EXHIBIT 13.1

CORPORATE PROFILE

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

FINANCIAL HIGHLIGHTS

(Dollars In Thousands, Except Per Share Data)
                                                   Year Ended December 31,   
--------------------------------------------------------------------------------
                              1998       1997       1996       1995       1994 
--------------------------------------------------------------------------------
Insurance premiums         $ 91,292   $ 88,682   $ 86,025    $ 43,373  $ 41,701
Investment income            11,499     11,256     11,151       6,566     6,628
Other income                    366        201        306         -         -
Realized investment gains,
  net                         2,909      1,076      1,589       1,731       870 
--------------------------------------------------------------------------------
  Total revenue             106,066    101,215     99,071      51,670    49,199 
--------------------------------------------------------------------------------

Insurance benefits and 
  losses incurred            60,845     61,018     54,281      24,689    21,955
Other expenses               36,518     32,026     36,975      23,897    20,727 
--------------------------------------------------------------------------------
  Total benefits and 
    expenses                 97,363     93,044     91,256      48,586    42,682 
--------------------------------------------------------------------------------
                              8,703      8,171      7,815       3,084     6,517
Income tax provision 
  (benefit)                     145        138        204         (34)   (1,632)
--------------------------------------------------------------------------------
  Income from continuing 
    operations                8,558      8,033      7,611       3,118     8,149
  (Loss) income from 
    discontinued operations,
    net                         -          -       (4,447)    (10,094)    1,121
--------------------------------------------------------------------------------
  Income (loss) before 
    extraordinary gain        8,558      8,033      3,164      (6,976)    9,270
Extraordinary gain              -          -          -           -         100 
--------------------------------------------------------------------------------
  Net income (loss)        $  8,558   $  8,033   $  3,164    $ (6,976) $  9,370 
================================================================================

Diluted net income (loss) 
  per common share:
    Continuing operations  $    .37   $    .35   $    .32    $    .15  $    .43
    Discontinued operations     -          -         (.23)       (.54)      .06
--------------------------------------------------------------------------------
      Net income (loss)    $    .37   $    .35   $    .09    $   (.39) $    .49 
--------------------------------------------------------------------------------

Book value per common 
  share                    $   3.60   $   3.27   $   2.29    $   1.61  $   1.47
Common shares outstanding    19,120     18,907     18,684      18,679    18,414
Total assets               $272,849   $271,860   $252,994    $245,494  $148,740
Total long-term debt       $ 23,600   $ 27,600   $ 25,994    $ 31,569  $ 24,327
Total debt                 $ 26,000   $ 28,600   $ 35,611    $ 44,921  $ 25,002
Total shareholders' equity 
  before accumulated other
  comprehensive income     $ 53,431   $ 48,685   $ 41,423    $ 30,889  $ 24,281
Total shareholders' equity 
  after accumulated other 
  comprehensive income     $ 82,217   $ 78,183   $ 59,136    $ 46,478  $ 30,022
Operating return on 
  beginning equity *          11.6%      16.8%      19.5%        5.7%     47.9%


  * Operating  return on equity is calculated  using net income from  continuing
operations less realized gains and total shareholders  equity before accumulated
other comprehensive income.

                                       1
<PAGE>


Letter to the Investors

To Our Shareholders:

    This is an exciting time for Atlantic American  Corporation and the valuable
portfolio  of companies  that  comprise  our diverse and  competitive  insurance
business.  In 1998, new insurance product  initiatives,  new marketplace niches,
and expanding market penetration combined to provide sound financial results and
further positioned us to take advantage of our industry's  consolidation and the
long-term growth opportunities such consolidation provides.
   Following up on our 1997 acquisitions of American  Independent Life Insurance
Company and Self Insurance Administrators, Inc., we acquired two seasoned blocks
of Medicare  supplement  business from  Commonwealth  Life Insurance Company and
Colonial Life & Accident Insurance Company. To Atlantic American,  consolidation
is not just  about  getting  bigger,  it is about  getting  better.  Our  recent
acquisitions, while small, have allowed us to not only spread our expenses, they
have introduced us to new regions of the country where we have not  historically
been represented.
   Consolidated  revenue of $106  million for the year ended  December 31, 1998,
represents a five  percent  increase  over 1997  revenues of $101  million.  Net
income for the year  increased  to $8.6  million,  or  $.37 per  diluted  share,
compared  with net  income of $8.0  million,  or $.35  per share,  in 1997.  The
Company's  book value per common  share rose to $3.60 in 1998,  compared  to the
$3.27 reported in 1997.
   Overall,  our  consolidated  operations  produced  solid  growth  in  a  very
competitive  insurance  market.  New  sales in the  Company's  life  and  health
division grew 30 percent,  with the largest  premium  increase  occurring in our
Medicare supplement  insurance  business.  In terms of actual policies sold, our
various life products were our largest  seller,  but the larger  premium size of
our Medicare supplement products drove the premium increase.  Premiums earned in
our  property  and casualty  companies  declined  slightly due to our efforts to
maintain the proper price for our products in the face of stiff competition.
   The financial  strength of our portfolio of companies received strong support
 
                                        2
<PAGE>
in 1998 when Standard & Poor's assigned its single 'A-' ("Strong")  counterparty
credit and financial  strength rating to the entire Atlantic American  Insurance
Group including  Bankers  Fidelity Life Insurance  Company,  Georgia  Casualty &
Surety  Company,   American  Southern  Insurance  Company  and  American  Safety
Insurance Company. We are extremely gratified by Standard & Poor's new rating of
our companies and believe it validates the decisions we have made in our efforts
to build our companies into strong regional competitors.
   Although  the  property  and  casualty  market   continued  to  be  extremely
competitive  in 1998,  we  remained  focused  on  maintaining  the  underwriting
discipline  underlying  our  business.  We view the fact that we are a  regional
company,  close to our insureds,  close to our agents, and close to our markets,
as a competitive advantage.  We try to maintain the local character and flair of
each of our  individual  companies.  As the giants of our  industry  continue to
focus on volume  sales,  more and more  independent  agents  are  turning  to us
because  we  strive  to  provide  the  personalized  service  they  cannot  find
elsewhere. We have also found that with our insureds, if we lose an account over
price, it is not long before they return to us for service.
   Our efforts to improve our information systems, begun in 1993, have continued
to prove vital to our continued  success.  Although we are not totally finished,
we are very  close to  completing  the  process of  bringing  our  systems  into
compliance for Year 2000. The necessary changes to our information  systems have
been completed and we are in the process of completing the testing phase.
   We are proud to have had the  opportunity  in July to re-elect The  Honorable
Edward E. Elson to our Board of  Directors.  After  serving  seven  years on our
board, he resigned in 1993 when he was appointed United States Ambassador to the
Kingdom of Denmark,  where he served until June 1998. We are excited to have him
with us again. His experience and guidance will be a significant contribution to
Atlantic American in the coming years.
   We believe value is created through solid business partnerships.  Clearly, we
are committed to building and  maintaining  strong and successful  relationships
with our agents and employees, our policyholders and shareholders.  Representing
our commitment toward these relationships and the creation of shareholder value,
we made the  decision to redeem our Series A Preferred  Stock at the end of last
year, and initiated a stock program to assist odd lot  shareholders  increase or
sell holdings of fewer than 100 shares. We have also continued our share buyback
program  and  between  January  1,  1998 and  December  31,  1998,  we  acquired
approximately 350,000 shares at a total cost of $1.6 million.
   As we remain firmly  positioned for future  growth,  everyone in the Atlantic
American  Group of companies is excited about our plans and  opportunities.  The
management and staff of Atlantic  American look forward to the  challenges  that
lie ahead and thank you for your continued confidence and support.

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

                                       3
<PAGE>
AMERICAN SOUTHERN


" American Southern has built a strong reputation for providing quality products
and service."

Picture of the following around a conference room table:
     Calvin L. Wall, Chairman and Chief Executive Officer
     Edward L. Rand, Jr., Vice President and Treasurer, AAC
     Roy S. Thompson, Jr., Chariman Emeritus
     Scott G. Thompson, President and Chief Financial Officer



                                       4
<PAGE>
American Southern

                                        Products: Customized Fleet Automobile
                                                  Liability and Damage Insurance
                                        Premiums:  $35,002,000
                                        Pre-tax Income:  $6,682,000
                                        Statutory Surplus:  $30,825,000
                                        Employees: 38

   In 1998,  American Southern and American Safety,  together known as "American
Southern"  contributed more than 45 percent of Atlantic  American's  revenue and
profit, primarily offering automobile liability and physical damage insurance to
large commercial  policyholders in a broad geographic area. Georgia, Florida and
South Carolina are major markets among the 22 states in which American  Southern
produced business in 1998.
   American Southern's book of business is comprised of large contracts that are
usually  long-term  and  substantial.  Earned  premiums  for 1998 of $35 million
decreased  from  $41.8  million  in  1997  due  to  competitive   pressures  and
discontinuing unprofitable books of business.
   Through a consistent drive to establish new product lines and programs, renew
its  long-term   contracts  and  seek  opportunities  that  complement  existing
operations,  American  Southern remains strong and is well positioned to achieve
higher growth rates in the future. Both of the insurance companies that comprise
American  Southern maintain an `A-`  ("Excellent")  rating from A.M. Best and an
'A-' ("Strong") rating from Standard & Poor's.
   American  Southern  continues  to target  key  markets  and  large  blocks of
business, including state, county and municipal vehicle pools. In 1998, American
Southern formed a joint venture with AAA Carolinas Motor Club to market personal
automobile  insurance to the almost one million  members of the Carolinas  Motor
Club. The new venture, American Auto Club Insurance Agency, LLC, while providing
a  significant  benefit to the  members of the auto club  provides  an  exciting
growth opportunity for 1999 and beyond. Insuring leased modular facilities, such
as  the  temporary   facilities   used  for  housing  and  storage  at  schools,
construction  sites and  sports  venues,  in a number of states is  another  new
program for American  Southern that should prove  invaluable in helping  promote
additional growth.
   With 60 years of experience  initiating  unique  insurance  plans to meet the
needs of its  clients,  American  Southern  has  built a strong  reputation  for
providing quality products and service. By building and maintaining a solid base
of commercial  policyholders,  American Southern continues to earn the trust and
confidence  customers have placed in the entire  portfolio of Atlantic  American
companies.  American  Southern's  dedication to quality service ensures a strong
foothold in the specialty insurance business for years to come.


                                        5
<PAGE>
GEORGIA CASUALTY & SURETY

"An  outstanding  relationship  with  the  agent...keeps  us in  touch  with the
marketplace..."

Picture of the following in conference room:

     Sandra W. Doar, Vice President, Underwriting
     Marc Zierten, Assistant Vice President, Marketing
     Geoge G. Clements, Vice President, Claims
     Andy Thompson, President, SIA
     Jack R. Baker, Vice President, Underwriting
     Linda S. Cook, Vice President, Secretary and Treasurer



                                       6
<PAGE>
Georgia Casualty

                                        Products: Workers' Compensation and
                                                  Commercial P&C Insurance
                                        Premiums:  $21,813,000
                                        Pre-Tax Income:  $1,495,000
                                        Statutory Surplus:  $18,667,000
                                        Employees: 43

   Georgia Casualty, a significant component of Atlantic American's portfolio of
companies,  is a  leading  provider  of  workers'  compensation  and  commercial
liability  insurance,  in the southeast.  In 1998,  earned  premiums rose to $22
million,  24  percent of  consolidated  premiums  for the year.  Based on strong
operating results and strengthened  capitalization,  Georgia Casualty,  in 1998,
received a 'B++' ("Very Good") rating from A.M. Best - its fifth rating  upgrade
in the  past  four  years.  In  addition,  Georgia  Casualty  received  an  'A-'
("Strong") rating from Standard & Poor's in 1998.
   Concentrating  in Georgia,  Mississippi,  Louisiana,  Florida and  Tennessee,
Georgia Casualty markets primarily to manufacturers,  commercial contractors and
service industries.  The Company continues to focus on expanding its business by
providing a variety of specialized  programs.  In 1998,  the Company  launched a
number of creative  initiatives to broaden its product base and enhance  service
to both our insureds and agents.
   Georgia Casualty  introduced an innovative  Renters'  Program,  offering fire
protection in Georgia for  apartments and  condominiums  through a unique agency
system.  Georgia  Casualty  also  introduced  a liability  product  specifically
designed  to meet the needs of  homeowners'  associations.  Another  new program
provides various coverages, including workers' compensation, commercial packages
and  automobile  liability,  to franchisees of a national tire dealer in Florida
and Georgia.  Georgia Casualty is entering its second year of endorsement by the
Georgia Fruit and Vegetable Growers Association, and we expect continued premium
growth in this program in 1999.
   A  dedicated  electronic  data  interface  system  now  offers  a  convenient
toll-free claim reporting system,  operating  24-hours a day, seven days a week,
to expedite claim  reporting and speed service to our  policyholders  in time of
need.  A new  streamlined  risk  management  department  offers risk  management
evaluations,  and policyholders  receive personal  attention through  one-on-one
contact when it comes to risk  control and audit  services.  Georgia  Casualty's
team of registered  nurse case managers  ensures that  employees  return to work
quickly,   eliminating   lost  time  for  the  insured  and  reducing   workers'
compensation loss costs.
   To support agent sales activity,  account underwriting has been improved even
more - each agent works with one  underwriter on all lines of business.  Georgia
Casualty continues to introduce  innovative products and programs for the agent,
through niche marketing support and cost sharing on marketing materials. Georgia
Casualty  continues  to stand  out from its  competitors  by  offering  exciting
incentive  campaigns  and a tradition of  exceptional  conventions  along with a
competitive  profit  sharing  program  that  rewards  our  most  productive  and
consistent growth agents.
   An outstanding  relationship  with our agents,  coupled with the fact that we
are a regional company operating in a concentrated  geographic area, keeps us in
touch with the marketplace,  and allows us to identify new market  opportunities
and react  quickly  to agent  needs.  As  Georgia  Casualty  completes  its 50th
anniversary year and prepares to meet the challenges of the future,  we are well
positioned for growth and continued profitability.


                                       7
<PAGE>
BANKERS FIDELITY

"Bankers  Fidelity was among 155 life insurance  companies  awarded with charter
member status in the Insurance Marketplace Standards Association."

Picture of the following around desk:

     Anthony D. Chapman, Vice President and Chief Marketing Officer, 
       Agency Division
     Robert E. Orean, Vice President and Actuary
     Clark W. Berryman, Vice President, Information Services, AAC
     Eugene Choate, President



                                       8
<PAGE>

Bankers Fidelity

                                        Products: Medicare Supplement
                                                  Senior Life Insurance
                                                  Other Supplemental Health
                                        Premiums:  $34,477,000
                                        Pre-tax Income:  $3,550,000
                                        Statutory Surplus:  $25,998,000
                                        Employees: 71

   In 1998,  Bankers  Fidelity  continued to improve its position as an industry
leader in the  senior  market.  The  Company's  core  lines of  senior  life and
Medicare  supplement  products continue to produce solid revenue growth.  Market
penetration  continued in 1998 with sizeable  increases in both premium  revenue
and  recruiting  of  new  agents  throughout  the  southeast,  mid-atlantic  and
midwestern  United  States.  In addition to the strong  performance  of its core
lines of business,  the company  expanded  specialty market sales in the college
funding  division  as well as  supplemental  health  products  in the family and
payroll deduction markets.
   As a result of a focused  marketing plan new sales in 1998 increased 30% over
1997. Adding depth and strength to the value of Atlantic American's portfolio of
companies,  earned  premiums  for  Bankers  Fidelity  grew  28% in 1998 to $34.5
million.  Licensed in 33 states, and with a 'B+' ("Very  Good") rating from A.M.
Best and an 'A-' ("Strong ") rating from Standard & Poor's,  Bankers Fidelity is
positioned to expand its product lines utilizing its proven  distribution system
in the western United States in 1999.
   The  Company  continued  to  supplement  internal  growth  in 1998  with  the
acquisition  of two blocks of Medicare  supplement  business  from  Commonwealth
Insurance Company and Colonial Life & Accident Insurance  Company.  In addition,
Bankers  Fidelity  divested a portion of its long-term care and home health care
business to Life and Health of America,  further focusing the company on growing
and servicing its core lines of business. The purchases, which were accretive to
earnings,  coupled with this  divestiture  increased net annualized  premiums by
approximately $700,000.
   In 1998,  Bankers  Fidelity added two new features to its line of senior life
products - a waiver of premium for hospital or nursing facility  confinement and
an  accelerated  death  benefit  rider for terminal  illness.  In addition,  the
company added an innovative  discount  prescription  drug service,  which allows
policyholders to obtain prescription medication at significant savings through a
national network of 35,000  participating  pharmacies with no added cost for the
company.  Value-added  benefits,  such as these,  help to differentiate  Bankers
Fidelity from its competitors.
   Key  to  the  company's   outstanding   growth  is  its   commitment  to  and
understanding  of the  independent  agency  distribution  system.  The company's
distribution  system,  implemented  in  1993  focuses  on  developing  long-term
relationships  with  Regional  Sales  Directors  who recruit and manage a strong
network of career  oriented  agents  utilizing  a  proprietary  lead  generation
program. The company's  commitment to this proven distribution  strategy was key
to the  successful  expansion of  operations  throughout  the  mid-atlantic  and
midwestern  United  States in 1998.  This same strategy will be used to continue
solid  expansion in 1999.  The  soundness  of this  strategy is reflected in the
company's double-digit new sales growth over the past five years.
   Committed  to  maintaining  the  highest  of  ethical  standards  in the life
insurance  industry,  Bankers  Fidelity was among 155 life  insurance  companies
awarded   charter   member  status  in  the  Insurance   Marketplace   Standards
Association,  (IMSA). IMSA is a voluntary membership organization promoting high
standards of market conduct through sales,  operations and home office servicing
of life and  annuity  products.  As a key  component  of the  Atlantic  American
Insurance Group portfolio of companies,  Bankers Fidelity  remains  committed to
maintaining  these  standards as well as its tradition of delivering  innovative
insurance  products  through  a network  of  motivated,  professional  insurance
agents.

                                       9
<PAGE>
                           CONSOLIDATED BALANCE SHEETS

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

                                                     December 31,             
--------------------------------------------------------------------------------
                                                 1998           1997        
--------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents, including 
  short-term investments of $24,068 
  and $46,167                                 $ 32,385       $ 51,044
Investments                                    173,335        152,583

Receivables:
   Reinsurance                                  22,772         24,123
   Other (net of allowance for 
     doubtful accounts: $1,377 and $916)        18,912         18,511

Deferred acquisition costs                      16,881         16,483

Other assets                                     4,225          4,510

Goodwill                                         4,339          4,606  
--------------------------------------------------------------------------------
    Total assets                              $272,849       $271,860   
================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance reserves and policy funds           $152,377       $154,318

Accounts payable and accrued expenses           12,255         10,759

Debt payable                                    26,000         28,600  
--------------------------------------------------------------------------------
    Total liabilities                          190,632        193,677  
--------------------------------------------------------------------------------

Commitments and contingencies

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

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

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

  Common stock, $1 par, 30,000,000 shares 
    authorized; 19,405,753 shares issued
    in 1998 and 18,920,728 shares issued
    in 1997 and 19,119,888 shares 
    outstanding in 1998 and 18,907,267 
    shares outstanding in 1997                  19,406         18,921

  Additional paid-in capital                    50,406         53,316

  Accumulated deficit                          (15,213)       (23,653)

  Accumulated other comprehensive income        28,786         29,498

  Treasury stock, at cost, 285,865 shares 
    in 1998 and 13,461 shares in 1997           (1,302)           (63)
--------------------------------------------------------------------------------
    Total shareholders' equity                  82,217         78,183  
--------------------------------------------------------------------------------
      Total liabilities and shareholders' 
        equity                                $272,849       $271,860  
================================================================================


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


                                       10
<PAGE>
                      CONSOLIDATED STATEMENTS OF OPERATIONS


 (Dollars In Thousands, Except Per Share Data)

                                                     Year Ended December 31,  
--------------------------------------------------------------------------------
                                                  1998        1997        1996 
--------------------------------------------------------------------------------
Revenue:
  Insurance premiums                           $ 91,292    $ 88,682    $ 86,025
  Investment income                              11,499      11,256      11,151
  Other income                                      366         201         306
  Realized investment gains, net                  2,909       1,076       1,589
--------------------------------------------------------------------------------
    Total revenue                               106,066     101,215      99,071 
--------------------------------------------------------------------------------
Benefits and expenses:
  Insurance benefits and losses incurred         60,845      61,018      54,281
  Commissions and underwriting expenses          27,160      23,012      26,959
  Interest expense                                2,146       2,902       3,292
  Other                                           7,212       6,112       6,724 
--------------------------------------------------------------------------------
    Total benefits and expenses                  97,363      93,044      91,256 
--------------------------------------------------------------------------------
Income before income tax provision
  and discontinued operations                     8,703       8,171       7,815
Income tax provision                                145         138         204 
--------------------------------------------------------------------------------
Income from continuing operations, net            8,558       8,033       7,611
Loss from discontinued operations, net              -           -        (4,447)
--------------------------------------------------------------------------------
    Net income before preferred stock dividends   8,558       8,033       3,164
Preferred stock dividends                        (1,521)     (1,521)     (1,521)
--------------------------------------------------------------------------------
    Net income applicable to common stock      $  7,037    $  6,512    $  1,643 
================================================================================
Diluted earnings (loss) per common share:
  Continuing operations                        $    .37    $    .35    $    .32 
Discontinued operations                             -           -          (.23)
--------------------------------------------------------------------------------
    Net income                                 $    .37    $    .35    $    .09 
================================================================================
Basic earnings (loss) per common share:
  Continuing operations                        $    .37    $    .35    $    .33
  Discontinued operations                           -           -          (.24)
--------------------------------------------------------------------------------
    Net income                                 $    .37    $    .35    $    .09 
================================================================================



                                       11
<PAGE>
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


(Dollars In Thousands, Except Share and Per Share Data)
<TABLE>
                                                                                            Accumulated
                                                               Additional                      Other
                                      Preferred      Common     Paid-In     Accumulated    Comprehensive     Treasury
                                       Stock(1)      Stock      Capital       Deficit          Income          Stock        Total  
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                               <C>             <C>        <C>         <C>            <C>               <C>          <C>
Balance, December 31, 1995            $  164       $  18,712    $ 46,531     $(34,446)        $ 15,589        $   (72)    $  46,478
  Comprehensive income:
    Net income                            -              -           -          3,164              -              -           3,164
    Increase in unrealized 
      investment gains                    -              -           -            -              2,124            -           2,124
                                                                                                                             -------
      Total comprehensive income          -              -           -            -                -              -           5,288
  Cash dividends paid on preferred 
    stock                                 -              -          (315)         -                -              -            (315)
  Dividends accrued on preferred 
    stock                                 -              -        (1,206)         -                -              -          (1,206)
  Purchase of 104,635 shares for 
    treasury                              -              -           -            -                -             (338)         (338)
  Issuance of 109,452 shares for employee
    benefit plans and stock options       -              -             6         (144)             -              321           183
 Gain on sale of subsidiary               -              -         9,046          -                -              -           9,046 
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                164         18,712      54,062      (31,426)          17,713            (89)       59,136
  Comprehensive income:
    Net income                            -              -           -          8,033              -              -           8,033
    Increase in unrealized 
      investment gains                    -              -           -            -             11,785            -          11,785
                                                                                                                             -------
      Total comprehensive income          -              -           -            -                -              -          19,818
  Cash dividends paid on preferred 
    stock                                 -              -          (315)         -                -              -            (315)
  Dividends accrued on preferred 
    stock                                 -              -        (1,206)         -                -              -          (1,206)
  Purchase of 213,089 shares for 
    treasury                              -              -           -            -                -             (735)         (735)
  Issuance of 157,578 shares for employee
    benefit plans and stock options       -              -             3         (260)             -              530           273
  Issuance of 278,561 shares for 
    acquisition of Self-Insurance 
    Administrators, Inc.                  -              209         772          -                 -             231         1,212
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                164         18,921      53,316      (23,653)           29,498           (63)       78,183
  Comprehensive income:
    Net income                            -              -           -          8,558               -             -           8,558
    Decrease in unrealized 
      investment gains                    -              -           -            -                (712)          -            (712)
                                                                                                                             -------
      Total comprehensive income          -              -           -            -                 -             -           7,846
  Cash dividends paid on preferred 
    stock                                 -              -          (315)         -                 -             -            (315)
  Dividends accrued on preferred 
    stock                                 -              -        (1,206)         -                 -             -          (1,206)
  Purchase of 349,879 shares for 
    treasury                              -              -           -            -                 -          (1,592)       (1,592)
  Issuance of 77,475 shares for employee
    benefit plans and stock options       -              -           -           (118)              -             353           235
  Preferred stock redeemed including 
    issuance of 469,760 shares            (30)           470      (1,440)         -                 -             -          (1,000)
  Issuance of 15,265 shares for final 
    consideration of Self-Insurance 
    Administrators, Inc.                  -               15          51          -                 -             -              66
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998            $   134      $  19,406    $ 50,406     $(15,213)        $  28,786       $(1,302)    $  82,217 
====================================================================================================================================
<FN>
1)  Includes Series A and B preferred stock
</FN>
</TABLE>



                                       12
<PAGE>
                      CONSOLIDATED STATEMENTS OF CASH FLOW
 <TABLE>
                                                                                  Year Ended December 31,    
------------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)                                                   1998             1997            1996   
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                                                                 <C>              <C>              <C>
Cash flows from operating activities:
  Net income                                                           $ 8,558          $ 8,033          $ 3,164
  Adjustments to reconcile net income to net cash 
    provided by operating activities:
  Amortization of deferred acquisition costs                            10,595            9,704            8,184
  Acquisition costs deferred                                           (11,087)         (11,008)          (8,464)
  Realized investment gains                                             (2,909)          (1,076)          (1,589)
  (Decrease) increase in reserves                                       (1,941)             618            5,352
  Loss from discontinued operations, net                                   -                -              4,447
  Depreciation and amortization                                          1,368            1,121            1,102
  Decrease (increase) in receivables, net                                  950            1,114           (3,870)
  Increase (decrease) in other liabilities                                 291               13             (694)
  Other, net                                                              (350)              98              811   
------------------------------------------------------------------------------------------------------------------------------------
    Net cash provided by continuing operations                           5,475            8,617            8,443  
------------------------------------------------------------------------------------------------------------------------------------
    Net cash used by discontinued operations                               -                -             (5,902)
------------------------------------------------------------------------------------------------------------------------------------
    Net cash provided by operating activities                            5,475            8,617            2,541  
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Proceeds from investments sold                                         8,723            7,748           44,445
  Proceeds from investments matured, called or redeemed                 55,665           52,074           40,868
  Investments purchased                                                (82,981)         (53,544)         (54,632)
  Acquisition of minority interest                                         -               (101)            (846)
  Additions to property and equipment                                     (394)            (733)          (1,616)
  Sale of Leath Furniture, Inc., net                                       -                -              3,646
  Acquisition of American Independent, net of $1,946 acquired             (483)            (719)             -
  Acquisition of SIA, Inc.                                                 -                 25              -
  Bulk reinsurance transactions, net                                       608              -                -    
------------------------------------------------------------------------------------------------------------------------------------
    Net cash (used) provided by continuing operations                  (18,862)           4,750           31,865  
------------------------------------------------------------------------------------------------------------------------------------
    Net cash used by discontinued operations                               -                -               (440)
------------------------------------------------------------------------------------------------------------------------------------
    Net cash (used) provided by investing activities                   (18,862)           4,750           31,425  
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from issuance of bank financing                                 -              5,617           11,352
  Preferred stock dividends                                               (315)            (315)            (315)
  Proceeds from exercise of stock options                                   90               62               85
  Purchase of treasury shares                                           (1,447)            (558)            (338)
  Repayments of debt                                                    (2,600)         (12,628)         (20,662)
  Redemption of preferred stock                                         (1,000)             -                -    
------------------------------------------------------------------------------------------------------------------------------------
    Net cash used in continuing operations                              (5,272)          (7,822)          (9,878)
------------------------------------------------------------------------------------------------------------------------------------
    Net cash provided by discontinued operations                           -                -              6,342  
------------------------------------------------------------------------------------------------------------------------------------
    Net cash used in financing activities                               (5,272)          (7,822)          (3,536)
------------------------------------------------------------------------------------------------------------------------------------
    Net (decrease) increase in cash and cash equivalents               (18,659)           5,545           30,430  
------------------------------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents at beginning of year                        51,044           45,499           15,069  
------------------------------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents at end of year                             $32,385          $51,044          $45,499  
====================================================================================================================================
Supplemental cash flow information:
  Cash paid for interest                                               $ 2,143          $ 2,958          $ 3,763     
====================================================================================================================================
  Cash paid for income taxes                                           $   330          $    85          $   116  
====================================================================================================================================
</TABLE>



                                       13
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (Dollars in Thousands, Except Per Share Data)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation
---------------------------
   The  accompanying  consolidated  financial  statements  have been prepared in
conformity  with  generally  accepted  accounting  principles  ("GAAP").   These
financial  statements include the accounts of Atlantic American Corporation (the
"Company") and its wholly-owned subsidiaries.  Leath Furniture, LLC (f/k/a Leath
Furniture,  Inc.), previously a majority-owned subsidiary, has been reflected as
discontinued  operations in the accompanying  financial  statements (see Note 8)
through  the date of its  divestiture  on April  8,  1996  (see  Note  14).  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.
   At December 31, 1998, the Company had five insurance subsidiaries,  including
Bankers  Fidelity  Life  Insurance  Company  and  its  wholly-owned  subsidiary,
American Independent Life Insurance Company ("American  Independent"),  together
known  as  "Bankers  Fidelity",  American  Southern  Insurance  Company  and its
wholly-owned  subsidiary,  American Safety Insurance  Company (together known as
"American   Southern"),   and  Georgia  Casualty  &  Surety  Company   ("Georgia
Casualty"),  in  addition  to  one  non-insurance   subsidiary,   Self-Insurance
Administrators, Inc. ("SIA, Inc."). American Independent was acquired on October
1, 1997,  and SIA,  Inc.  was  acquired  on October  28,  1997 (see Note 7). The
results of  operations of American  Independent  and SIA, Inc. are included from
their  respective  dates of  acquisition  and in 1997 were not  material  to the
overall operations of the Company. Assets and liabilities are not classified, in
accordance with insurance industry practice, and certain prior year amounts have
been reclassified to conform to the 1998 presentation.

Premium Revenue and Cost Recognition
------------------------------------
   Life insurance premiums are recognized as revenues when due, whereas accident
and health premiums are recognized over the premium paying period.  Benefits and
expenses  are  associated  with  premiums  as they are earned so as to result in
recognition  of profits  over the lives of the  contract.  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 the related  unearned  premiums
and investment income.
   Property and casualty  insurance  premiums are recognized as revenue  ratably
over the contract period. The Company provides for insurance benefits and losses
on  accident,  health,  and casualty  claims  based upon  estimates of projected
ultimate losses.

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

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 all others are carried at  historical  cost. If a
decline in the value of a common stock,  preferred  stock,  other invested asset
interest, or publicly traded bond below its cost or amortized cost is considered
to be other than  temporary,  a realized loss is recorded to reduce the carrying
value of the investment to its estimated net realizable value, which becomes the
new cost basis.
   The cost of securities sold is based on specific  identification.  Unrealized
gains  (losses)  in the value of bonds and  common  and  preferred  stocks,  are
accounted for as a direct increase (decrease) in accumulated other comprehensive
income in shareholders' equity and, accordingly, have no effect on net income.

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

Net Income Per Common Share
---------------------------
   Basic  earnings per share are based on the weighted  average number of common
shares  outstanding  during each period.  Diluted  earnings per common share are


                                       14
<PAGE>
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 in 1998 include  common shares  calculated  for the
assumed conversion of the Series B Preferred Stock. Unless otherwise  indicated,
earnings per share 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
----------------------------------------------
   The Financial Accounting Standards Board has issued Statement 133 "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 provides
a comprehensive  and consistent  standard for the recognition and measurement of
derivatives  and hedging  activity.  SFAS 133  requires  all  derivatives  to be
recorded on the balance sheet at fair value and establishes  specific accounting
methods for hedges.  Changes in the value of most derivatives and hedges will be
included  in earnings in the period of the  change.  SFAS 133 is  effective  for
years  beginning  after June 15, 1999. The Company  intends to adopt SFAS 133 on
January 1, 2000.  Management does not believe the adoption of SFAS 133 will have
a material effect on the Company's financial condition or results of operations.
   During the first quarter of 1998, the American  Institute of Certified Public
Accountants  (AICPA) issued  Statement of Position (SOP) 98-1,  "Accounting  for
Costs of Computer  Software  Developed or Obtained for Internal Use." During the
fourth quarter of 1997, the AICPA issued SOP 97-3,  "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." Both SOP 98-1 and 97-3 are
effective  for fiscal years  beginning  after  December  15,  1998.  The Company
adopted SOP 98-1 and 97-3 effective January 1, 1999.  Neither SOP is expected to
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

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

NOTE 2. INVESTMENTS

   Investments are comprised of the following:
                                                     1998                     
--------------------------------------------------------------------------------
                                                Gross       Gross
                                    Carrying  Unrealized  Unrealized  Amortized
                                      Value     Gains       Losses      Cost   
--------------------------------------------------------------------------------
Bonds:
  U.S. Treasury Securities and 
    Obligations of U.S. Government
    Corporations and Agencies       $ 85,784   $   976     $    188    $ 84,996
  Obligations of states and 
    political subdivisions             2,714       116          -         2,598
  Corporate securities                10,092       507          375       9,960
  Mortgage-backed securities 
    (government guaranteed)              751        19          -           732 
--------------------------------------------------------------------------------
                                      99,341   $ 1,618     $    563    $ 98,286
Common and preferred stocks           61,007   $29,345     $  1,454    $ 33,116
Other invested assets                  4,822       -            160       4,982
Mortgage loans (estimated fair
  value of $4,221)                     3,851
Policy and student loans               4,268
Real estate                               46
--------------------------------------------                                
   Investments                       173,335
Short-term investments                24,068
--------------------------------------------
   Total investments                $197,403
============================================


                                                     1997                  
--------------------------------------------------------------------------------
                                                Gross       Gross
                                    Carrying  Unrealized  Unrealized  Amortized
                                      Value     Gains       Losses      Cost  
--------------------------------------------------------------------------------
Bonds:
  U.S. Treasury Securities and 
    Obligations of U.S. Government 
    Corporations and Agencies       $ 75,724   $    670    $    136    $ 75,190
  Obligations of states and 
    political subdivisions             2,738         30         -         2,708
  Corporate securities                12,745        464          14      12,295
  Mortgage-backed securities
    (government guaranteed)              977         30           3         950 
--------------------------------------------------------------------------------
                                      92,184   $  1,194    $    153    $ 91,143

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

   Bonds and cash  having an  amortized  cost of  $14,836  and  $15,684  were on
deposit with  insurance  regulatory  authorities  at December 31, 1998 and 1997,
respectively, in accordance with statutory requirements.


                                       15
<PAGE>
NOTE 2.  INVESTMENTS (continued)

   The amortized cost and carrying value of bonds and short-term  investments at
December 31, 1998 by contractual maturity are as follows.  Actual maturities may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

                                                       Carrying     Amortized
                                                        Value         Cost     
--------------------------------------------------------------------------------
Due in one year or less                               $ 29,586     $ 29,547
Due after one year through five years                   15,765       15,211
Due after five years through ten years                  75,708       75,093
Due after ten years                                      1,599        1,771
Varying maturities                                         751          732 
--------------------------------------------------------------------------------
   Totals                                             $123,409     $122,354 
================================================================================

Investment income was earned from the following sources:
                                                  1998        1997        1996  
--------------------------------------------------------------------------------
Bonds                                          $ 6,363      $6,906      $6,728
Common and preferred stocks                      1,903       1,373       1,622
Mortgage loans                                     373         554         863
CDs and commercial paper                         2,004       2,130       1,443
Other                                              856         293         495  
--------------------------------------------------------------------------------
  Total investment income                       11,499      11,256      11,151
  Less investment expenses                        (332)       (340)       (452)
--------------------------------------------------------------------------------
Net investment income                          $11,167     $10,916     $10,699  
================================================================================

A summary of realized investment gains (losses) follows:


                                                   1998
--------------------------------------------------------------------------------
                                                           Other     
                                  Stocks     Bonds    Invested Assets     Total
--------------------------------------------------------------------------------
Gains                             $ 3,832   $    11       $   -         $ 3,843
Losses                              (735)      (199)          -            (934)
--------------------------------------------------------------------------------
Total realized investment
  gains (losses), net             $ 3,097   $  (188)      $   -         $ 2,909
================================================================================

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

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

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

                                          1998       1997       1996   
--------------------------------------------------------------------------------
      Common and preferred stocks      $ 6,999    $ 6,393    $ 9,734
      Bonds                                -          -       25,335
      Student loans                      1,024      1,262      6,053
      Other investments                    700         93      3,323    
--------------------------------------------------------------------------------
        Total proceeds                  $8,723    $ 7,748    $44,445       
================================================================================

   The Company's  investment in the common stock of Wachovia Corporation exceeds
10% of  shareholders'  equity at December 31, 1998.  The carrying  value of this
investment at December 31, 1998 was $26,039 with a cost basis of $3,143.

   The Company's bond portfolio  included 98% of investment  grade securities at
December 31, 1998 as defined by the NAIC.


NOTE 3.  INSURANCE RESERVES AND POLICY 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   
--------------------------------------------------------------------------------
Future policy benefits                    1998      1997       1998       1997 
--------------------------------------------------------------------------------
Life insurance policies:
  Ordinary                              $27,340   $26,403   $240,642   $236,543
  Mass market                             8,532     8,916     17,974     19,439
  Individual annuities                      711       808        -          -  
--------------------------------------------------------------------------------
                                         36,583    36,127   $258,616   $255,982
================================================================================
Accident and health insurance policies    2,329     3,061
----------------------------------------------------------
                                         38,912    39,188
  Unearned premiums                      22,971    24,412
  Losses and claims                      86,768    86,721
  Other policy liabilities                3,726     3,997
==========================================================
    Total policy liabilities           $152,377  $154,318
==========================================================

   Annualized  premiums for accident and health insurance  policies were $25,793
and $21,434 at December 31, 1998 and 1997, respectively.

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

Loss and Claim Reserves
   Loss and claim reserves represent  estimates of projected ultimate losses and
are based  upon:  (a)  management's  estimate of  ultimate  liability  and claim
adjusters'  evaluations  for unpaid  claims  reported  prior to the close of the
accounting  period,  (b) estimates of incurred but not reported  claims based on
past experience,  and (c) estimates of loss adjustment  expenses.  The estimated
liability is  continually  reviewed by  management  and  independent  consulting


                                       16
<PAGE>
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:

                                                 1998          1997  
--------------------------------------------------------------------------------
  Balance at January 1                         $86,721       $84,074
  Less:  Reinsurance recoverables              (24,006)      (26,293)
--------------------------------------------------------------------------------
    Net balance at January 1                    62,715        57,781
--------------------------------------------------------------------------------

  Incurred related to:
    Current year                                63,030        60,252
    Prior years                                 (2,606)           21  
--------------------------------------------------------------------------------
      Total incurred                            60,424        60,273  
--------------------------------------------------------------------------------

  Paid related to:
    Current year                                35,566        33,857
    Prior years                                 23,430        22,246  
--------------------------------------------------------------------------------
      Total paid                                58,996        56,103  
--------------------------------------------------------------------------------

  Reserves acquired due to acquisition             -             764  
--------------------------------------------------------------------------------
  Net balance at December 31                    64,143        62,715
  Plus:  Reinsurance recoverables               22,625        24,006  
--------------------------------------------------------------------------------

  Balance at December 31                       $86,768       $86,721  
================================================================================

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

                                                        1998         1997 
--------------------------------------------------------------------------------

  Total incurred claims                               $60,424      $60,273
  State residual pool refunds and adjustments
    to loss portfolio arrangements                     (1,098)        (715)
  Cash surrender value and matured endowments           1,438        1,381
  Death benefits                                           81           79  
--------------------------------------------------------------------------------
    Total insurance benefits and losses incurred      $60,845      $61,018  
================================================================================

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 81%
of the reinsurance  receivables are due from three reinsurers as of December 31,
1998.   Reinsurance   receivables  of  $13,668  are  with  National  Reinsurance
Corporation, rated 'AAA' by Standard & Poor's and 'A++' (Superior) by A.M. Best,
$2,246 are with First Colony Life  Insurance  Company,  rated 'AA' by Standard &
Poor's and 'A++'  (Superior)  by A.M.  Best,  and  $2,626 are with  Pennsylvania
Manufacturers Association Insurance Company, rated 'A+' (Superior) by A.M. Best.
In the opinion of management,  the Company's  reinsurers are financially stable.
Allowances  for  uncollectible   amounts  are  established  against  reinsurance
receivables,  if appropriate.  Premiums assumed of $23,633,  $23,738, $25,739 in
1998,  1997 and 1996,  respectively,  include a state  contract with premiums of
$12,600,  $15,900,  $15,400.  The contract premiums  represent 13.8%,  17.9% and
17.9%  of  net  premiums  earned  for  the  years  ened  1998,  1997  and  1996,
respectively. The following table reconciles premiums written to premiums earned
and summarizes the components of insurance benefits and losses incurred.

                                                 1998        1997        1996  
--------------------------------------------------------------------------------

  Premiums written                             $ 76,964    $ 73,006    $ 70,295
  Plus - premiums assumed                        23,633      23,738      25,739
  Less - premiums ceded                         (10,746)     (9,345)     (9,074)
--------------------------------------------------------------------------------

    Net premiums written                         89,851      87,399      86,960
--------------------------------------------------------------------------------

  Change in unearned premiums                     1,352       1,405        (960)
  Change in unearned premiums ceded                  89        (122)         25
--------------------------------------------------------------------------------

    Net change in unearned premiums               1,441       1,283        (935)
--------------------------------------------------------------------------------

    Net premiums earned                        $ 91,292    $ 88,682    $ 86,025
================================================================================

  Provision for benefits and losses incurred   $ 69,478    $ 68,043    $ 58,801
  Reinsurance loss recoveries                    (8,633)     (7,025)     (4,520)
--------------------------------------------------------------------------------

  Insurance benefits and losses incurred       $ 60,845    $ 61,018    $ 54,281
================================================================================


   Components of reinsurance receivables are as follows:

                                                1998       1997 
--------------------------------------------------------------------------------
            Receivable on losses              $22,625    $24,006
            Commissions recoverable               147        117 
--------------------------------------------------------------------------------
                                              $22,772    $24,123 
================================================================================


NOTE 5.  INCOME TAXES

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

                                                 1998      1997      1996  
--------------------------------------------------------------------------------
Federal income tax provision at 
  statutory rate of 35%                        $ 3,046   $ 2,860   $ 2,735
Tax exempt interest and
  dividends received deductions                   (452)     (267)     (413)
Change in asset valuation allowance -
  utilization of net operating loss             (2,594)   (2,585)   (2,260)
Alternative minimum tax                            145       130       142  
--------------------------------------------------------------------------------
    Total provision for income taxes           $   145   $   138   $   204  
================================================================================


   Deferred tax  liabilities  and  assets  at December  31, 1998  and  1997  are
comprised of the following:

                                                 1998          1997  
--------------------------------------------------------------------------------
  Deferred tax liabilities:
    Deferred acquisition costs                $ (3,888)     $ (3,875)
    Net unrealized investment gains            (10,075)      (10,325)
--------------------------------------------------------------------------------
      Total deferred tax liabilities           (13,963)      (14,200)
--------------------------------------------------------------------------------
  Deferred tax assets
    Net operating loss carryforwards            15,077        17,409
    Insurance reserves                           3,131         3,515
    Bad debts                                      482           321  
--------------------------------------------------------------------------------
      Total deferred tax assets                 18,690        21,245  
--------------------------------------------------------------------------------
  Asset valuation allowance                     (4,727)       (7,045)
--------------------------------------------------------------------------------
  Net deferred tax assets                     $    -        $    -    
================================================================================

                                       17

<PAGE>
NOTE 5.  INCOME TAXES (continued)

   The components of the provision (benefit) are:

                                       1998       1997       1996    
--------------------------------------------------------------------------------
    Current - Federal                  $145       $138       $204
    Deferred - Federal                   -          -          -      
--------------------------------------------------------------------------------
      Total                            $145       $138       $204   
================================================================================

     At December 31,  1998,  the Company has regular tax loss  carryforwards  of
approximately  $43,077 expiring generally between 2000 and 2010. 
     The Company has determined,  based on its earnings  history,  that an asset
valuation allowance of $4,727 should be established against its net deferred tax
assets at December 31, 1998. The Company's asset valuation  allowance  decreased
by $2,318 during 1998, due primarily to the  utilization  of NOL  carryforwards.
Due to the  uncertain  nature  of their  ultimate  realization  based  upon past
performance and expiration  dates,  the Company has established a full valuation
allowance against these  carryforward  benefits and recognizes the benefits only
as  reassessment  demonstrates  they are  realizable.  The Company's  ability to
generate taxable income from operations is dependent upon various factors,  many
of which are beyond management's control. Accordingly, there can be no assurance
that the  Company  will  generate  future  taxable  income  based on  historical
performance.  Therefore,  the  realization  of the  deferred  tax assets will be
assessed  periodically based on the Company's current and anticipated results of
operations.  The Company  has a formal  tax-sharing  agreement  with each of its
subsidiaries. With the exception of American Independent, which files a separate
federal income tax return,  the Company files a consolidated  federal income tax
return with its subsidiaries.

NOTE 6.  CREDIT ARRANGEMENTS

   Debt payable is as follows:
                                                            1998       1997   
--------------------------------------------------------------------------------

  Note payable to bank due December 31, 2000:
    Balance at prime rate of interest (1997 8.50%)        $   -       $28,600
    Balance at prime less 1/2% (1998 7.25%)                26,000         -    
--------------------------------------------------------------------------------
      Total arrangements                                  $26,000     $28,600 
================================================================================

  Total arrangements
    Due within one year                                   $ 2,400     $ 1,000
================================================================================
    Long-term debt, due in 2000                           $23,600     $27,600
================================================================================

   The note payable due December 31, 2000, is payable  quarterly  with a payment
of $400 due at the  beginning  of the second  quarter  of 1999 and  $1,000  each
quarter  thereafter  through  2000 with the  balance due at  maturity.  Payments
required in 1999 have been  reduced by $1,600 of  prepayments  made during 1998.
Interest is paid quarterly in arrears.  The interest rate on the note payable to
bank changes based upon the Company meeting certain financial criteria.
   The Company is required to maintain certain  financial  covenants  including,
among   others,   ratios  that  relate   funded  debt  to   consolidated   total
capitalization and cash flow to debt service.  The Company must also comply with
limitations on capital  expenditures  and debt  obligations.  The Company was in
compliance with all of the covenants associated with the note payable to bank at
December 31, 1998.

NOTE 7.  ACQUISITIONS

   On October 1, 1997,  the Company  acquired 100% of the  outstanding  stock of
American   Independent  for  approximately   $2,700  in  cash.  The  assets  and
liabilities of American  Independent  are included in the 1997 balance sheet and
the results of operations are included from the date of acquisition.  On October
28, 1997, the Company  acquired 100% of the  outstanding  stock of SIA, Inc. for
approximately  $1,278 in common stock of the Company. The assets and liabilities
of SIA,  Inc.  are  included  in the  1997  balance  sheet  and the  results  of
operations  are included  since the date of  acquisition.  The  acquisitions  of
American Independent and SIA, Inc. were both accounted for as purchases and were
not material to the  financial  position or results of operations of the Company
in  1997.  Had  both  companies  been  included  in the  consolidated  financial
statements  for the earliest year  presented,  their impact on the  consolidated
results of operations would not have been material.
   In connection with the acquisitions of American Independent and SIA, Inc. the
following assets and liabilities were acquired:


            Cash, short-term investments                     $1,971
            Other investments                                 3,585
            Goodwill                                          2,767
            Other assets                                        732
--------------------------------------------------------------------------------
              Total assets                                    9,055
--------------------------------------------------------------------------------
            Insurance reserves and policy funds               4,502
            Other liabilities                                   593
--------------------------------------------------------------------------------
              Total liabilities                               5,095
--------------------------------------------------------------------------------
                Net assets                                  $ 3,960
================================================================================

NOTE 8.  DISCONTINUED OPERATIONS


   Subsequent  to year end 1995,  the Company  announced  its intent to sell its
approximately  88%  interest in Leath  Furniture,  LLC (f/k/a  Leath  Furniture,
Inc.),  a  retail  furniture  chain.  Accordingly,  the  consolidated  financial
statements  report  separately  the  operating  results  of  these  discontinued
operations  for 1996.  The Company  completed  the sale of its  interest to Gulf

                                       18
<PAGE>
Capital  Services,  Ltd., a related party,  on April 8, 1996. The gain from this
transaction is reflected as a direct credit to additional paid-in capital.
   The  following   results  of  operations  are  attributable  to  discontinued
operations:

                                                            1996 
--------------------------------------------------------------------------------

   Results of Operations:
      Net sales                                           $45,502  
================================================================================

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

NOTE 9.  COMMITMENTS AND CONTINGENCIES

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

Operating Lease Commitments
   The Company's rental expense,  including  common area charges,  for operating
leases was $1,188, $1,178, and $1,222 in 1998, 1997 and 1996, respectively.  The
Company's future minimum lease obligations under non-cancelable operating leases
are as follows:

                               Year Ending December 31,
                             ----------------------------

                             1999                  $  991
                             2000                     796
                             2001                     771
                             2002                     626
                             2003                     466
                             Thereafter               776 
                             ----------------------------
                              Total                $4,426
                             ============================

NOTE 10.  EMPLOYEE BENEFIT PLANS

Stock Options
   In  1992,  the  shareholders  approved  the  Company's  adoption  of the 1992
Incentive Plan ("1992 Plan"). The 1992 Plan originally provided for a maximum of
400,000  stock  options  subject to  issuance.  The 1992 Plan was amended by the
Board of Directors in 1995, and subsequently ratified at the 1996 Annual Meeting
of Shareholders,  to provide for an additional  400,000 stock options.  The 1992
Plan was amended by the Board of Directors again in 1997, and this amendment was
subsequently  ratified at the 1998 Annual Meeting of Shareholders to provide for
an additional  1,000,000  stock options.  The Board of Directors may grant:  (a)
incentive  stock  options  within the  meaning of  section  422 of the  Internal
Revenue Code; (b) non-qualified stock options; (c) performance units; (d) awards
of  restricted  shares  of  the  Company's  common  stock;  or  (e)  all  or any
combination  of the  foregoing to officers and key  employees.  Options  granted
under these plans  expire five years from the date of grant.  Vesting  occurs at
50% upon  issuance  of an  option,  and the  remaining  portion is vested at 25%
increments in each of the following two years.  In 1996, the Company adopted the
1996 Director  Stock Option Plan,  which provides for a maximum of 200,000 stock
options with full  vesting six months  after the grant date.  As of December 31,
1998, an aggregate of sixty-five 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,
1998 and 1997, is as follows:


                                      1998                      1997         
--------------------------------------------------------------------------------
                                        Weighted Avg.             Weighted Avg.
                              Shares   Exercise Price   Shares   Exercise Price
--------------------------------------------------------------------------------
Options outstanding, 
  beginning of year          870,400     $  3.11       625,391       $ 2.14    
Options granted              338,000        3.80       379,500         4.08    
Options exercised            (50,000)       2.24      (129,491)        1.30    
Options canceled or 
  expired                     (3,500)       3.93        (5,000)        3.25    
                          -----------               -----------
Options outstanding, 
  end of year              1,154,900        3.20       870,400         3.11    
                          ===========               ===========
Options exercisable          900,525        3.04       624,900         2.89


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

                                         1998         1997       1996
--------------------------------------------------------------------------------

      Net income:
         As reported                   $ 8,558     $ 8,033     $ 3,164
         Pro forma                       8,082       7,787       2,972
      Diluted earnings per share:
         As reported                   $   .37     $   .35     $   .09
         Pro forma                         .35         .34         .08


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


                                       19
<PAGE>
NOTE 10.  EMPLOYEE BENEFIT PLANS (continued)


<TABLE>
                                   Outstanding                                    Exercisable
                     -----------------------------------------------    ------------------------------ 
   Range of          Number of   Weighted Average   Weighted Average    Number of   Weighted Average
Exercise Price        Options     Remaining Life     Exercise Price      Options     Exercise Price                       
------------------------------------------------------------------------------------------------------
<S><C>               <C>         <C>                <C>                 <C>         <C> 
$1.50 to $2.00         73,400           0.81             $1.88            73,400          $1.88
$2.00 to $2.50        345,000           2.03             $2.42           345,000          $2.42
$2.50 to $3.00         15,000           3.45             $3.00            12,500          $3.00
$3.00 to $3.50         67,500           3.01             $3.22            63,125          $3.23
$3.50 to $4.00        643,000           4.32             $3.74           400,500          $3.74
$4.00 to $4.50          6,000           4.34             $4.44             6,000          $4.44
$4.50 to $5.00          5,000           4.57             $4.94               -              -
                 -------------                                      -------------
                    1,154,900                                            900,525
                 =============                                      =============
</TABLE>

   The weighted  average fair value of options granted  estimated on the date of
grant using the Black-Scholes option pricing model is $1.67 and $1.97 for grants
in 1998 and  1997,  respectively,  based on  expected  dividend  yields of zero;
expected  lives of 5 years;  risk free  interest  rates of 4.56% and 5.71%;  and
expected  volatility of 42.61% and 39.97%, for the years ended December 31, 1998
and 1997, respectively.

401(k) Plan
   The Company initiated an employees'  savings plan under Section 401(k) of the
Internal  Revenue  Code in May of 1995.  The plan covers  substantially  all the
Company's  employees,   except  employees  of  American  Southern.  The  Company
previously  had a profit sharing plan for its employees  which was  subsequently
amended and  restated to comply with the Section  401(k)  provisions.  Under the
plan,   employees  generally  may  elect  to  contribute  up  to  16%  of  their
compensation  to the plan.  The Company  makes a matching  contribution  to each
employee in an amount  equal to 50% of the first 6% of such  contributions.  The
Company's  matching  contribution  is in  Company  stock  and  with a  value  of
approximately $125, $103, and $102, in 1998, 1997, and 1996, respectively.

Defined Benefit Pension Plans
   In April 1998, the Financial  Accounting Standards Board issued Statement No.
132, "Employers'  Disclosures about Pensions and Other Postretirement  Benefits"
("SFAS 132"). This statement only modifies the disclosures  companies make about
their pension and nonpension benefit plans and does not alter the accounting for
these plans.  The provisions of the statement are effective for years  beginning
after December 15, 1997. SFAS No. 132 disclosures have been incorporated in this
document.
   The Company has two defined  benefit  pension plans covering the employees of
American  Southern.  The  Company's  general  funding  policy  is to  contribute
annually the maximum amount that can be deducted for income tax purposes.
   Net periodic pension cost for American Southern's qualified and non-qualified
defined  benefit  plans for the years ended  December  31,  1998,  1997 and 1996
included the following components:

                                           1998          1997          1996
--------------------------------------------------------------------------------
      Service cost                        $131          $102          $103
      Interest cost                        241           221           204
      Expected return on plan assets      (198)         (187)         (185)
      Net amortization                      19             9            14  
--------------------------------------------------------------------------------
                                          $193          $145          $136
================================================================================

   The  following  assumptions  were  used  to  measure  the  projected  benefit
obligation for the benefit plans at December 31, 1998, 1997 and 1996:

                                                   1998      1997      1996   
--------------------------------------------------------------------------------
Discount rate to determine the projected 
  benefit obligation                               6.75%     7.25%     7.75%
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%     6.00%     6.00%


                                       20
<PAGE>
   The following  table sets forth the benefit  plans' funded status at December
31, 1998 and 1997:

                                                        1998          1997    
--------------------------------------------------------------------------------
Change in Benefit Obligation
  Net benefit obligation at beginning of year          $3,280        $2,770
  Service cost                                            131           102
  Interest cost                                           241           220
  Actuarial (gain) loss                                  (132)          256
  Gross benefits paid                                     (68)          (68)
--------------------------------------------------------------------------------
Net benefit obligation at end of year                  $3,452        $3,280  
================================================================================

Change in Plan Assets
  Fair value of plan assets at beginning of year       $2,508        $2,371
  Actual return on plan assets                            338           205
  Gross benefits paid                                     (68)          (68)
--------------------------------------------------------------------------------
  Fair value of plan assets at end of year             $2,778        $2,508  
================================================================================

Funded Status of Plan
  Funded status at end of year                         $ (674)       $ (772)
  Unrecognized net actuarial loss                         213           503
  Unrecognized prior service cost                        (363)         (399)
  Unrecognized net transition obligation                  368           405  
--------------------------------------------------------------------------------
Net amount recognized at end of year                   $ (456)       $ (263)
================================================================================

Amounts recognized in the statement 
  of financial position consist of:
    Prepaid benefit cost                               $   30        $  117
    Accrued benefit cost                                 (486)         (379)
    Additional minimum liability                          (29)          (58)
--------------------------------------------------------------------------------
Net amount recognized at end of year                   $ (485)       $ (320)
================================================================================

   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 $761,  $515 and $0 respectively as of December 31, 1998 and $762,
$437, and $0 as of December 31, 1997.

NOTE 11.  PREFERRED STOCK

   During the fourth  quarter of 1998,  the Company called for redemption all of
the  outstanding  shares of its Series A Convertible  Preferred Stock ("Series A
Preferred  Stock").  Pursuant to the terms of the Series A Preferred Stock, upon
being called for  redemption the holders had the option to convert any or all of
such shares into shares of the Company's Common Stock at a specified  conversion
rate. As of December 31, 1998,  20,000 shares were converted into 469,760 shares
of common  stock at a conversion  price of  approximately  $4.26 per share,  and
10,000  shares were  redeemed at par for  $1,000,000.  Annual  dividends  on the
Series B Preferred  Stock  ("Series B Preferred  Stock") are $9.00 per share and
are cumulative.  The Series B Preferred Stock is not currently convertible,  but
may become  convertible  into shares of the Company's Common Stock under certain
circumstances.  In such event, the Series B Preferred Stock would be convertible
into an aggregate  of  approximately  3,358,000  shares of the Common Stock at a
conversion  rate of $3.99 per share.  The Series B Preferred Stock is redeemable
at the option of the Company.

NOTE 12.  EARNINGS PER SHARE

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


                                           For the Year Ended December 31, 1998
--------------------------------------------------------------------------------
                                                                      Per Share
                                              Income      Shares        Amount
--------------------------------------------------------------------------------
Basic Earnings Per Common Share
-------------------------------
Net income                                  $  8,558        18,803
Less preferred dividends                      (1,521)
-------------------------------------------------------------------
Net income available to common shareholders    7,037        18,803     $   .37
                                                                      ----------
Diluted Earnings Per Common Share
---------------------------------
Effect of dilutive stock options                               271
Effect of Series B Preferred Stock             1,206         3,358
-------------------------------------------------------------------
Net income available to common
  shareholders plus assumed conversions     $  8,243        22,432     $   .37
================================================================================

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

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


                                       21
<PAGE>
NOTE 13.  STATUTORY REPORTING

   The assets,  liabilities  and results of operations have been reported on the
basis  of  GAAP,  which  varies  from  statutory  accounting  practices  ("SAP")
prescribed  or permitted  by insurance  regulatory  authorities.  The  principal
differences between SAP and GAAP are that under SAP: (i) certain assets that are
nonadmitted assets are eliminated from the balance sheet; (ii) acquisition costs
for policies are  expensed as  incurred,  while they are deferred and  amortized
over the estimated life of the policies  under GAAP;  (iii) no provision is made
for deferred income taxes;  (iv) the timing of establishing  certain reserves is
different than under GAAP; and (v) valuation  allowances are established against
investments.
   The amount of statutory net income and surplus (shareholders' equity) for the
insurance subsidiaries for the years ended December 31 were as follows:

                                               1998       1997         1996    
--------------------------------------------------------------------------------
    Life and Health, net income              $ 1,477    $ 2,523 (1)  $ 1,315
    Property and Casualty, net income          7,098      6,694        7,567
--------------------------------------------------------------------------------
      Statutory net income                   $ 8,575    $ 9,217      $ 8,882
================================================================================
    Life and Health, surplus                 $25,998    $26,517 (1)  $25,792
    Property and Casualty, surplus            49,492     48,032       42,416
--------------------------------------------------------------------------------
      Total surplus                          $75,490    $74,549      $68,208
================================================================================

(1) Impact of American Independent was not material.

   Under the Insurance  Code of the State of Georgia,  dividend  payments to the
Company by its insurance subsidiaries are subject to certain limitations without
the prior approval of the Insurance Commissioner. The Company received dividends
of  $7,054  and  $11,209  in 1998 and  1997,  respectively,  from its  insurance
subsidiaries. Approval from the Insurance Commissioner was required and obtained
for a portion of the dividends  received in 1997. In 1999,  dividend payments by
the insurance companies in excess of $8,336 would require prior approval.

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  54,637  square feet of office and covered
garage space from an affiliated  company.  In the years ended December 31, 1998,
1997 and 1996,  the Company paid $895,  $900 and $957,  respectively,  under the
lease.
   A majority of the  financing for the Company has  historically  been provided
through  affiliates of the Company or its Chairman,  in the form of debt and the
Series A Preferred Stock and Series B Preferred  Stock.  Effective  December 31,
1998, all of the outstanding  shares of the Series A Preferred Stock were either
redeemed or converted (see Note 11).
   The Company has made mortgage loans to finance properties owned by its former
subsidiary,  Leath Furniture, LLC ("Leath"),  which is now owned by an affiliate
of the Chairman.  At December 31, 1998 and 1997,  the balance of mortgage  loans
owed by Leath to various of the Company's insurance  subsidiaries was $3,845 and
$3,921,  respectively.  For 1998, 1997 and 1996,  interest on the mortgage loans
totaled $373, $521 and $688, respectively.
   During 1998, certain of the Company's  subsidiaries sold the remaining equity
investments  they  held in Leath  for  $285,000  to  certain  affiliates  of the
Company.
     Certain  members of  management  are on the Board of  Directors of Bull Run
Corporation ("Bull Run") and Gray  Communications  Systems,  Inc.  ("Gray").  At
December 31,  1998,  the Company  owned  620,000  common  shares of Bull Run and
354,060 shares of Gray Series  A Common Stock  and 6,000 shares of Gray Series B
Common Stock.  At December 31, 1997 the Company  owned 600,000  common shares of
Bull Run and 236,040  common shares of Gray Series A Common  Stock.  The Company
also held $1.5 million in Gray 10.625% debentures at December 31, 1998 and 1997.
   On April 8, 1996, the Company completed the sale of its 88% interest in Leath
Furniture, LLC (f/k/a Leath Furniture,  Inc.) to Gulf Capital Services, Ltd., in
exchange for $5.3 million.  Gulf Capital is controlled by certain  affiliates of
the Company.
   Delta Life Insurance  Company ("Delta Life"),  which is controlled by certain
affiliates of the Company,  purchases  credit life insurance  policies with face
amounts  greater  than $50 from  Bankers  Fidelity.  Bankers  Fidelity  receives
premiums  for these  policies  from Delta  Life and pays  benefits  directly  to
policyholders.  At December 31, 1998 and 1997, the face amount of these policies
was  $586  and  $673,  respectively,  and the  reserve  balance  was $8 and $11,
respectively.
   In 1998 Georgia Casualty began assuming workers'  compensation  premiums from
Delta  Fire  &  Casualty  Insurance  Company  which  is  controlled  by  certain
affiliates of the Company.  Premiums  assumed and commissions  paid in 1998 were
$456 and $62, respectively.

NOTE 15.  SEGMENT INFORMATION

   The Company's three insurance  subsidiaries  operate  with relative  autonomy
and each company is evaluated based on its individual performance.

                                       22
<PAGE>
NOTE 15.  SEGMENT INFORMATION (continued)
<TABLE>
                                  American     Georgia     Bankers       Corporate        Adjustments
                                  Southern     Casualty    Fidelity       & Other       & Eliminations     Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                            <C>          <C>         <C>           <C>            <C>                <C>
As of December 31, 1998
Insurance Premiums               $ 35,002     $ 21,813     $ 34,477       $    -         $    -            $ 91,292
Investment income,
  including realized gains          4,503        3,113        5,572          1,158             62            14,408
Other income                          243           44          -            4,230         (4,151)              366
------------------------------------------------------------------------------------------------------------------------------------
    Total revenue                  39,748       24,970       40,049          5,388         (4,089)          106,066
Insurance benefits and losses      23,135       16,216       21,494            -              -              60,845
Expenses deferred                  (4,378)      (3,945)      (2,764)           -              -             (11,087)
Amortization expense                5,303        4,142        2,518            -              -              11,963
Other expenses                      9,006        7,062       15,251          8,412         (4,089)           35,642
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                 33,066       23,475       36,499          8,412         (4,089)           97,363
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
  income taxes                   $  6,682     $  1,495     $  3,550       $ (3,024)      $    -            $  8,703
====================================================================================================================================
Total assets                     $101,522     $ 65,147     $102,355       $114,412       $(110,587)        $272,849      
====================================================================================================================================

As of December 31, 1997
Insurance Premiums               $ 41,799     $ 19,916     $ 26,967       $    -         $     -           $ 88,682
Investment income,
  including realized gains          4,353        2,811        5,175             47             (54)          12,332
Other income                          154           45          -            3,843          (3,841)             201
------------------------------------------------------------------------------------------------------------------------------------
    Total revenue                  46,306       22,772       32,142          3,890          (3,895)         101,215
Insurance benefits and losses      30,182       15,260       15,576            -               -             61,018
Expenses deferred                  (4,549)      (3,342)      (3,117)           -               -            (11,008)
Amortization expense                5,405        3,152        2,268            -               -             10,825
Other expenses                      9,073        6,006       12,837          8,188          (3,895)          32,209
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                 40,111       21,076       27,564          8,188          (3,895)          93,044
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
  income taxes                   $  6,195     $  1,696     $  4,578       $ (4,298)      $     -           $  8,171
====================================================================================================================================
Total assets                     $102,529     $ 65,464     $ 99,591       $111,388       $(107,112)        $271,860
====================================================================================================================================

As of December 31, 1996
Insurance Premiums               $ 41,250     $ 18,797     $ 25,978       $    -         $     -           $ 86,025
Investment income,
  including realized gains          4,284        2,921        5,524            100             (89)          12,740
Other income                          242           21          -            5,675          (5,632)             306
------------------------------------------------------------------------------------------------------------------------------------
    Total revenue                  45,776       21,739       31,502          5,775          (5,721)          99,071
Insurance benefits and losses      28,586       12,482       14,036            -              (823)          54,281
Expenses deferred                  (5,397)      (2,438)      (2,831)           -               -            (10,666)
Amortization expense                3,406        2,624        3,256            -               -              9,286
Other expenses                     12,448        6,922       14,520          9,363          (4,898)          38,355
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                 39,043       19,590       28,981          9,363          (5,721)          91,256
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
  income taxes                   $  6,733     $  2,149     $  2,521       $ (3,588)       $    -           $  7,815
====================================================================================================================================
Total assets                     $101,004     $ 59,198     $ 90,130       $ 97,459        $ (94,797)       $252,994
====================================================================================================================================

</TABLE>
   American  Southern 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  revenues other than  those
in the corporate and other segment are from external sources.

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.

                                          1998                  1997          
--------------------------------------------------------------------------------
                                   Carrying  Estimated   Carrying  Estimated
                                    Amount   Fair Value   Amount   Fair Value 
--------------------------------------------------------------------------------
Assets:
  Cash and short-term 
    investments                    $32,385    $32,385     $51,044    $51,044
  Bonds                             99,341     99,341      92,184     92,184
  Common and preferred stocks       61,007     61,007      46,876     46,876
Mortgage loans                       3,851      4,221       4,243      4,406
  Policy and student loans           4,268      4,268       5,293      5,293
  Other invested assets              4,822      4,822       3,941      3,941
Liabilities:
  Debt                              26,000     26,000      28,600     28,600

   The fair  value  estimates  as of  December  31,  1998 and 1997 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.



                                       23
<PAGE>
NOTE 16.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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

   Cash,  Short-term  Investments,  Other  Non-publicly Traded Invested  Assets,
     Insurance Premiums Receivable, Accounts Payable, and Accrued Liabilities

      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 National Association of Insurance Commissioners ("NAIC"), which do not
      differ materially from nationally quoted market prices.  The fair value of
      certain  municipal  bonds is assumed to be equal to  amortized  cost where
      market quotations do not exist.

   Mortgage Loans

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

   Debt Payable

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

NOTE 17.  RECONCILIATION OF OTHER COMPREHENSIVE INCOME

   Under  Statement  of  Financial  Accounting  Standards  No.  130,  "Reporting
Comprehensive  Income,"  certain  transactions  and other  economic  events that
bypass the income statement must be displayed as other comprehensive income. The
Company's  comprehensive  income consists of net income and unrealized gains and
losses on securities available for sale, net of income taxes.

   Other than net income,  the other components of comprehensive  income for the
years ended December 31, 1998, 1997 and 1996 are as follows:

                                                           December 31,        
--------------------------------------------------------------------------------
                                                   1998      1997       1996  
--------------------------------------------------------------------------------
Gain on sale of securities included 
  in net income                                  $2,909    $ 1,076    $1,589   
================================================================================

Other comprehensive income:
  Net unrealized gain arising during year        $2,197    $12,861    $3,713
  Reclassification adjustment                    (2,909)    (1,076)   (1,589)
--------------------------------------------------------------------------------
  Net unrealized (loss) gain recognized in
    other comprehensive income                   $ (712)   $11,785    $2,124  
================================================================================

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, 1998 and 1997:
<TABLE>
                                                           1998                                            1997                  
------------------------------------------------------------------------------------------------------------------------------------

                                       First      Second       Third      Fourth       First      Second       Third      Fourth
                                      Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S><C>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenue                               $26,512     $26,039     $26,795     $26,720     $24,691     $24,339     $25,249     $26,936  
====================================================================================================================================
Income:
  Income before income tax 
    (provision) benefit,              $ 1,625     $ 1,905     $ 2,854     $ 2,319     $ 1,978     $ 1,466     $ 2,418     $ 2,309
  Income tax (provision) benefit          (26)       (106)          8         (21)        (40)        (20)        (23)        (55)
------------------------------------------------------------------------------------------------------------------------------------
    Net income                        $ 1,599     $ 1,799     $ 2,862     $ 2,298     $ 1,938     $ 1,446     $ 2,395     $ 2,254  
====================================================================================================================================

Diluted net income per common      
    share data:                       $   .06     $   .08     $   .13     $   .10     $   .08     $   .06     $   .11     $   .10 
====================================================================================================================================

</TABLE>
                                       24
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   Management's  discussion  and  analysis of the  financial  condition  and the
results of operations for the three years ended December 31, 1998, 1997 and 1996
analyzes the results of operations,  consolidated financial condition, liquidity
and capital resources of Atlantic American Corporation (the "Company" or "Parent
Company") and its  consolidated  subsidiaries:  Bankers  Fidelity Life Insurance
Company and American Independent Life Insurance Company  (collectively  "Bankers
Fidelity"),  American  Southern  Insurance  Company  ("American  Southern")  and
Georgia Casualty & Surety Company  ("Georgia  Casualty" ). Effective  January 1,
1997,  Atlantic American Life Insurance Company was merged into Bankers Fidelity
Life Insurance Company.  The following  discussion should be read in conjunction
with the consolidated financial statements and notes thereto.

OVERVIEW

   Atlantic  American  Corporation's  net income for 1998 was $8.6 million ($.37
per share),  compared to a net income of $8.0 million  ($.35 per share) in 1997,
and $3.2 million  ($.09 per share) (net income of $7.6 million or $.32 per share
from  continuing  operations)  in 1996.  The  increase  in  earnings in 1998 was
primarily  attributable  to an  increase  in  realized  gains.  The  increase in
earnings  from  continuing  operations in 1997 was also driven by an increase in
profitability from insurance operations.
   As discussed  below,  1997 represents the first full year not impacted by the
discontinued  operations  of the  Company's  previously  owned retail  furniture
operations.

ACQUISITIONS

   On October 1, 1997, the Company acquired American  Independent Life Insurance
Company  ("American  Independent")  for  approximately  $2.7  million  in  cash.
American Independent  specializes in traditional life insurance and supplemental
health insurance,  including Medicare supplement.  American Independent has been
consolidated  in the  Company's  December  31, 1997  balance  sheet.  Results of
operations and cash flows are reflected from the date of acquisition.  Following
the consummation of the acquisition, the operations of American Independent were
consolidated into the operations of Bankers Fidelity Life Insurance Company.
   On October 28, 1997, the Company acquired Self-Insurance Administrators, Inc.
("SIA,  Inc.") for  approximately  $1.2  million in common stock of the Company.
SIA,  Inc.   specializes  in  the   administration   of  self-insured   workers'
compensation  funds  and was  acquired  to  complement  the  Company's  existing
workers'  compensation  book of  business.  SIA  Inc.'s  balance  sheet has been
consolidated in the Company's December 31, 1997 balance sheet, while the results
of operations  and cash flows of SIA, Inc. have been included  since the date of
acquisition.
   On April 8, 1998,  the Company  acquired  two blocks of  Medicare  supplement
business  from  Commonwealth  Life  Insurance  Company and from  Colonial Life &
Accident Insurance Company.  At the same time, the Company sold a portion of its
long-term care and home health care business to Life and Health of America.  Net
proceeds  received by the Company  from these  transactions  were  approximately
$600,000.   The  transactions  increased  annualized  premium  by  approximately
$700,000.

DISCONTINUED OPERATIONS

   In early  1996,  the  Company  announced  its  intent  to sell its  furniture
operations.  The furniture  division,  which consisted of Leath  Furniture,  LLC
(f/k/a Leath Furniture,  Inc.) and its subsidiaries,  Modernage Furniture,  Inc.
and Jefferson Home Furniture Company,  Inc.  (collectively,  "Leath"),  suffered
significant  losses  in  an  industry  wide  downturn.   Management  anticipated
continued  losses in the  future  and,  therefore,  decided  to exit the  retail
furniture business and concentrate on its core insurance  businesses (see Note 8
of the Notes to Consolidated  Financial  Statements).  The Company completed the
sale of its  approximately  88%  interest  in Leath on  April 8,  1996,  to Gulf
Capital  Services,  Ltd.,  a  related  party  (see  Note  14  of  the  Notes  to
Consolidated Financial Statements).
   The Company incurred an additional loss from discontinued  operations of $4.4
million in 1996.  Previously  separated  intersegment  revenues  attributable to
mortgage  loans from the  insurance  companies  to Leath have been  included  in
investment income of the continuing operations of the insurance segment.


                                       25
<PAGE>
RESULTS OF CONTINUING OPERATIONS

Revenue
   The Company markets  insurance  through various  distribution  channels.  The
following table summarizes the insurance premiums during each of the three years
ended December 31, 1998, 1997 and 1996 by company and line of business.

                      Net Earned Premium by Company by Line
                                 (in thousands)

                                          Year Ended December 31,
--------------------------------------------------------------------------------
                                  1998               1997              1996
--------------------------------------------------------------------------------
                             Amount    % of     Amount   % of      Amount   % of
                                      Total             Total              Total
--------------------------------------------------------------------------------
Bankers Fidelity:
  Ordinary Life             $10,848  11.88%   $ 9,437  10.64%    $ 8,937  10.39%
  Mass Market Life              900    .99%     1,016   1.15%      1,303   1.51%
--------------------------------------------------------------------------------
    Total Life               11,748  12.87%    10,453  11.79%     10,240  11.90%
--------------------------------------------------------------------------------
  Medicare Supplement        19,743  21.63%    12,534  14.13%     11,560  13.44%
  Cancer, accident and        2,986   3.27%     3,980   4.49%      4,178   4.86%
    other health
--------------------------------------------------------------------------------
    Total Accident and       22,729  24.90%    16,514  18.62%     15,738  18.30%
      Health
--------------------------------------------------------------------------------
      Total Bankers          34,477  37.77%    26,967  30.41%     25,978  30.20%
        Fidelity
--------------------------------------------------------------------------------
Georgia Casualty:
  Workers' Compensation      14,344  15.71%    12,841  14.48%     13,826  16.07%
  Business Automobile         3,750   4.11%     4,031   4.55%      2,550   2.96%
  General Liability           1,619   1.77%     1,387   1.56%      1,152   1.34%
  Property                    2,100   2.30%     1,657   1.87%      1,269   1.48%
--------------------------------------------------------------------------------
    Total Georgia 
      Casualty               21,813  23.89%    19,916  22.46%     18,797  21.85%
--------------------------------------------------------------------------------
American Southern:
  Automobile Liability       25,539  27.98%    30,909  34.85%     30,889  35.91%
  Automobile Physical 
    Damage                    2,145   2.35%     4,508   5.08%      4,865   5.66%
  General Liability           4,291   4.70%     3,116   3.51%      1,947   2.26%
  Property                    2,970   3.25%     3,206   3.62%      3,461   4.02%
  Surety                         57    .06%        60    .07%         88    .10%
--------------------------------------------------------------------------------
    Total American     
      Southern               35,002  38.34%    41,799  47.13%     41,250  47.95%
--------------------------------------------------------------------------------
Total Consolidated          $91,292 100.00%   $88,682 100.00%    $86,025 100.00%
================================================================================

   Premium revenue for 1998 was $91.3 million  compared to $88.7 million in 1997
and $86.0  million in 1996,  a 3%  increase  in both 1998 and 1997.  Premiums at
American  Southern  declined  16% in 1998 as  management  decided  to exit  some
smaller lines of business  where profits were below  expectations.  In addition,
American Southern's premiums were impacted by a decrease in the net rate charged
for one of its large block  accounts.  Management  believes  that while this net
rate has declined, as the result of a heightened  competitive  environment,  the
account will  continue to be  profitable.  Georgia  Casualty's  earned  premiums
increased  10% or $1.9 million in 1998.  This  increase in premium  reflects the
impact of an increased  marketing effort,  particularly in the fourth quarter of
1997,  the results of which are now being  realized.  Premiums from the workers'
compensation line of business,  Georgia  Casualty's core line,  increased 12% in
1998. In 1997, Georgia Casualty's premiums increased 6% over 1996 with a decline
in workers'  compensation premiums being offset by modest increases in its other
lines of business.
   Earned  premium  at  Bankers  Fidelity  increased  28% or $7.5  million.  The
increase in premium volume is  attributable  to both the acquisition of American
Independent  in the fourth  quarter of 1997 and  strong  internal  growth as the
result of an intensified  marketing campaign.  American Independent  contributed
$3.0  million  in  earned  premium  in  1998  compared  to $1.0  million  in the
three-month  period  following  its  acquisition  in  1997.  Bankers  Fidelity's
Medicare  Supplement  line  increased 58% in 1998 as  competitors  whose primary
focus is not on this market began to exit.  In addition,  premiums  from Bankers
Fidelity's  life  insurance  products  increased  12%  with  significant  growth
experienced in the sale of ordinary life  products.  Growth in premiums of 4% in
1997 for Bankers Fidelity was primarily  attributable to the Medicare Supplement

                                       26
<PAGE>
line.  Annualized  premium for Bankers Fidelity  increased to $38.0 million from
$33.7 million at the end of 1997 and $26.7 million at the end of 1996.
   Investment  income  increased a modest 2% in 1998,  after  increasing 1% from
1996  to  1997.   Although   invested  assets  (excluding  cash  and  short-term
investments) increased 14% over the course of the year, declining interest rates
and a flat yield curve brought down yields. Management has continued to focus on
investing in short and medium  maturity  bonds of high  quality,  in addition to
government-backed  securities.  In 1998, the Company also increased its holdings
in preferred  stocks as  management  sought  additional  avenues to increase the
overall yield on the investment portfolio. The carrying value of funds available
for investment (which includes cash, short-term  investments,  bonds, and common
and preferred stocks) at December 31, 1998 was $192.7 million,  an increase over
1997 of $2.6 million, due primarily to cash provided by operations offset by the
repayment of debt and  preferred  stock.  Unrealized  investment  gains of $28.8
million were 2% below 1997 unrealized investment gains.
   Realized  investment gains increased $1.8 million in 1998 after decreasing by
$513,000 in 1997.  Management is continually  evaluating the  composition of the
Company's   investment   portfolio  and  will  periodically  divest  appreciated
investments as deemed appropriate.

Benefits and Expenses
   Total insurance  benefits and losses  decreased  slightly in 1998 after a 12%
increase in 1997. At American Southern,  insurance benefits and losses decreased
by $7.0  million,  with American  Southern  recording a loss ratio (the ratio of
insurance  benefits and losses to  premiums) of 66.1%,  down from 72.2% in 1997.
The decline in the loss ratio is attributable  to favorable  development on past
accident years,  which,  when coupled with the decline in premium volume, is the
reason for the significant  decline in insurance benefits and losses at American
Southern.  In 1997 insurance  benefits and losses at American Southern increased
$1.6  million,  the result of an  increase in the loss ratios from 1996 and 1997
from 69.3% to 72.2%. Georgia Casualty experienced a modest increase in insurance
benefits  and  losses to $16.2  million  from $15.3  million  in 1998.  In 1997,
Georgia Casualty  experienced a $2.8 million increase over 1996 and at that time
began  a  program  of  tightened   underwriting  standards  and  increased  risk
management  programs.  As a result,  the loss ratio in 1998 was 74.3%, down from
76.6% in 1997. In 1996,  Georgia  Casualty  recorded a loss ratio of 66.4%.  The
increase  in the loss  ratio  from  1996 to 1997 was the  result  of worse  than
anticipated claims frequency in one agent's line of business.
   Insurance  benefits and losses at Bankers Fidelity  increased $5.9 million in
1998  primarily  as a result of the  increase in  insurance  premiums.  In 1997,
insurance  benefits and losses for the Company  increased $1.5 million also from
increased  premium volume.  The loss ratio for Bankers  Fidelity  increased from
57.8% to 62.3% in 1998 due to a change in the mix of business.  In 1998, Bankers
Fidelity  had a  significant  increase in Medicare  premiums,  which have higher
expected losses than the Company's life business, but also have lower commission
and operating costs.
   Commission and underwriting  expenses increased 18%, or $4.1 million, in 1998
after a $3.9 million  decline in 1997. The 1998 increase is due to the increased
premium  volume at Bankers  Fidelity and  increased  profit  sharing at American
Southern.  Much of  American  Southern's  business is  structured  such that its
agents  commissions  are adjusted up or down depending on the loss experience of
their   business.   If  losses  decline,   commission   expenses  will  increase
accordingly.  American  Southern's  expense ratio (the ratio of  commission  and
underwriting  expenses to insurance  premiums)  increased  from 23.3% in 1997 to
27.9% in 1998, the result of the  aforementioned  profit sharing  structure.  In
1996,  American Southern reported an expense ratio of 24.9%.  Georgia Casualty's
expense  ratio  increased  from 27.7% to 32.3%.  In 1997 the  expense  ratio was
favorably  impacted by a contingent  ceding  commission  received  under Georgia
Casualty's  reinsurance  agreements  which amounted to $1.0 million  compared to
$161,000 in 1998. In 1996, Georgia Casualty's expense ratio was 35.3%.
   The expense ratio for Bankers Fidelity  decreased from 44.5% in 1997 to 43.5%
in 1998.  Commission and underwriting expenses increased $3.0 million due to the
significant  increase  in  premium  volume.  The  decline  in  expense  ratio is
attributable to the change in the mix of business that was previously  discussed
and operating  efficiencies  obtained from the  integration of the operations of
American  Independent.  In 1997,  commission and underwriting expenses decreased
$3.0 million, from $14.9 million in 1996, primarily from operating  efficiencies
gained from the merger of Atlantic  American Life Insurance Company with Bankers
Fidelity.
   The Company  had a net  deferral  of  acquisition  costs of $492,000 in 1998,
compared  to a net  deferral  of $1.3  million  in 1997  and a net  deferral  of
$280,000 in 1996.  Aside from the items  previously  discussed,  the increase in
deferred costs is attributable  to the increase in business  produced at Bankers
Fidelity.
   Interest  expense in 1998 decreased to $2.1 million from $2.9 million in 1997
and $3.3 million in 1996. The decrease in 1998 was due to a reduction of debt in
1998 and 1997 coupled with a decline in the Company's prime rate based borrowing
rate.  As a result  of the  Company  meeting  certain  financial  criteria,  the
interest rate under the Company's term note with Wachovia Bank of Georgia,  N.A.


                                       27
<PAGE>
("Wachovia")  was reduced  from the prime rate of  interest  to 50 basis  points
below the prime rate. In addition,  prompted by declines in the federal  lending
rate,  Wachovia  decreased  its prime  lending rate in 1998,  resulting in a net
reduction in the Company's interest rate under this facility of 1.25%.
   Other operating expenses  increased $1.1 million,  or 18%, after declining in
1997 by $612,000  and  increasing  by $534,000  in 1996.  The  increase in other
operating  expenses is  attributable  to several  one-time  expenses,  including
$300,000  in expenses  incurred to bring the  Company's  computer  systems  into
compliance with the Year 2000 (see Year 2000 discussions  below) and an increase
in general operating expenses. In 1997, the decrease over 1996 general operating
expense was the result of non-recurring  legal fees incurred in 1996 relating to
the divestiture of Leath.
   The Company's  net tax provision of $145,000,  $138,000 and $204,000 in 1998,
1997 and 1996 respectively, was primarily for alternative minimum taxes.

LIQUIDITY AND CAPITAL RESOURCES

   The major  cash  needs of the  Company  are for the  payment  of  claims  and
expenses as they come due, maintaining adequate statutory capital and surplus to
satisfy  state  regulatory  requirements  and debt service  requirements  of the
Parent.  The  Company's  primary  sources  of  cash  are  written  premiums  and
investment  income.  Cash payments consist of current claim payments to insureds
and operating expenses such as salaries, employee benefits,  commissions, taxes,
and shareholder  dividends,  when earnings warrant such payment. By statute, the
state regulatory authorities establish minimum liquidity standards, primarily to
protect policyholders.
   The Company's insurance  subsidiaries reported a combined statutory profit of
$8.6 million in 1998  compared to $9.2 million in 1997 and $8.9 million in 1996.
The  statutory  results  in 1998  were  comprised  of a $5.0  million  profit at
American Southern,  a $2.1 million profit at Georgia Casualty and a $1.5 million
profit at Bankers  Fidelity.  The 1997  statutory  results  were  comprised of a
profit of $4.8  million  from  American  Southern,  $1.9  million  from  Georgia
Casualty,  and $2.5 million from Bankers  Fidelity.  The 1996 statutory  results
were comprised of a profit of $5.6 million from American Southern,  $2.0 million
from Georgia Casualty and $1.3 million from Bankers Fidelity.
   Statutory  results  differ from the  results of  operations  under  generally
accepted  accounting  principles  ("GAAP")  for  American  Southern  and Georgia
Casualty due to the deferral of acquisition costs.  Bankers Fidelity's statutory
results differ from GAAP primarily due to deferral of acquisition costs, as well
as different reserving methods.
   On December  31,  1995,  the Company  entered  into a Credit  Agreement  with
Wachovia  Bank of Georgia,  N.A. The Credit  Agreement  provides  for  aggregate
borrowings of approximately $34.0 million. At December 31, 1998, the Company had
outstanding  borrowings  under the Credit  Agreement of $26.0 million,  of which
approximately  $2.4 million will become due and payable during 1999. The Company
intends to repay its  obligations  under the  Credit  Agreement  using  dividend
payments   received  from  its   subsidiaries  and  through  receipts  from  its
tax-sharing agreement with its subsidiaries.  In addition,  the Company believes
that the balance due in the year 2000 of $23.6  million can be  refinanced  with
the current lender if the Company so chooses.
   In connection with entering into the Credit Agreement, the Company converted,
effective December 31, 1995,  approximately $13.4 million in outstanding debt to
affiliates into a new series of preferred stock,  which accrues  dividends at 9%
per year. The Company has accrued but not paid the cumulative  dividends on this
preferred  stock since its  issuance and does not  currently  intend to pay such
dividends  in 1999.  At December  31,  1998,  the Company had accrued but unpaid
dividends on its Series B Preferred Stock totaling $3.6 million.
   On December 31, 1998, the Company  retired all of the  outstanding  shares of
Series A  Convertible  Preferred  Stock  ("Series A Stock") which paid an annual
dividend of 10.5%.  Shareholders of 20,000 shares of the Series A Stock chose to
elect their conversion  option and converted their shares of Series A Stock into
469,760  shares of Atlantic  American  Corporation  common stock at a conversion
price of  approximately  $4.26 per  share.  The  remaining  10,000  shares  were
redeemed at par for $1,000,000.
   The Company provides certain administrative and other services to each of its
insurance  subsidiaries.  The amounts charged to and paid by the subsidiaries in
1998 was $6.5  million  and a  constant  at $5.6  million  in 1997 and 1996.  In
addition,  the  Company  has a formal  tax-sharing  agreement  with  each of its
insurance  subsidiaries.  A net total of $1.9  million,  $1.2  million  and $3.4
million were paid to the Company under the  tax-sharing  agreement in 1998, 1997
and 1996,  respectively.  It is anticipated that this agreement will provide the
Company  with  additional   funds  from  profitable   subsidiaries  due  to  the
subsidiaries'  use  of  the  Company's  tax  loss  carryforwards  which  totaled
approximately $42 million at December 31, 1998.
   Approximately 93% of the invested assets of the insurance subsidiaries are in
marketable securities that can be converted into cash, if required; however, use
of such  assets  by the  Company  is  limited  by state  insurance  regulations.
Dividend  payments to the Company by the insurance  subsidiaries  are subject to


                                       28
<PAGE>
annual  limitations and are restricted to the accumulated  statutory earnings of
the individual  insurance  subsidiaries.  At December 31, 1998, Georgia Casualty
had $13.7 million of accumulated statutory earnings,  Bankers Fidelity had $17.4
million of  accumulated  statutory  earnings,  and  American  Southern had $20.5
million of accumulated statutory earnings for a total of $51.6 million.
   Net cash  provided by operating  activities  totaled $5.5 million in 1998 and
$8.6 million in 1997,  compared to $8.4 million in 1996. The Company  incurred a
total cost of  $394,000 in 1998,  $733,000 in 1997 and $1.6  million in 1996 for
additions  to  property  and  equipment,   which  mainly   represent   leasehold
improvements and additions and enhancements to existing computer  systems.  Cash
and  short-term  investments  decreased  to $32.4  million in 1998 as funds were
shifted  from  short-term  investments  into  longer-term  and  higher  yielding
investments.
   The Company  believes  that the fees,  charges and dividends it receives from
its  subsidiaries  and, if needed,  borrowings  from banks and affiliates of the
Company  will  enable the  Company to meet its  liquidity  requirements  for the
foreseeable  future.  Management is not aware of any current  recommendations by
regulatory  authorities  which,  if implemented,  would have a material  adverse
effect on the Company's liquidity, capital resources or operations.

YEAR 2000

   Many existing  computer  systems and equipment  with embedded  computer chips
currently  in use were  developed  using two digits  rather  than four digits to
specify the year. As a result,  many systems will  recognize a date code of "00"
as the calendar  year 1900 rather than 2000 which could cause systems to fail or
cause erroneous results in date sensitive systems.
   The Company's operating systems, most of which depend on date sensitive data,
are integral to its business.  The Company has developed a program to assess the
state of readiness of the Company's internal systems,  both computer systems and
those with embedded  micro-processors,  and those of its vendors and  customers,
the remediation  measures necessary for those systems to be Year 2000 compliant,
the costs to  undertake  such  measures and to develop  appropriate  contingency
plans.
   The  Company's  program to assess its internal  systems  (which  include both
hardware and software) is continuing.  The Company has identified  four critical
operating  systems  that  require the highest  level and  priority of testing to
ensure that performance is not adversely affected by the Year 2000 issue. At the
end of 1998,  the Company  had  completed  all  scheduled  modifications  to its
systems to appropriately address the Year 2000. Initial testing of these systems
has been  completed  and the  Company is  currently  running  on these  modified
systems.  Additional  testing will  continue  through the first half of 1999. To
date,  the Company has been able to  remediate  its  systems  through  upgrades,
rather than system replacement.  The failure of any of those systems as a result
of the Year 2000 issue  would  inhibit  the  Company's  ability  to conduct  its
business and process claims,  and would likely have a material adverse effect on
the Company's results of operations. The Company is also continuing to test less
critical  information  systems and systems with  embedded  micro-processors  for
compliance,  and  expects  that  phase to be  completed  by the end of the first
quarter of 1999. As that testing  process  continues,  the Company is developing
contingency  plans to enable the Company to fulfill the  functions  performed by
those systems in the event of failure.  The development of contingency  plans is
ongoing; however, the Company expects to have in place contingency plans for its
critical  operating  systems,  as well as for less  critical  systems and vendor
alternatives, by the beginning of the fourth quarter of 1999.
   While the Company is taking every  precaution to address the Year 2000 issue,
some  uncertainty  remains.  The Company can not control the  activities  of its
third party  vendors,  and the Company may have failed to identify and remediate
all of its systems and other such uncertainties.  As a result, management cannot
determine whether or not Year 2000 related problems that could arise will have a
material impact on the Company's financial condition or results of operations.
   As part of this process,  the Company is continuing  its process of surveying
its vendors and service  providers and  customers in order to identify  areas in
which Year 2000-related  problems with external systems could cause disruptions,
delays or  failures  that could  impact  the  Company.  As the  results of these
external  surveys  are  assessed,  the  Company  expects to develop  appropriate
contingency plans. While unlikely, it is possible that a major service provider,
such as a utility company,  may be unable to provide the Company with its needed
service for a period of time. If such an event were to happen, the Company might
not be able to provide services until the utilities are returned.
   During 1998,  the Company  spent  approximately  $300,000 to modify  existing
systems and applications to address the Year 2000 issue.  The Company  estimates
that an  additional  $100,000  will be  incurred in 1999.  The Company  does not
anticipate that the costs of bringing its systems into  compliance  would have a
material  adverse effect on the results of operations or financial  condition of
the Company.

DEFERRED TAXES

At December 31,  1998,  the Company had a net  cumulative  deferred tax asset of
zero.  The net  cumulative  deferred tax asset is the result of $18.7 million of
deferred tax assets,  offset by $13.9  million of deferred  tax liabilities, and

                                       29
<PAGE>
a $4.8 million  valuation  allowance.  SFAS No. 109  requires  that a  valuation
allowance  be recorded  against tax assets  which are not likely to be realized.
The Company's  carryforwards  expire at specific future dates and utilization of
certain  carryforwards  is limited to  specific  amounts  each year.  Due to the
uncertain nature of the ultimate realization of these carryforwards, the Company
has established a full valuation  allowance  against them. The Company's ability
to generate  taxable income from  operations is dependent upon various  factors,
many of which are beyond management's control. The Company has taken measures to
ensure the existence of the carryforwards in future periods;  however, there can
be no assurance  that these measures will  ultimately  provide  successful.  The
Company  operates in  segments  of the  insurance  industry  that are  extremely
competitive and writes lines of business that are subject to significant losses.
Accordingly,  there can be no assurance  that the Company will  generate  future
taxable income based on historical performance.  The realization of the deferred
tax  assets  is  assessed  periodically  based  on  the  Company's  current  and
anticipated results of operations.

IMPACT OF INFLATION

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

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 may result in changes  in the
fair value of the  Company's  investments,  cashflows  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.
   A 100 basis  point  increase in  interest  rates at  December  31, 1998 would
result  in a  decrease  of  approximately  $375 in the  value of the  investment
portfolio.  A 100 basis  reduction  in interest  rates would not have a material
impact on the Company's results of operations.
     The Company is also subject to risk from changes in equity prices. Atlantic
American owned $26.0 million of common stock of Wachovia Corporation at December
31,  1998.  A 10%  decrease in the share  price of the common  stock of Wachovia
Corporation  would  result  in a  decrease  of  approximately  $2.6  million  to
shareholders' equity.
   The interest rate on the Company's  note payable is tied to the prime rate of
interest.  A 100 point  basis  increase  in the prime  rate  would  result in an
additional $260,000 in interest expense.

FORWARD-LOOKING STATEMENTS

   This report  contains and references  certain  information  that  constitutes
forward-looking  statements  as that term is defined in the  Private  Securities
Litigation  Reform Act of 1995.  Those  statements,  to the extent  they are not
historical facts,  should be considered  forward-looking  and subject to various
risks and  uncertainties.  Such  forward-looking  statements are made based upon
management's  assessments  of  various  risks  and  uncertainties,  as  well  as
assumptions made in accordance with the "safe harbor"  provisions of the Private
Securities  Litigation  Reform Act of 1995.  The Company's  actual results could
differ  materially  from  the  results  anticipated  in  these   forward-looking
statements  as a  result  of  such  risks  and  uncertainties,  including  those
identified in the Company's Annual Report on Form 10-K for the fiscal year ended
December  31, 1998 and the other  filings  made by the Company from time to time
with the Securities and Exchange Commission.



                                       30
<PAGE>
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 as of December 31,
1998  and  1997,  and  the  related   consolidated   statements  of  operations,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1998. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
   We  conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
   In our opinion,  the financial  statements  (pages 10 through 24) referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Atlantic American Corporation and subsidiaries as of December 31, 1998 and 1997,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted accounting principles.




                               /s/ 
                               ---------------------------------------
                               ARTHUR ANDERSEN LLP

Atlanta, Georgia
March 26, 1999



MARKET INFORMATION (UNAUDITED)

   The common stock of the Company is quoted on the Nasdaq National Market under
the symbol "AAME". As of December 31, 1998, the Company had approximately  5,040
stockholders,  including beneficial owners holding shares in nominee or "street"
name.  The  following  tables  show for the periods  indicated  the range of the
reported high and low prices of the common stock on the Nasdaq  National  Market
and the closing  price of the stock and  percent of change at  December  31. The
Company did not declare or pay cash  dividends  on its common  stock  during the
year ended December 31, 1997.  Since 1988, the Company has retained its earnings
to support the growth of its business.


                                              1998                 1997       
--------------------------------------------------------------------------------
                                         High      Low        High       Low
--------------------------------------------------------------------------------
      First quarter                   $ 5 1/2    $ 4 5/8    $ 3 3/4    $ 3 1/16
      Second quarter                    5 1/16     3 7/8      3 1/4      2 1/2
      Third quarter                     5 1/4      4          4 1/8      2 1/2
      Fourth quarter                    4 15/16    3 5/8      5 1/2      4



                                       1998    1997     1996     1995     1994
--------------------------------------------------------------------------------
December 31, stock price 
  close per share                    $ 4 7/8  $5 1/16  $3 1/16  $2 5/16  $2 1/4
Stock price percentage of 
  change from prior year               -3.7%   +65.3%   +32.4%    +2.8%  +28.6%





                                       31
<PAGE>
                                   DIRECTORS
                                J. MACK ROBINSON
                                    Chairman
                          Atlantic American Corporation

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

                          THE HONORABLE EDWARD E. ELSON
                         Former United States Ambassador
                            to the Kingdom of Denmark

                                SAMUEL E. HUDGINS
                                   Consultant

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

                              HARRIETT J. ROBINSON
                     Director, Delta Life Insurance Company

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

                                  MARK C. WEST
                      Chairman and Chief Executive Officer
                                 Genoa Companies

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

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


                                    OFFICERS
                                J. MACK ROBINSON
                                    Chairman

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

                               EDWARD L. RAND, JR.
                          Vice President and Treasurer

                                CLARK W. BERRYMAN
                      Vice President, Information Services

                               MICHAEL J. BRASSER
                         Vice President, Internal Audit

                                  JANIE L. RYAN
                               Corporate Secretary

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

                                       32
<PAGE>
Tissue Insert in Annual Report:

                                  SUBSIDIARIES

                     Bankers Fidelity Life Insurance Company
                   American Independent Life Insurance Company

                                J. MACK ROBINSON
                                    Chairman

                              HILTON H. HOWELL, JR.
                                  Vice Chairman

                                  EUGENE CHOATE
                                    President

                        Georgia Casualty & Surety Company

                                J. MACK ROBINSON
                             Chairman and President

                              HILTON H. HOWELL, JR.
                                Vice Chairman and
                            Executive Vice President

                       American Southern Insurance Company
                        American Safety Insurance Company

                              ROY S. THOMPSON, JR.
                                Chairman Emeritus

                                 CALVIN L. WALL
                      Chairman and Chief Executive Officer

                                SCOTT G. THOMPSON
                      President and Chief Financial Officer

                       Self-Insurance Administrators, Inc.

                              HILTON H. HOWELL, JR.
                                    Chairman

                                ANDY M. THOMPSON
                                    President

 

<PAGE>
Inside Page Cover: 

SHAREHOLDER INFORMATION

ANNUAL MEETING

Atlantic American's annual meeting of shareholders will be held on Tuesday,  May
4, 1999, at 9:00 a.m. in the Peachtree  Insurance  Center,  4370 Peachtree Road,
N.E.,  Atlanta,  Georgia.  Holders  of  common  stock of  record at the close of
business on March 8, 1999, are entitled to vote at the meeting,  and all parties
interested  in Atlantic  American  are  invited to attend.  A notice of meeting,
proxy statement and proxy were mailed to shareholders with this annual report.


Independent Accountants
Arthur Andersen LLP
Atlanta, Georgia


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


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


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


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

<PAGE>
(Back Cover to Annual Report)


Atlantic
American
Corporation

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