 |  |   |        | 4,588  |  |   |        | 38,530 | 
|                   | Association Casualty |                |         | 8,498      |  |                |        | 1,045        |  |           |         | 6,380    |  |   |        | 1,431 |  |   |        | 1,732  |  |   |        | 8,524  | 
|                   | Georgia Casualty     |                |         | 19,403     |  |                |        | 2,095        |  |           |         | 16,535   |  |   |        | 3,682 |  |   |        | 4,268  |  |   |        | 20,870 | 
|                   | Other                |                |         |           |  |                |        | 4            |  |           |         |         |  |   |        |      |  |   |        | 6,252  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 107,594 |            |  | $              | 12,434 |              |  | $         | 78,162  |          |  | $ | 11,947 |       |  | $ | 30,290 |        |  | $ | 67,924 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       

67



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##### Table of Contents



SCHEDULE IV

ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

REINSURANCE

|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|----------------------------- |  | -------------- | ------- | --------- |  | ---------- | ------- | ------- |  | -------------- | ------ |  |  | - | ------- |  |  |  | ---- | -
|                              |  |                |         | Ceded to  |  | Assumed    |         |         |  | Percentage of 
|                              |  | Direct         |         | Other     |  | From Other |         | Net     |  | Amount Assumed
|                              |  | Amount         |         | Companies |  | Companies  |         | Amounts |  | to Net        
|                              |  |                |         |           |  |            |         |         |  |               
|                              |  |               
|                              |  | (In thousands)
|Year ended December 31, 2001: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 305,952 |           |  | $          | (29,915 | )       |  | $              |       |  |  | $ | 276,037 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 54,591  |           |  | $          | (72     | )       |  | $              | 757    |  |  | $ | 55,276  |  |  |  | 1.4  | %
|American Southern             |  |                | 24,101  |           |  |            | (5,929  | )       |  |                | 20,851 |  |  |   | 39,023  |  |  |  | 53.4 | %
|Association Casualty          |  |                | 28,626  |           |  |            | (2,915  | )       |  |                |       |  |  |   | 25,711  |  |  |  |     |  
|Georgia Casualty              |  |                | 29,746  |           |  |            | (10,053 | )       |  |                | 5,886  |  |  |   | 25,579  |  |  |  | 23.0 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 137,064 |           |  | $          | (18,969 | )       |  | $              | 27,494 |  |  | $ | 145,589 |  |  |  | 18.9 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 2000: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 293,632 |           |  | $          | (27,661 | )       |  | $              |       |  |  | $ | 265,971 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 46,792  |           |  | $          | (73     | )       |  | $              | 920    |  |  | $ | 47,639  |  |  |  | 1.9  | %
|American Southern             |  |                | 21,167  |           |  |            | (4,453  | )       |  |                | 20,458 |  |  |   | 37,172  |  |  |  | 55.0 | %
|Association Casualty          |  |                | 22,074  |           |  |            | (1,964  | )       |  |                |       |  |  |   | 20,110  |  |  |  |     |  
|Georgia Casualty              |  |                | 29,373  |           |  |            | (3,944  | )       |  |                | 3,147  |  |  |   | 28,576  |  |  |  | 11.0 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 119,406 |           |  | $          | (10,434 | )       |  | $              | 24,525 |  |  | $ | 133,497 |  |  |  | 18.4 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 1999: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 281,565 |           |  | $          | (26,790 | )       |  | $              |       |  |  | $ | 254,775 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 41,407  |           |  | $          | (934    | )       |  | $              | 1,054  |  |  | $ | 41,527  |  |  |  | 2.5  | %
|American Southern             |  |                | 17,158  |           |  |            | (5,384  | )       |  |                | 26,392 |  |  |   | 38,166  |  |  |  | 69.2 | %
|Association Casualty          |  |                | 9,273   |           |  |            | (775    | )       |  |                |       |  |  |   | 8,498   |  |  |  |     |  
|Georgia Casualty              |  |                | 23,831  |           |  |            | (5,966  | )       |  |                | 1,538  |  |  |   | 19,403  |  |  |  | 7.9  | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 91,669  |           |  | $          | (13,059 | )       |  | $              | 28,984 |  |  | $ | 107,594 |  |  |  | 26.9 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  

68



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##### Table of Contents



SCHEDULE VI

ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTAL INFORMATION CONCERNING

PROPERTY-CASUALTY INSURANCE
OPERATIONS


|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|----------------- |  | -------------- | ----- | -------- |  | -------- | ------- | ------- |  | ---------- | ------ | ------------------- |  | ------------ | ------ | ----------- |  | ---------- | ------ | -------- |  | - | ------ |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Claims and Claim    |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Adjustment Expenses |  |              |        | 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, 2001 |  | $              | 6,127 |          |  | $        | 135,938 |         |  | $          | 47,806 |                     |  | $            | 90,313 |             |  | $          | 9,757  |          |  |   | 70,250 |  |  | $ | (2,774 | ) |  | $ | 14,719 |  |  | $ | 66,665 |  |  | $ | 95,778 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 2000 |  | $              | 6,065 |          |  | $        | 126,248 |         |  | $          | 42,200 |                     |  | $            | 85,858 |             |  | $          | 10,425 |          |  | $ | 69,839 |  |  | $ | (5,604 | ) |  | $ | 13,950 |  |  | $ | 58,301 |  |  | $ | 96,798 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 1999 |  | $              | 4,754 |          |  | $        | 120,222 |         |  | $          | 31,247 |                     |  | $            | 66,067 |             |  | $          | 7,754  |          |  | $ | 52,119 |  |  | $ | (1,941 | ) |  | $ | 10,181 |  |  | $ | 47,194 |  |  | $ | 67,924 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 

69