<PAGE>   1

CORPORATE PROFILE                                                   EXHIBIT 13.1

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

SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------------------------
                                                          2000         1999          1998         1997         1996         1995
                                                        --------------------------------------------------------------------------
<S>                                                     <C>          <C>           <C>          <C>          <C>          <C>
Insurance premiums .................................    $133,497     $107,594      $ 91,292     $ 88,682     $ 86,025     $ 43,373
Investment income ..................................      15,552       12,724        11,499       11,256       11,151        6,566
Other income .......................................       1,287        1,172           366          201          306           --
Realized investment gains, net .....................       1,922        2,831         2,909        1,076        1,589        1,731
                                                        --------------------------------------------------------------------------
         Total revenue .............................     152,258      124,321       106,066      101,215       99,071       51,670

                                                        --------------------------------------------------------------------------
Insurance benefits and losses incurred .............      97,628       78,162        60,845       61,018       54,281       24,689
Other expenses .....................................      49,874       42,237        36,518       32,026       36,975       23,897
                                                        --------------------------------------------------------------------------
         Total benefits and expenses ...............     147,502      120,399        97,363       93,044       91,256       48,586
                                                        --------------------------------------------------------------------------
Income from continuing operations before
   provision for income taxes ......................       4,756        3,922         8,703        8,171        7,815        3,084
Income tax provision (benefit) .....................       1,124       (6,988)          145          138          204          (34)
                                                        --------------------------------------------------------------------------
       Income from continuing operations ...........       3,632       10,910         8,558        8,033        7,611        3,118
       Loss from discontinued operations, net ......          --           --            --           --       (4,447)     (10,094)
                                                        --------------------------------------------------------------------------

         Net income (loss) .........................    $  3,632     $ 10,910      $  8,558     $  8,033     $  3,164     $ (6,976)
                                                        ==========================================================================

 Basic net income (loss) per common share:
       Income from continuing operations ...........    $    .12     $    .48      $    .37     $    .35     $    .33     $    .15
       Loss from discontinued operations ...........          --           --            --           --
                                                                                                                 (.24)        (.54)
                                                        --------------------------------------------------------------------------
         Net income (loss) .........................    $    .12     $    .48      $    .37     $    .35     $    .09     $   (.39)
                                                        --------------------------------------------------------------------------

Diluted net income (loss) per common share:
       Income from continuing operations ...........    $    .12     $    .46      $    .37     $    .35     $    .32     $    .15
       Loss from discontinued operations ...........          --           --            --           --         (.23)        (.54)
                                                        --------------------------------------------------------------------------
         Net income (loss) ......,,,................    $    .12     $    .46      $    .37     $    .35     $    .09     $   (.39)
                                                        --------------------------------------------------------------------------

Book value per common share ........................    $   3.18     $   3.12      $   3.60     $   3.27     $   2.29     $   1.61
Common shares outstanding ..........................      21,157       21,027        19,120       18,907       18,684       18,679
Total assets .......................................    $375,777     $351,144      $273,131     $271,860     $252,994     $245,494
Total long-term debt ...............................    $ 46,500     $ 51,000      $ 23,600     $ 27,600     $ 25,994     $ 31,569
Total debt .........................................    $ 46,500     $ 51,000      $ 26,000     $ 28,600     $ 35,611     $ 44,921
Total shareholders' equity before
   accumulated other comprehensive
   income ..........................................    $ 76,420     $ 71,112      $ 53,431     $ 48,685     $ 41,423    $  30,889
Total shareholders' equity after accumulated
   other comprehensive income ......................    $ 83,240     $ 78,948      $ 82,217     $ 78,183     $ 59,136    $  46,478
Operating return on beginning equity* ..............         3.3%        15.1%         11.6%        16.8%        19.5%         5.7%
</TABLE>

     * Operating return on beginning equity is calculated by dividing total
       shareholders' equity before accumulated other comprehensive income into
       net income from continuing operations less realized gains.


                                                                               1
<PAGE>   2

PRESIDENT'S MESSAGE

To Our Shareholders:

     Building solid, enduring relationships with our agents, policyholders and
shareholders is the core of our culture at Atlantic American Corporation. It is
the key to our success and one of our most distinguishing factors as a small,
regional insurance company in an industry of giants that is becoming ever more
impersonal and distant. As one of our most important relationships, it is always
a pleasure for us to share with you a review of our achievements and
accomplishments during the past year. Atlantic American ended 2000 with another
year of solid performance, as the Company reported record growth in all our
divisions and excellent profitability in two of our three basic business units.
Although our overall profitability was not up to what we have earned in the
past, and what we expect to earn in the future, we have reason to be pleased
with our performance this year. In many ways, the year 2000 was a record year
for Atlantic American. The Company reached $152.3 million in revenue, and
premiums rose to $133.5 million, a 24% increase over 1999. The distribution of
our premium by region, agency and product line has never been so diversified.
Our consolidated pre-tax earnings advanced by 21% to $4.8 million from $3.9
million in 1999. Although our net income dropped from $10.9 million last year to
$3.6 million this year, our results last year were positively impacted by an
adjustment to the valuation allowance established against our deferred tax
asset.

     We hold a strong and abiding conviction that value is created through
mutually beneficial business partnerships. Further, we believe that nurturing
existing relationships while developing new alliances best serves our business
and creates long-term shareholder value. We hope that you take the time to read
the testimonials that follow, as they are more indicative of our future success
than anything that we can say in this letter. We want to thank John Cay, III,
president and chief executive officer of Palmer & Cay, Inc.; Robb R. Imbus, vice
president of Palmer & Cay of South Carolina, Inc.; and Sandra Crosby, an
executive of TBonz Restaurant Group, an insured of Palmer & Cay's, for
participating in our Annual Report for Georgia Casualty. For Association
Casualty, we would like to thank Doug Peacock, executive vice president of
Insurors of Texas, and Brenda Vrazel, the business manager of the Independent
School District of Clifton, Texas. Finally, we want to thank James Murray and
Jim Stone, regional sales directors of Bankers Fidelity, Larry Weintraub,
president, LHW, Inc. and Edwin J. Collins, president & chief executive officer,
Lockheed Georgia Employees' Federal Credit Union, for participating on that
company's behalf. Each of these individuals went out of their way to make
themselves available and to discuss our Company and their business. We will be
forever grateful for their help in telling the important side of our business
and industry - the human relationships that underlie it all.

     Our life and health insurance division, Bankers Fidelity Life Insurance
Company, continues to enhance its position as an established and recognized
leader in the senior life and supplemental health insurance marketplace. Through
the application of a consistent, well-conceived marketing plan and the
strengthening of relationships with new and existing distribution sources,
Bankers Fidelity is strategically positioned to continue its growth well into
the future. Building on the positive momentum of recent years, the company again
reported strong growth and profitability in 2000. Our geographic expansion into
the Midwest and Western states led to a 15% increase in total premiums compared
to 1999, comprised of a 18% increase in our supplemental health insurance
premiums and a 8% increase in our life insurance premiums. Total earned premiums
for this division stood at $47.9 million, a 89% increase over where it stood
just five years ago. Annualized premiums hit $52.6 million in 2000, a goal Gene
Choate and his team have been striving to achieve for the last five years. We
are confident that with the continued good wishes of our agents in the field,
Bankers Fidelity will attain its new goal of $100.0 million in annualized
premiums over the next five years. Central to Bankers Fidelity's impressive
growth over the past few years is the company's commitment to the independent
agency distribution system and its focus on the aggressive development and
growth of our regional sales directors. These key individuals manage protected
territories using proprietary lead generation programs to recruit new agents.
This strategy has resulted in double-digit growth in new sales for each of the
past six years and has facilitated market penetration into a number of new
states. Once focused exclusively in the Southeast, Bankers Fidelity is now well
represented in the Mid-Atlantic, Midwest, and Western regions of the United
States.

     The entire property and casualty insurance industry continues to be
challenged by increasing loss costs, a highly competitive marketplace and
concerns about adequate reserve levels. In spite of these challenges, Atlantic
American's property and casualty operations continued to grow in 2000.

     Once again, American Southern, our large account specialty insurer,
reported an excellent year. The hallmark of American Southern continues to be
the consistency of its results and the quality of its underwriting. Roy
Thompson, Scott Thompson, and Calvin Wall all deserve our thanks for maintaining
their disciplined underwriting throughout the soft market in the property and
casualty industry. The company's book of business is primarily comprised of
large, long-term


                                                                               2
<PAGE>   3

contracts with large accounts, states and municipalities. Typical contract
duration is from one to three years. In spite of competitive pressures, the
company has been successful in renewing the majority of its contracts in 2000.

     We also want to mention the results of SIA, Inc., our third party
administrator, led by Andy Thompson. Since the acquisition of SIA in 1997, the
company has never failed to report excellent results and strong margins in a
very competitive business. Andy runs a tight ship and never fails to keep his
expenses as low as possible while maintaining the quality of service his clients
expect.

     The year 2000 also marked the complete and successful integration of
Association Casualty into Atlantic American's insurance group. Acquired on July
1, 1999, and led by Harold Fischer, president, Dianne Morris, chief operating
officer, and Evelyn Hickey, chief financial officer, Association Casualty is now
an integral part of our operations and is working "hand in glove" with Bob
Kitchen's team at Georgia Casualty. Although this is the only division of
Atlantic American to report disappointing results in 2000, when compared to the
industry in which they compete, they have much to commend their performance last
year and historically. In the face of the soft market that prevailed in the
property and casualty insurance industry in general and the workers'
compensation market in particular, our team has worked hard to maintain the
integrity of our book of business and the conservatism of our claim reserves. In
each of the last two years, we have conducted extensive reviews of all our
outstanding claims and have adjusted them upward, where appropriate, to reflect
what we believe our ultimate loss costs will be. Although this process is
inherently subjective, we believe we are well reserved. Looking forward, we
believe that this division will report much stronger results in 2001 and will be
the fastest growing division for the immediate future. In light of a workers'
compensation market which has seen many competitors with higher ratings than
ours go under, and which many industry experts believe is billions under
reserved, Georgia Casualty and Association Casualty are moving forward with a
well-reserved balance sheet and growing our business in an ever hardening
market. We expect great things in the future.

     As we go forward, we are more confident than ever that by continuing to
build long-term relationships, providing quality products at a fair price and
offering professional and personal service, we will be able to grow our
operations and demonstrate our ability to earn a good return on invested
capital. As this becomes evident, we are confident that the share price of
Atlantic American will begin to reflect a more rational valuation. We are
confident that 2001 will be an excellent year for Atlantic American.

     Thank you for your continued trust and confidence.

J. Mack Robinson                                           Hilton H. Howell, Jr.
Chairman of the Board                                      President & CEO


                                                                               3
<PAGE>   4

OPERATIONS

Honoring our commitments and delivering on our promises; these are the tenets by
which we conduct business at Atlantic American Corporation. Through strict
adherence to these principles, we build lasting relationships with our agents
and our customers and, in turn, create long-term value for our shareholders.

But the true measure of a relationship is what your partners say of you.

We are proud of the fact that our partners recognize our stability, our
integrity, our commitment and our dedication to providing quality service to our
agents, our brokers and our customers.

"Because integrity is at the core of everything we do, it's important that our
business partners share those values." So says John Cay, III, president and
chief executive officer, Palmer & Cay, Inc.

Established in 1868 in Savannah, Georgia, Palmer & Cay is a privately-held
professional services firm providing its clients with creative solutions in the
areas of insurance, risk management, employee benefits, compensation and
investments. Palmer & Cay, one of the largest privately-held brokers in the
country, maintains 28 offices in 16 states and the District of Columbia. They
employ more than 800 people.

"As a fifth generation company," says John, "we have a long-term perspective on
things. We believe in building solid, enduring relationships with quality
people. We place great value on decades-long relationships with our clients and
the companies with which we do business. There is great value in consistency.
Our relationship with Georgia Casualty exemplifies that philosophy."

John continues, "Our focus as an organization begins and ends with people.
Throughout our relationship, we have found Georgia Casualty to be responsive and
client-focused - as are we. We've also found that the more successful companies
are those that are client-focused and closest to both the broker and the client.
As a regional company, Georgia Casualty is well positioned in this regard.

"The personal touch is important in a business relationship and we maintain an
exceptional relationship with the senior management of Atlantic American
Corporation, Georgia Casualty's parent company. In fact, we are shareholders. We
know that Atlantic American is building a quality organization that will last.
We have faith in the Company and their direction. We know that they will be
there in the future for us and for our clients. Their honesty and integrity is
beyond question. We are passionate and enthusiastic about our relationship with
them."

As the senior executive of a large agency, John Cay offers one perspective on
the importance of relationships in meeting client needs. Robb R. Imbus, AAI,
vice president of Palmer & Cay of South Carolina, Inc., Charleston, SC, offers
his observations on his relationship with Georgia Casualty and how this impacts
one of his clients, TBonz of Charleston, SC.

"When I approached Georgia Casualty about designing and offering a restaurant
program through the Hospitality Association of South Carolina, Georgia Casualty
was immediately receptive. Not only did they give us the exclusivity we wanted,
but they also worked with us in designing special coverage enhancements for our
hospitality program. They were open to our ideas and wanted our input - even
instituting a special billing program at our request. A larger company would not
have done that.

"Georgia Casualty's dedicated production underwriter concept is a big plus,"
continues Robb. "Their knowledge and responsiveness help me and they also
benefit my clients. I can honestly say that I have a phenomenal relationship
with the company."

Sandra Crosby, an executive with TBonz Restaurant Group, operators of 13
restaurants in South Carolina, North Carolina and Georgia, moved their insurance
coverage to Palmer & Cay to take advantage of the restaurant program.


                                                                               4
<PAGE>   5

"We had worked with Palmer & Cay in the past and had an extreme comfort level
with them," says Sandra. "Our confidence in Palmer & Cay in turn helped to give
us confidence in Georgia Casualty. But initially, we were not without concern.

"Much of that up-front concern was overcome when, during a meeting with Palmer &
Cay, Robb picked up the phone and called Bob Kitchen, president of Georgia
Casualty. We talked for nearly an hour. The fact that there was no red tape and
that I could talk with the top person made me feel that we would receive
personalized service.

"Of course," says Sandra, "cost does matter. But there are certainly other
considerations we take into account when deciding with whom we do business. We
appreciate the fact that Georgia Casualty has taken the time to get to know us
by name. We have one adjuster for our workers' compensation claims and just one
or two adjusters we work with on our general liability claims.

"We have also had great results with the company's loss control services. They
have gone into all of our restaurants and performed friction tests. They have
been excellent about following up and providing us with observations and helpful
safety tips. Again, we have one contact that gives us personalized attention and
the same set of eyes from location to location.

"Because our owners, Mark Cumins and Jerry Scheer, have a very strong sense of
community service and involvement, we think of ourselves as a company with
heart. We look for that same attitude in the companies with whom we do business.
We want and need people who listen - and Georgia Casualty listens! After just
one year, we have a very high comfort level," says Sandra.

"As with Georgia Casualty's representatives and customers, another of Atlantic
American's property and casualty companies, Association Casualty, receives high
marks when it comes to quality, personalized service."

Doug Peacock, AAI, Executive Vice President, Insurors of Texas, Waco, Texas,
says, "As an agent, I tend to take the path of least resistance. I appreciate
working with Association Casualty because they make it easy to do business with
them. In fact, working with them is like working with family.

"From a service standpoint, there's no comparison between Association Casualty
(ACIC) and the larger, `national' companies," says Doug. "Everyone at ACIC
responds in a timely, accurate manner. We know from our experience that things
are done correctly - the first time! In addition, we have the best underwriters
imaginable. They are receptive and attentive to our needs.

"We have 10 agents and a service team at Insurors of Texas, and we represent a
number of companies. But all of our employees feel the same about Association
Casualty. They are our primary workers' compensation carrier and they get a shot
at all of our quality business.

"From our customers' perspective, they deal directly with the company on claims
and have a chance to see ACIC at work `up close and personal' as they say. We
have many clients who pay higher premiums to stay with Association Casualty
rather than switch carriers. That's quite a testament.

"From the time that Dianne Morris first contacted me in 1991 about representing
Association Casualty, we hit it off beautifully. We've had a wonderful
relationship ever since. Everything she said, everything she promised, has been
backed-up in action.

"In spite of technology and all of the other advances in our industry, ours is
still a people business and relationship driven. We are service oriented, as is
ACIC. We've learned over the years that those that deliver from a service
standpoint are the companies that really stand out. Everyone at the company
communicates extremely well with us; and when you do that, you have customers
for life!"

"It is a real advantage to have Doug Peacock as our agent," says Brenda Vrazel,
Business Manager of the Independent School District of Clifton, Texas. "Because
he has served on the Hubbard (TX) school board, he is familiar with school
issues and he relates to our needs.


                                                                               5
<PAGE>   6

"We switched our workers' compensation coverage from another carrier to
Association Casualty five years ago. Quite honestly," says Brenda, "we didn't
feel that we were getting either the support or follow-up on claims that we
needed. After receiving a number of proposals from Insurors of Texas, we went
with ACIC - and we've had no regrets. From the start, they have communicated
well with us, they have been proactive on our claims and they have asked for our
input. This was not the case with our previous carrier.

"Association Casualty is very good about following-up on claims, making sure
that they are legitimate and handled correctly and fairly. We want to make sure
that any injured employee is compensated, but we also want to get our employees
back to work as soon as possible. Because Association Casualty's support
services have helped keep our claims down, the company has treated us very
fairly on our rates - a very important consideration since we are dealing with
taxpayer money. It's a nice partnership."

Among the support services that Brenda has found to be helpful are the annual
audit and the company's loss control assistance. "The annual audit," states
Brenda, "helps me stay on track and make sure that my computer systems are
set-up correctly. In addition, we use safety videos and training programs made
available to us by the company in regularly scheduled employee meetings. All of
our employees go through at least one safety meeting per school year; those
employees at greater risk attend more frequently. Their input was also very
helpful in selecting non-slip flooring for a new school building."

Active in professional associations, Brenda has moderated for a number of
classes in risk management. She appreciates the fact that she can call on her
associates at ACIC to help develop case histories and information about
reporting and the forms required. "I know that I can count on them," she says.

Within Atlantic American Corporation's life and health division, loyalties run
deep among sales management, independent sales representatives and customers.

Bankers Fidelity Life, the Company's flagship life and health carrier, is
fiercely loyal to its distribution system and committed to maintaining the
highest standards of professional, ethical service when dealing with its
customers.

Recently recognized for 25 years of continuous service, James Murray, regional
sales director, Harrodsburg, Kentucky, first joined the company when it was
Atlantic American Life. He says proudly, "Since joining Atlantic American Life,
now Bankers Fidelity Life, I have never been licensed with another company. Why?
Because the company has done everything they said they would do. It is an
outstanding company to work for." He adds emphatically, "Anyone that does not
see great things ahead for Bankers Fidelity Life is not looking to the future.

"I honestly believe," James says, " that no other company has as much to offer
as Bankers Fidelity. It is critical for agents to be able to work with the home
office staff. As it stands today, we have the best underwriting department that
any company could want and our products are second to none." As an aside, James
says, "I refer to the home office as `we' because we are all part of the same
team. Over the past several years, the home office has come a long way! The
quality of support has, in turn, allowed me to recruit and retain the highest
quality agents I have ever had. I would be proud to stand them up against
anyone!"

James notes with pride that, "I wrote the first senior policy with Bankers
Fidelity. The client is alive today and that policy is still in force. Our
customers stay with us because they appreciate the quality claims service they
receive and they know that the company operates with honesty and integrity.

"Throughout my years with Bankers, the company has allowed me to grow beyond my
wildest imagination. I have never seriously considered leaving. We have the
products. We have the support. It's up to us to run with it.

"Since joining the company more than 25 years ago, Bankers Fidelity has done
everything they said they would do - and more."

Jim Stone, regional sales director, Douglas, Georgia, attributes his
relationship with Bankers Fidelity to "a fortunate convergence in space and
time." Jim says, "It goes back to 1993 when the company (then Atlantic American
Life) established their final expense life program at the same time I wanted to
concentrate on life sales. Before that, the company specialized in health sales
and


                                                                               6
<PAGE>   7

I placed my life business with other companies. But in 1993, we made a mutual
commitment to one another. I took them at their word, they took me at mine, and
seven years later we're still doing business together - and lots of it!"

Like James Murray, Jim Stone cites the relationship between the home office and
agents as the primary reason for his longevity with the company. "With most
companies," he says, "the agents and home office are miles apart. Not so at
Bankers Fidelity. The home office staff makes a real effort to be attentive to
our needs and to understand the importance and the role of the agent. If a
problem arises, they handle it. Typically an agent's biggest concern is
underwriting. But the underwriting department at Bankers does a heck of a job.
They make my agents feel that they matter."

From a client perspective, Jim says, "Being based in Georgia and Florida, we
sell the fact that we are a local company. But of even greater importance is the
fact that our customers know that when they call the home office with questions
or for service needs, they do not get the voice mail runaround that they get
from other companies. They know that they will get a live person at the other
end of the line to help them. This is a big plus when dealing with the senior
market. They want personalized service. With Bankers Fidelity, they get it. The
fact that we get a large amount of referral business speaks to this point.

"I've never really thought about retiring," says Jim. "I enjoy working with
young people and take great pride when someone I've helped becomes successful. I
truly look forward to going to work every day. The way I look at it is, if you
can find someone that will pay you to do what you like to do, you do it!"

While Bankers Fidelity's regional sales directors appreciate their relationship
with the home office, that relationship is also cited by independent agents as a
reason that they do business with the company.

"My introduction to Bankers Fidelity Life (Atlantic American Life at the time)
came 15 years ago when I was looking for a good Medicare supplement product. The
reason that I have maintained a relationship with them ever since," says Larry
Weintraub, CLU, ChFC, President of LHW, Inc., Marietta, Georgia, "is threefold.
First, their Medicare supplement product is very good; second, they give me
personalized service; and, third, I have a great relationship with Gene Choate,
president of Bankers Fidelity.

"In selecting the companies that we work with - and we work with several -
product quality and cooperation with the home office are my two main priorities.
I want to be able to call someone that can solve any problems that arise and I
want individual consideration. Most importantly, I want to be able to talk
directly to the underwriter. At Bankers Fidelity, I get that. They listen, we
have conversations and we can negotiate. This factor is so important to me, I
just won't do business with a company if they won't let me talk to the
underwriter.

"Another consideration that goes into the mix when selecting a company," says
Larry, "is how they handle claims. Our large block of Medicare supplement
business generates lots of claims. Yet I can honestly say that we get no more
than five claims-related complaints per year. Bankers Fidelity handles their
claims in a fair and expeditious manner. They are an honorable company...and I
don't say that lightly. Not all companies operate that way.

"My clients know that between LHW and Bankers Fidelity, they will receive
personalized service. They appreciate the fact that whether they are dealing
with Bankers Fidelity or me, they will talk with a real person, not voice mail.
Because of this commitment to personalized service, much of my business comes
from referrals."

One of Larry's largest clients is the Lockheed Georgia Employees' Federal Credit
Union. "I moved to Atlanta in 1966 to take a job as an engineer at Lockheed," he
says. "Shortly thereafter, I made a career change and became an insurance agent.
Calling on friends and acquaintances, one of my first clients was a young
attorney at Lockheed. He later went on to become chairman of the credit union
there. It was through this relationship that I changed my marketing approach to
mass marketing. Now," he continues, "the bulk of my business comes from members
of credit unions."

Edwin J. Collins, was Larry's first policyholder. Today he is president & chief
executive officer of the Lockheed Georgia Employees' Federal Credit Union in
Marietta, Georgia, Larry's largest source of business. Lockheed is the sixth
largest credit union in Georgia with more than 78,000 members and $400 million
in assets. They are celebrating 50 years of service in 2001.


                                                                               7
<PAGE>   8

Ed says, "As a member-owned, non-profit organization, we are not profit driven.
Rather, we seek products and services that will benefit our members. We believe
strongly in offering only quality products that are backed-up with personal
service.

"Larry initially came to us about offering Bankers Fidelity's Medicare
supplement product to our members. Following discussions with him, we realized
that the product was actually better than what Lockheed was offering to its
retirees. Therefore, it was a good offering to our senior members. Over the
years, Bankers Fidelity has been very good to work with, gives our members
excellent service and has treated us very fairly by pricing the product to
reflect our claims experience. We feel good about offering this service to our
members.

"We have never had a complaint," says Ed. "It's a solid relationship that we
have with Larry and Bankers Fidelity Life. They have done everything they said
they would do."

We at Atlantic American Corporation are proud of these relationships and the
fact that our sales representatives and customers are willing to share their
observations. Moreover, we are proud of the fact that these are not isolated
cases.

We take all of our relationships seriously and we work hard everyday to fulfill
our commitments.


                                                                               8
<PAGE>   9

                           CONSOLIDATED BALANCE SHEETS

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

<TABLE>
<CAPTION>
                                                                                                          DECEMBER 31,
                                                                                                  ---------------------------
                                                                                                    2000              1999
                                                                                                  ---------------------------
<S>                                                                                               <C>               <C>
                                                         ASSETS

Cash and cash equivalents, including short-term investments of $15,013 and $22,471                $  31,914         $  34,306
in 2000 and 1999, respectively

Investments                                                                                         215,893           198,841

Receivables:
    Reinsurance                                                                                      39,088            39,287

    Other, net of allowance for doubtful accounts of $1,269 and $1,717 in 2000
      and 1999, respectively                                                                         37,261            28,478

Deferred income taxes, net                                                                            3,839             4,299

Deferred acquisition costs                                                                           23,398            20,398

Other assets                                                                                          4,886             5,074

Goodwill                                                                                             19,498            20,461
                                                                                                  ---------------------------

      Total assets                                                                                $ 375,777         $ 351,144
                                                                                                  ===========================


                                            LIABILITIES AND SHAREHOLDERS' EQUITY

Insurance reserves and policyholder funds                                                         $ 225,164         $ 205,145
Accounts payable and accrued expenses                                                                20,873            16,051

Debt payable                                                                                         46,500            51,000
                                                                                                  ---------------------------

      Total liabilities                                                                             292,537           272,196
                                                                                                  ---------------------------

Commitments and contingencies  (Note 8)

Shareholders' equity:

  Preferred stock, $1 par, 4,000,000 shares authorized;
      Series B preferred, 134,000 shares
      issued and outstanding, $13,400 redemption value                                                  134               134
      Series C preferred, 25,000 shares
        issued and outstanding, $2,500 redemption value                                                  25                --

  Common stock, $1 par, 30,000,000 shares authorized; 21,412,138 shares issued
      in 2000 and 1999 and 21,157,250 shares outstanding in 2000
      and 21,026,786 shares outstanding in 1999                                                      21,412            21,412

  Additional paid-in capital                                                                         56,997            55,677

  Accumulated deficit                                                                                (1,248)           (4,558)

  Accumulated other comprehensive income                                                              6,820             7,836

  Treasury stock, at cost, 254,888 shares in 2000 and 385,352 shares in 1999                           (900)           (1,553)
                                                                                                  ---------------------------

      Total shareholders' equity                                                                     83,240            78,948
                                                                                                  ---------------------------

         Total liabilities and shareholders' equity                                               $ 375,777         $ 351,144
                                                                                                  ===========================
</TABLE>

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


                                                                               9
<PAGE>   10

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)

                                                                                            YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------------------
                                                                                    2000               1999             1998
                                                                                ---------------------------------------------
<S>                                                                             <C>               <C>               <C>
Revenue:
   Insurance premiums                                                           $ 133,497         $ 107,594         $  91,292
   Investment income                                                               15,552            12,724            11,499
   Other income                                                                     1,287             1,172               366
   Realized investment gains, net                                                   1,922             2,831             2,909
                                                                                ---------------------------------------------

      Total revenue                                                               152,258           124,321           106,066
                                                                                ---------------------------------------------

Benefits and expenses:
   Insurance benefits and losses incurred                                          97,628            78,162            60,845
   Commissions and underwriting expenses                                           36,677            29,713            27,160
   Interest expense                                                                 4,408             2,819             2,146
   Other                                                                            8,789             9,705             7,212
                                                                                ---------------------------------------------

      Total benefits and expenses                                                 147,502           120,399            97,363
                                                                                ---------------------------------------------

      Income before income tax provision (benefit)                                  4,756             3,922             8,703
Income tax provision (benefit)                                                      1,124            (6,988)              145
                                                                                ---------------------------------------------

        Net income before preferred stock dividends                                 3,632            10,910             8,558
Preferred stock dividends                                                          (1,206)           (1,206)           (1,521)
                                                                                ---------------------------------------------
       Net income applicable to common stock                                    $   2,426         $   9,704         $   7,037
                                                                                =============================================

Basic earnings per common share                                                 $     .12         $     .48         $     .37
                                                                                =============================================

Diluted earnings per common share                                               $     .12         $     .46         $     .37
                                                                                =============================================
</TABLE>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                                                              10
<PAGE>   11

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
(Dollars in thousands, except share data)

                                                                                                   ACCUMULATED
                                                                           ADDITIONAL                 OTHER
                                                       PREFERRED   COMMON   PAID-IN   ACCUMULATED COMPREHENSIVE  TREASURY
                                                         STOCK      STOCK   CAPITAL     DEFICIT      INCOME       STOCK      TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>      <C>        <C>         <C>            <C>       <C>
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 common 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
 Comprehensive loss:
 Net income ...........................................     --         --        --      10,910           --         --      10,910
    Decrease in unrealized investment gains ...........     --         --        --          --      (16,731)        --     (16,731)
    Deferred income tax attributable to
        other comprehensive loss ......................     --         --        --          --       (4,219)        --      (4,219)
                                                                                                                           --------
       Total comprehensive loss .......................                                                                     (10,040)
 Dividends accrued on preferred stock .................     --         --    (1,206)         --           --         --      (1,206)
 Purchase of 213,392 shares for treasury ..............     --         --        --          --           --       (779)       (779)
 Issuance of 113,608 shares for employee
    benefit plans and stock options ...................     --         --        --        (255)          --        528         273
 Issuance of 2,006,385 shares for acquisition
    of Association Casualty Insurance Company .........     --      2,006     6,477          --           --         --       8,483
                                                          -------------------------------------------------------------------------

Balance, December 31, 1999 ............................    134     21,412    55,677      (4,558)       7,836     (1,553)     78,948
  COMPREHENSIVE INCOME:
    NET INCOME ........................................     --         --        --       3,632           --         --       3,632
    DECREASE IN UNREALIZED INVESTMENT GAINS ...........     --         --        --          --       (1,563)        --      (1,563)
    DEFERRED INCOME TAX BENEFIT ATTRIBUTABLE TO
       OTHER COMPREHENSIVE LOSS .......................     --         --        --          --          547         --         547
                                                                                                                           --------
    TOTAL COMPREHENSIVE INCOME                                                                                                2,616
ISSUANCE OF 25,000 SHARES OF PREFERRED STOCK ..........     25         --     2,475          --           --         --       2,500
DIVIDENDS ACCRUED ON PREFERRED STOCK ..................     --         --    (1,206)         --           --         --      (1,206)
COMPENSATION EXPENSE RELATED TO STOCK GRANTS ..........     --         --        51          --           --         --          51
PURCHASE OF 33,206 SHARES FOR TREASURY ................     --         --        --          --                     (79)        (79)
ISSUANCE OF 163,670 SHARES FOR EMPLOYEE
    BENEFIT PLANS AND STOCK OPTIONS ...................     --         --        --        (322)          --        732         410
                                                          -------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 ............................   $159    $21,412   $56,997     $(1,248)    $  6,820     $ (900)   $ 83,240
                                                          =========================================================================
</TABLE>

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


                                                                              11
<PAGE>   12

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                                   YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)                                                                     2000             1999             1998
                                                                                        ------------------------------------------
<S>                                                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                           $  3,632         $ 10,910         $  8,558
     Adjustments to reconcile net income to net cash provided by operating
       activities:
       Amortization of deferred acquisition costs                                         15,804           11,947           10,595
       Acquisition costs deferred                                                        (18,804)         (14,003)         (11,087)
       Realized investment gains, net                                                     (1,922)          (2,831)          (2,909)
       Increase (decrease) in insurance reserves and policyholder funds                   20,019           14,036           (1,941)
       Compensation expense related to stock grants                                           51               --               --
       Depreciation and amortization                                                       1,744            1,435            1,368
       Deferred income tax expense (benefit)                                               1,007           (6,997)              --
       (Increase) decrease in receivables, net                                            (8,584)          (8,404)             950
       Increase in other liabilities                                                       3,617               73              291
       Other, net                                                                            142             (768)            (350)
                                                                                        ------------------------------------------
Net cash provided by operating activities                                                 16,706            5,398            5,475
                                                                                        ------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from investments sold                                                          3,447            8,482            8,723
   Proceeds from investments matured, called or redeemed                                  11,877           35,594           55,665
   Investments purchased                                                                 (31,290)         (53,211)         (82,981)
   Additions to property and equipment                                                      (619)            (829)            (394)
   Acquisition of American Independent, net of $1,946 cash acquired                           --              198             (483)
   Acquisition of Association Casualty, net of $6,270 cash acquired                          (94)         (18,205)              --
   Bulk reinsurance transactions, net                                                         --               --              608
                                                                                        ------------------------------------------
Net cash used in investing activities                                                    (16,679)         (27,971)         (18,862)
                                                                                        ------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of bank financing                                                   --           51,000               --
   Proceeds from issuance of Series C Preferred Stock                                      1,750               --               --
   Preferred stock dividends                                                                  --               --             (315)
   Proceeds from exercise of stock options                                                   410              273               90
   Purchase of treasury shares                                                               (79)            (779)          (1,447)
   Repayments of debt                                                                     (4,500)         (26,000)          (2,600)
   Redemption of preferred stock                                                              --               --           (1,000)
                                                                                        ------------------------------------------
Net cash (used in) provided by financing activities                                       (2,419)          24,494           (5,272)
                                                                                        ------------------------------------------
         Net (decrease) increase in cash and cash equivalents                             (2,392)           1,921          (18,659)
                                                                                        ------------------------------------------
   Cash and cash equivalents at beginning of year                                         34,306           32,385           51,044
                                                                                        ------------------------------------------
   Cash and cash equivalents at end of year                                             $ 31,914         $ 34,306         $ 32,385
                                                                                        ==========================================
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                               $  4,170         $  2,510         $  2,143
                                                                                        ==========================================
   Cash paid for income taxes                                                           $    166         $    131         $    330
                                                                                        ==========================================
</TABLE>

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


                                                                              12
<PAGE>   13

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998
            (Dollars in thousands, except share and per share data)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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

     At December 31, 2000, the Company had five insurance subsidiaries,
including Bankers Fidelity Life Insurance Company ("Bankers Fidelity"), American
Southern Insurance Company and its wholly-owned subsidiary, American Safety
Insurance Company (together known as "American Southern"), Association Casualty
Insurance Company ("ACIC") and Georgia Casualty & Surety Company ("Georgia
Casualty"), in addition to two non-risk bearing subsidiaries, Association Risk
Management General Agency, Inc. ("ARMGA") and Self-Insurance Administrators,
Inc. ("SIA, Inc."). ACIC and ARMGA (together known as "Association Casualty")
were acquired on July 1, 1999. The results of operations of Association Casualty
are included in the consolidated results of operations since the date of
acquisition.

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

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

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


                                                                              13
<PAGE>   14

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENTS
     All of the Company's debt and equity securities are classified as available
for sale and are carried at market value. Mortgage loans, policy and student
loans, and real estate are carried at historical cost. 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, those for which the Company has a 20% to 50% interest or
less than a 20% interest but has the ability to exercise significant influence
("equity investees") are accounted for using the equity method, and all others
are carried at historical cost. If the value of a common stock, preferred stock,
other invested asset, or publicly traded bond declines below its cost or
amortized cost, and the decline is considered to be other than temporary, a
realized loss is recorded to reduce the carrying value of the investment to its
estimated net realizable value, which becomes the new cost basis. Premiums and
discounts related to investments are amortized or accreted over the life of the
related investment as an adjustment to yield using the effective interest
method. Dividends and interest income are recognized when earned or declared.
     The cost of securities sold is based on specific identification. Unrealized
gains (losses) in the value of invested assets, are accounted for as a direct
increase (decrease) in accumulated other comprehensive income in shareholders'
equity net of deferred tax and, accordingly, have no effect on net income.

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

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

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenues in financial statements and requires adoption no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company adopted SAB 101 in the fourth quarter of 2000. The adoption did not have
any impact on the Company's results of operations or financial position.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires
the recognition of the fair value of all derivative instruments on the balance
sheet and establishes specific accounting methods for hedges. In June 1999, the
FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Election Date of FASB Statement 133" ("SFAS 137").
Subsequent to the issuance of SFAS 133, as amended by SFAS 137, the FASB
received many requests to clarify certain issues causing difficulties in
implementation. In June 2000, the FASB issued SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," ("SFAS 138"), which
responds to these requests by amending certain provisions of SFAS 133. The
Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on


                                                                              14
<PAGE>   15

January 1, 2001. Management has determined that the impact of initially adopting
SFAS 133, as amended by SFAS 137 and SFAS 138, will not have a material effect
on the Company's financial condition or results of operations.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

RECLASSIFICATIONS

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


                                                                              15
<PAGE>   16

NOTE 2.  INVESTMENTS

     Investments are comprised of the following:

<TABLE>
<CAPTION>
                                                                                               2000
-----------------------------------------------------------------------------------------------------------------------------
                                                                                      GROSS           GROSS
                                                                      CARRYING      UNREALIZED      UNREALIZED      AMORTIZED
                                                                        VALUE          GAINS          LOSSES           COST
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>             <C>             <C>
BONDS:
  U.S. TREASURY SECURITIES AND OBLIGATIONS OF
    U.S. GOVERNMENT CORPORATIONS AND AGENCIES                         $111,198        $   608        $  1,517        $112,107
  OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS                       4,088             37               2           4,053
  CORPORATE SECURITIES                                                  37,752            563             921          38,110
  MORTGAGE-BACKED SECURITIES (GOVERNMENT GUARANTEED)                     6,366             71               9           6,304
                                                                      -------------------------------------------------------
                                                                       159,404          1,279           2,449         160,574
COMMON AND PREFERRED STOCKS                                             43,945         14,566           2,730          32,109
OTHER INVESTED ASSETS                                                    5,862             --             174           6,036
MORTGAGE LOANS (ESTIMATED FAIR VALUE OF$ 4,040)                          3,538             --              --           3,538
POLICY AND STUDENT LOANS                                                 3,098             --              --           3,098
REAL ESTATE                                                                 46             --              --              46
                                                                      -------------------------------------------------------
    INVESTMENTS                                                        215,893         15,845           5,353         205,401
SHORT-TERM INVESTMENTS                                                  15,013             --              --          15,013
                                                                      -------------------------------------------------------
    TOTAL INVESTMENTS                                                 $230,906        $15,845        $  5,353        $220,414
                                                                      =======================================================
<CAPTION>
                                                                                               2000
-----------------------------------------------------------------------------------------------------------------------------
                                                                                      Gross           Gross
                                                                      Carrying      Unrealized      Unrealized      Amortized
                                                                        Value          Gains          Losses           Cost
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>             <C>             <C>
Bonds:
  U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies                         $104,217        $   137        $  5,551        $109,631
  Obligations of states and political subdivisions                       4,078              2              62           4,138
  Corporate securities                                                  26,106            116             796          26,786
  Mortgage-backed securities (government guaranteed)                     2,599             --              66           2,665
                                                                      -------------------------------------------------------
                                                                       137,000            255           6,475         143,220
Common and preferred stocks                                             48,684         22,226           4,725          31,183
Other invested assets                                                    5,717            774              --           4,943
Mortgage loans (estimated fair value of $4,237)                          3,645             --              --           3,645
Policy and student loans                                                 3,749             --              --           3,749
Real estate                                                                 46             --              --              46
                                                                      -------------------------------------------------------
    Investments                                                        198,841         23,255          11,200         186,786
Short-term investments                                                  22,471             --              --          22,471
                                                                      -------------------------------------------------------
    Total investments                                                 $221,312        $23,255        $ 11,200        $209,257
                                                                      =======================================================
</TABLE>

     Bonds and cash having an amortized cost of $16,187 and $16,241 were on
deposit with insurance regulatory authorities at December 31, 2000 and 1999,
respectively, in accordance with statutory requirements.


                                                                              16
<PAGE>   17

NOTE 2.  INVESTMENTS (CONTINUED)

     The amortized cost and carrying value of bonds and short-term investments
at December 31, 2000 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.

<TABLE>
<CAPTION>
                                                        CARRYING       AMORTIZED
                                                         VALUE            COST
--------------------------------------------------------------------------------
<S>                                                     <C>             <C>
DUE IN ONE YEAR OR LESS                                 $ 24,185        $ 24,181
DUE AFTER ONE YEAR THROUGH FIVE YEARS                     28,532          28,528
DUE AFTER FIVE YEARS THROUGH TEN YEARS                   109,213         110,503
DUE AFTER TEN YEARS                                       12,133          12,026
VARYING MATURITIES                                           354             349
                                                        ------------------------
    TOTALS                                              $174,417        $175,587
                                                        ========================
</TABLE>

Investment income was earned from the following sources:

<TABLE>
<CAPTION>
                                                             2000           1999            1998
-------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>             <C>
Bonds                                                     $10,882         $ 8,447         $ 6,363
Common and preferred stocks                                 2,470           2,388           1,903
Mortgage loans                                                333             352             373
CDs and commercial paper                                      849             933           2,004
Other                                                       1,018             604             856
                                                          ---------------------------------------
    Total investment income                                15,552          12,724          11,499
Less investment expenses                                     (232)           (290)           (332)
                                                          ---------------------------------------
    Net investment income                                 $15,320         $12,434         $11,167
                                                          =======================================
</TABLE>

A summary of realized investment gains (losses) follows:

<TABLE>
<CAPTION>
                                                                                 2000
-----------------------------------------------------------------------------------------------------------
                                                                                       OTHER
                                                          STOCKS         BONDS     INVESTED ASSETS    TOTAL
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>           <C>           <C>
GAINS                                                     $1,907         $  52         $  --         $1,959
LOSSES                                                       (11)          (26)           --            (37)
-----------------------------------------------------------------------------------------------------------
  TOTAL REALIZED INVESTMENT
      GAINS (LOSSES) NET                                  $1,896         $  26         $  --         $1,922
===========================================================================================================

<CAPTION>
                                                                                 1999
-----------------------------------------------------------------------------------------------------------
                                                                                       Other
                                                          Stocks         Bonds     Invested Assets    Total
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>       <C>               <C>
Gains                                                     $2,526         $  10         $ 585         $3,121
Losses                                                       (52)         (238)           --           (290)
-----------------------------------------------------------------------------------------------------------
  Total realized investment
      gains (losses) net                                  $2,474         $(228)        $ 585         $2,831
===========================================================================================================

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


                                                                              17
<PAGE>   18

NOTE 2.  INVESTMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                      2000          1999          1998
                                                     ----------------------------------
         <S>                                         <C>           <C>           <C>
         Common and preferred stocks                 $2,595        $5,960        $6,999
         Bonds                                           --         1,379            --
         Student loans                                  651           519         1,024
         Other investments                              201           624           700
                                                     ----------------------------------
         Total proceeds                              $3,447        $8,482        $8,723
                                                     ==================================
</TABLE>


     The Company's investment in the common stock of Wachovia Corporation
exceeds 10% of shareholders' equity at December 31, 2000. The carrying value of
this investment at December 31, 2000 was $14,171 with a cost basis of $4,267.

     The Company's bond portfolio included 97% investment grade securities at
December 31, 2000 as defined by the National Association of Insurance
Commissioners ("NAIC").


                                                                              18
<PAGE>   19
NOTE 3.  INSURANCE RESERVES AND POLICYHOLDER FUNDS


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

<TABLE>
<CAPTION>
                                                                                 Amount of Insurance
                                                                                       in Force
-----------------------------------------------------------------------------------------------------
        Future policy benefits                         2000          1999          2000          1999
                                                   --------------------------------------------------
       <S>                                         <C>           <C>           <C>           <C>
       Life insurance policies:
             Ordinary                              $ 31,542      $ 29,235      $253,721      $238,827
             Mass market                              7,529         7,933        12,250        15,948
             Individual annuities                       855           741            --            --
                                                   --------------------------------------------------
                                                     39,926        37,909      $265,971      $254,775
                                                                               ======================
        Accident and health insurance policies        2,180         2,184
                                                   ----------------------
                                                     42,106        40,093
        Unearned premiums                            45,421        34,293
        Losses and claims                           133,220       126,556
        Other policy liabilities                      4,417         4,203
                                                   ----------------------
              Total policy liabilities             $225,164      $205,145
                                                   ======================
</TABLE>

     Annualized premiums for accident and health insurance policies were $39,361
and $32,028 at December 31, 2000 and 1999, respectively.

FUTURE POLICY BENEFITS

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

LOSS AND CLAIM RESERVES

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


                                                                              19
<PAGE>   20

NOTE 3.  INSURANCE RESERVES AND POLICYHOLDER FUNDS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                           2000              1999
                                                                       -----------------------------
         <S>                                                           <C>                <C>
         Balance at January 1                                          $  126,556         $ 86,768
         Less:  Reinsurance recoverables                                  (38,759)         (22,625)
                                                                       -----------------------------
              Net balance at January 1                                     87,797           64,143
                                                                       -----------------------------
              Incurred related to:
              Current year                                                102,336           79,328
              Prior years                                                  (6,085)          (2,427)
                                                                       -----------------------------
                  Total incurred                                           96,251           76,901
                                                                       -----------------------------

              Paid related to:
              Current year                                                 54,313           44,623
              Prior years                                                  35,366           28,558
                                                                       -----------------------------
                  Total paid                                               89,679           73,181
                                                                       -----------------------------

         Reserves acquired due to acquisition                                  --           19,934
                                                                       -----------------------------
         Net balance at December 31                                        94,369           87,797
         Plus:  Reinsurance recoverables                                   38,851           38,759
                                                                       -----------------------------

         Balance at December 31                                        $  133,220        $ 126,556
                                                                       =============================
</TABLE>


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

<TABLE>
<CAPTION>
                                                                           2000              1999
                                                                       -----------------------------
         <S>                                                           <C>               <C>
         Total incurred claims                                         $   96,251        $  76,901
         State residual pool refunds and adjustments
              to loss portfolio arrangements                                  (59)            (329)
         Cash surrender value and matured endowments                        1,436            1,590
                                                                       ----------------------------

              Total insurance benefits and losses incurred             $   97,628        $  78,162
                                                                       =============================
</TABLE>


                                                                              20
<PAGE>   21

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 83%
of the reinsurance receivables are due from four reinsurers as of December 31,
2000. Reinsurance receivables of $20,079 are with General Reinsurance
Corporation, rated "AAA" by Standard & Poor's and "A++" (Superior) by A.M. Best,
$2,296 are with First Colony Life Insurance Company, rated "AA" by Standard &
Poor's and "A++" (Superior) by A.M. Best, $7,409 are with Pennsylvania
Manufacturers Association Insurance Company, rated "A+" (Superior) by A.M. Best,
and $2,717 are with Signet Star rated "AA-" (Excellent) by Standard & Poor's and
"A" (Excellent) by A.M. Best. Allowances for uncollectible amounts are
established against reinsurance receivables, if appropriate. Premiums assumed of
$27,412, $24,903, and $23,633 in 2000, 1999, and 1998 respectively, include a
state contract with premiums of $17,198, $15,064, and $14,403. The contract
premiums represent 12.9%, 14.0% and 15.8% of net premiums earned for the years
ended 2000, 1999, and 1998, respectively. The following table reconciles
premiums written to premiums earned and summarizes the components of insurance
benefits and losses incurred.

<TABLE>
<CAPTION>
                                                                   2000           1999          1998
                                                               -------------- ------------- -------------
                <S>                                            <C>            <C>           <C>
                Direct premiums written                             $128,116      $ 97,909      $ 76,964
                Plus - premiums assumed                               27,412        24,903        23,633
                Less - premiums ceded                                (10,916)      (13,189)      (10,746)
                                                               ------------------------------------------

                Net premiums written                                 144,612       109,623        89,851
                                                               ------------------------------------------

                Change in unearned premiums                          (11,408)       (1,802)        1,352
                Change in unearned premiums ceded                        293          (227)           89
                                                               ------------------------------------------
                   Net change in unearned premiums                   (11,115)       (2,029)        1,441
                                                               ------------------------------------------
                   Net premiums earned                              $133,497      $107,594      $ 91,292
                                                               ==========================================

                Provision for benefits and losses incurred          $106,596      $ 88,848      $ 69,478
                Reinsurance loss recoveries                           (8,968)      (10,686)       (8,633)
                                                               ------------------------------------------

                Insurance benefits and losses incurred              $ 97,628      $ 78,162      $ 60,845
                                                               ==========================================
</TABLE>

Components of reinsurance receivables are as follows:

<TABLE>
<CAPTION>
                                                                   2000                 1999
                                                              ---------------------------------
                 <S>                                          <C>                     <C>
                 Receivable on unpaid losses                      $38,851             $  38,759
                 Receivable on paid losses                            237                   528
                                                              ---------------------------------

                                                                  $39,088             $  39,287
                                                              =================================
</TABLE>



                                                                              21
<PAGE>   22

NOTE 5.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                          2000          1999          1998
                                                                        -----------------------------------
        <S>                                                             <C>           <C>           <C>
        Federal income tax provision at statutory rate of 35%           $ 1,665       $ 1,373       $ 3,046
        Tax exempt interest and
          dividends received deductions                                    (484)         (400)         (452)
        Other permanent differences                                         363            --            --
        Change in asset valuation allowance due to:
          Utilization of net operating loss carryforwards                    --          (973)       (2,594)
          Recognition of deferred tax liability relating
            to unrealized investment gains                                   --        (4,219)           --
          Change in judgment relating to realizability of
            deferred tax assets                                            (537)       (2,778)           --
        Alternative minimum tax                                             117             9           145
                                                                        -----------------------------------
                   Total provision (benefit) for income taxes           $ 1,124       $(6,988)      $   145
                                                                        ===================================
</TABLE>

     Deferred tax liabilities and assets at December 31, 2000 and 1999 are
comprised of the following:

<TABLE>
<CAPTION>
                                                   2000           1999
                                                 -----------------------
        <S>                                      <C>            <C>
        Deferred tax liabilities:
           Deferred acquisition costs            $ (5,324)      $ (4,646)
           Net unrealized investment gains         (3,672)        (4,219)
           Other                                      (66)          (160)
                                                 -----------------------

             Total deferred tax liabilities        (9,062)        (9,025)
                                                 -----------------------

        Deferred tax assets:
           Net operating loss carryforwards        11,073         13,284
           Insurance reserves                       9,268          7,512
           Bad debts and other                        462            967
                                                 -----------------------

             Total deferred tax assets             20,803         21,763
                                                 -----------------------

        Asset valuation allowance                  (7,902)        (8,439)
                                                 -----------------------

        Net deferred tax assets                  $  3,839       $  4,299
                                                 =======================
</TABLE>


                                                                              22
<PAGE>   23


NOTE 5.  INCOME TAXES (CONTINUED)


     The components of the provision (benefit) are:

<TABLE>
<CAPTION>
                                                       2000           1999             1998
                                                      --------------------------------------
        <S>                                           <C>            <C>             <C>
        Current - Federal                             $   117        $     9         $   145
        Deferred - Federal                              1,007         (6,997)             --
                                                      --------------------------------------
             Total                                    $ 1,124        $(6,988)        $   145
                                                      ======================================
</TABLE>


     At December 31, 2000, the Company had regular federal net operating loss
carryforwards of approximately $31,600 expiring generally between 2002 and 2010.
Until the end of 1999, the Company established a full valuation allowance
against its net deferred income tax benefits as they were not considered
realizable from expected future reversals of existing taxable temporary
differences. The Company believed that it was more likely than not that the
deferred income tax benefits would not be realized through future taxable income
prior to the expiration dates of net operating loss carryforwards. However, with
the acquisition of Association Casualty and several years of profitability, in
the fourth quarter of 1999 the Company determined that it was more likely than
not that a portion of its net deferred income tax benefits relating to net
operating loss carryforwards scheduled to expire between 2006 and 2010 would be
realized based on future taxable income. Management also can and would implement
tax-planning strategies to prevent these carryforwards from expiring.

     As of December 31, 2000 and 1999, a valuation allowance of $7,902 and
$8,439 has been established for deferred income tax benefits relating primarily
to net operating loss carryforwards scheduled to expire between 2002 and 2003
that may not be realized. The decrease of $537 in the valuation allowance is due
primarily to the utilization of a portion of these benefits that were previously
reserved for. Since the Company's ability to generate taxable income from
operations and utilize available tax-planning strategies in the near term is
dependent upon various factors, many of which are beyond management's control,
management believes that it is more likely than not that the remaining deferred
income tax benefits relating primarily to the carryforwards scheduled to expire
in 2002 and 2003 will not be realized. However, realization of the remaining
deferred income tax benefits will be assessed periodically based on the
Company's current and anticipated results of operations and amounts could
increase or decrease in the near term if estimates of future taxable income
change. The Company has formal tax-sharing agreements and files a consolidated
income tax return with its subsidiaries.


                                                                              23
<PAGE>   24

NOTE 6.  CREDIT ARRANGEMENTS


     The Company is a party to a five-year revolving credit facility ("the
Revolving Credit Facility") that provides for borrowings up to $30,000. The
interest rate on the borrowings under this facility may be fixed, at the
Company's option, for a period of one, three, six or twelve months and is based
upon the London Interbank Offered Rate ("LIBOR") plus an applicable margin,
2.50% at December 31, 2000. The margin varies based upon the Company's leverage
ratio (debt to total capitalization, as defined) and ranges from 1.75% to 3.75%.
Interest on the Revolving Credit Facility is currently payable monthly. The
Revolving Credit Facility provides for the payment of all of the outstanding
principal balance at June 30, 2004 with no required principal payments prior to
that time, except as provided below. The interest rate on this facility at
December 31, 2000 and 1999 was 9.12% and 8.49%, respectively.

     The Company also has outstanding $25,000 of Series 1999, Variable Rate
Demand Bonds (the "Bonds") due July 1, 2009 issued through a private placement.
The Bonds, which are redeemable at the Company's option, pay a variable interest
rate that approximates 30-day LIBOR. The Bonds are backed by a letter of credit
issued by Wachovia Bank, N.A., which is automatically renewable on a monthly
basis until thirteen months after such time as Wachovia gives the Company notice
of its option not to renew the letter of credit. The Bonds are subject to
mandatory redemption upon termination of the letter of credit, if an alternative
letter of credit facility is not secured. The Company expects that it would be
able to replace the letter of credit facility within the prescribed period if
Wachovia should give notice of its intention not to renew the existing facility.
The cost of the letter of credit and its associated fees are 2.50% making the
effective rate on the Bonds LIBOR plus 2.50% at December 31, 2000. The interest
on the Bonds is payable monthly and the letter of credit fees are payable
quarterly. The interest rate on the Bonds, along with the related fees, at
December 31, 2000 and 1999 was 9.15% and 8.29%, respectively. The Bonds do not
require the repayment of any principal prior to maturity, except as provided
above.

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

     Effective December 30, 2000, the Revolving Credit Facility and letter of
credit were both amended by Wachovia Bank, N.A. The amendment establishes new
covenants pertaining to ratios related to funded debt, total capitalization,
interest coverage, EBITDA, and authorized control level risk-based capital. In
addition, the Company is required to enter into and maintain at all times
thereafter, interest rate protection agreements with respect to at least 30
percent of the aggregate principal amount of the total debt. On March 21, 2001,
the Company entered into an interest rate swap agreement with Wachovia Bank,
N.A. to hedge its interest rate risk on a portion of the outstanding borrowings
under the Revolving Credit Facility. Also, beginning March 31, 2003 and each
quarter thereafter, the commitment on the Revolving Credit Facility shall be
permanently reduced in an amount equal to $1,000. Each such reduction shall be
accompanied by a prepayment of the loans to the extent that the loans exceed the
amount of the commitment after giving affect to each quarterly reduction. At
December 31, 2000 the Company was in compliance with all debt covenants, as
revised on December 30, 2000.


                                                                              24
<PAGE>   25



NOTE 7.  ACQUISITIONS

   On July 1, 1999, the Company acquired 100% of the outstanding stock of ACIC
and ARMGA for a combined price of $33,052 with $8,483 of the purchase price paid
in the form of common stock of the Company and the remaining $24,569 paid in
cash obtained from borrowings under the Revolving Credit Facility. The
acquisition of both ACIC and ARMGA were accounted for using the purchase method
of accounting. Accordingly, the Company has allocated the purchase price of the
companies based on the fair value of the assets acquired and liabilities assumed
and their results of operations are included in the consolidated results of
operations since the date of acquisition.
   The following summarizes the Company's proforma unaudited results of
operations for the years ended December 31, 1999 and 1998 assuming the purchase
of ACIC and ARMGA had been consummated as of January 1, 1998.

<TABLE>
<CAPTION>
                                                           Consolidated
                                                    1999                1998
                                                  ----------------------------
<S>                                              <C>                  <C>
Revenue                                           $136,459            $121,268
Net income                                        $  9,656            $ 11,426
Per common share data
  Basic earnings per common share                 $    .40            $    .48
  Diluted earnings per common share               $    .39            $    .45
</TABLE>

   This proforma financial information has been prepared for informational
purposes only and is not necessarily indicative of the results of operations had
the transaction been consummated on January 1, 1998, nor is it indicative of
results of operations that may be obtained in the future.

In connection with the acquisitions of ACIC and ARMGA the following assets and
liabilities were acquired.

<TABLE>

<S>                                            <C>
Cash, including short-term investments         $   6,270
Investments                                       30,276
Goodwill                                          17,008
Receivables                                       17,773
Other assets                                       2,691
                                               ---------
    Total assets                                  74,018
                                               ---------
Insurance reserves and policy funds               38,450
Other liabilities                                  2,516
                                               ---------
    Total liabilities                             40,966
                                               ---------
        Purchase price                         $  33,052
                                               =========
</TABLE>

   In addition, on April 1, 1999 the Company merged American Independent Life
Insurance Company ("American Independent") into Bankers Fidelity completing the
consolidation of these two companies whose operations had been assimilated
following the acquisition of American Independent in 1997.


                                                                              25
<PAGE>   26

NOTE 8.  COMMITMENTS AND CONTINGENCIES


LITIGATION

     During 2000, American Southern renewed one of its larger accounts. Although
this contract was renewed through a competitive bidding process, one of the
parties bidding for this particular contract contested the award of this
business to American Southern and filed a claim to obtain the nullification of
the contract. During the fourth quarter of 2000, American Southern received an
unfavorable judgment relating to this litigation and has appealed the ruling.
The contract is to remain in effect pending appeal. While management believes
that the effect of an adverse outcome on this case would not materially affect
the current financial position of the Company, it may have a material impact on
the future results of operations of the Company.

     The Company and its subsidiaries are parties to other 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 $1,534, $1,271, and $1,188 in 2000, 1999, and 1998 respectively. The
Company's future minimum lease obligations under non-cancelable operating leases
are as follows:

<TABLE>
<CAPTION>
                                 Year Ending December 31,
                                 ------------------------
                            <S>                    <C>
                            2001                   $  1,384
                            2002                      1,195
                            2003                      1,116
                            2004                      1,115
                            2005                        982
                            Thereafter                1,174
                            -------------------------------

                            Total                  $  6,966
                            ===============================
</TABLE>


                                                                              26
<PAGE>   27

NOTE 9.  EMPLOYEE BENEFIT PLANS


STOCK OPTIONS

     In accordance with the Company's 1992 Incentive Plan, the Board of
Directors may grant up to 1,800,000 stock options or share awards. The Board of
Directors may grant: (a) incentive stock options within the meaning of Section
422 of the Internal Revenue Code; (b) non-qualified stock options; (c)
performance units; (d) awards of restricted shares of the Company's common stock
and other stock unit awards; or (e) all or any combination of the foregoing to
officers and key employees. Options granted under this plan 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 accordance with the Company's 1996 Director Stock Option Plan, a
maximum of 200,000 stock options may be granted that fully vest six months after
the grant date. As of December 31, 2000, an aggregate of fifty-five employees,
officers and directors held options under the two plans. Effective February 29,
2000 the Board of Directors granted deferred shares of stock to officers and key
employees in accordance with the Company's 1992 Incentive Plan. These shares
will vest five years from the date of grant. During 2000, the Company began
recording deferred compensation expense related to unvested shares.

     A summary of the status of the Company's stock option plans at December 31,
2000 and 1999, is as follows:

<TABLE>
<CAPTION>
                                                                  2000                            1999
                                                     ------------------------------------------------------------------
                                                                       WEIGHTED AVG.                      Weighted Avg.
                                                        SHARES        EXERCISE PRICE       Shares        Exercise Price
                                                     ------------------------------------------------------------------
        <S>                                          <C>              <C>                <C>             <C>
        Options outstanding, beginning of year        1,170,000       $      3.34        1,154,900       $      3.20
        Options granted                                  12,000              3.18          129,500              3.89
        Options exercised                              (120,000)             2.50          (74,500)             1.92
        Options canceled  or expired                    (38,000)             3.63          (39,900)             3.56
                                                      ---------                          ---------
        Options outstanding, end of year              1,024,000              3.43        1,170,000              3.34
                                                      =========                          =========
        Options exercisable                             992,125              3.41        1,026,750              3.28
                                                      =========                          =========
        Options available for future grant              435,150                            519,150
                                                      =========                          =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                         2000             1999             1998
                                                      -------------------------------------------
        <S>                                           <C>              <C>              <C>
        Net income:
             As reported                              $   3,632        $  10,910        $   8,558
        Pro forma                                         3,480           10,477            8,082
        Basic earnings per common share:
             As reported                              $     .12        $     .48        $     .37
             Pro forma                                      .11              .46              .35
        Diluted earnings per common share:
             As reported                              $     .12        $     .46        $     .37
             Pro forma                                      .11              .44              .35
</TABLE>

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


                                                                              27
<PAGE>   28

NOTE 9.  EMPLOYEE BENEFIT PLANS (CONTINUED)


<TABLE>
<CAPTION>
                                                         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>
        $2.00 to $2.50          220,000         <1.00                   $2.38                    220,000            $2.38
        $2.51 to $3.00           22,000          2.36                   $2.90                     22,000            $2.90
        $3.01 to $3.50           57,500          1.03                   $3.20                     57,500            $3.20
        $3.51 to $4.00          708,500          2.57                   $3.77                    676,625            $3.76
        $4.01 to $4.50           11,000          2.87                   $4.27                     11,000            $4.27
        $4.51 to $5.00            5,000          2.57                   $4.94                      5,000            $4.94
                           -------------                                                    -------------

                              1,024,000                                                          992,125
                           =============                                                    =============
</TABLE>

     The weighted average fair value of options granted is estimated on the date
of grant using the Black-Scholes option pricing model and was $1.63 and $1.73
for grants in 2000 and 1999, respectively. Fair value determinations were based
on expected dividend yields of zero, expected lives of 5 years, risk free
interest rates of 4.99% and 6.36%, and expected volatility of 52.77% and 39.97%,
for the years ended December 31, 2000 and 1999, respectively.

401(K) PLAN

     The Company initiated an employees' savings plan under Section 401(k) of
the Internal Revenue Code in May 1995. The plan covers substantially all of the
Company's employees, except employees of American Southern and Association
Casualty. 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 $155, $133, and $125 in 2000, 1999, and 1998,
respectively. Association Casualty has a comparable savings plan covering
substantially all of its employees.

DEFINED BENEFIT PENSION PLANS

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

     Net periodic pension cost for American Southern's qualified and
non-qualified defined benefit plans for the years ended December 31, 2000, 1999,
and 1998 included the following components:

<TABLE>
<CAPTION>
                                                                   2000               1999              1998
                                                              ------------------------------------------------
         <S>                                                  <C>                 <C>                <C>
         Service cost                                         $    119            $  134             $     131
         Interest cost                                             239               232                   241
         Expected return on plan assets                           (209)             (219)                 (198)
         Net amortization                                            2               (27)                   19
                                                              ------------------------------------------------
                                                              $    151            $  120             $     193
                                                              ================================================
</TABLE>


                                                                              28
<PAGE>   29


NOTE 9.  EMPLOYEE BENEFIT PLANS (CONTINUED)


     The following assumptions were used to measure the projected benefit
obligation for the benefit plans at December 31, 2000, 1999, and 1998:

<TABLE>
<CAPTION>
                                                                                     2000           1999           1998
                                                                           ----------------------------------------------
         <S>                                                               <C>                      <C>            <C>
         Discount rate to determine the projected benefit obligation                 7.00%          8.00%          6.75%
         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%          4.50%          4.50%
</TABLE>


     The following table sets forth the benefit plans' funded status at December
31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                    2000            1999
                                                                  -----------------------
<S>                                                               <C>            <C>
CHANGE IN BENEFIT OBLIGATION
     Net benefit obligation at beginning of year                  $  2,923       $  3,452
     Service cost                                                      119            134
     Interest cost                                                     239            232
     Actuarial loss (gain)                                             614           (699)
     Gross benefits paid                                              (103)          (196)
                                                                  -----------------------
Net benefit obligation at end of year                             $  3,792       $  2,923
                                                                  =======================

CHANGE IN PLAN ASSETS
     Fair value of plan assets at beginning of year               $  2,676       $  2,778
     Employer contributions                                             11             --
     Actual return on plan assets                                      (99)           (36)
     Gross benefits paid                                              (103)           (66)
                                                                  -----------------------
Fair value of plan assets at end of year                          $  2,485       $  2,676
                                                                  =======================

FUNDED STATUS OF PLAN
     Funded status at end of year                                 $ (1,307)      $   (247)
     Unrecognized net actuarial loss                                   721           (201)
     Unrecognized prior service cost                                    (4)          (327)
     Unrecognized net transition obligation                              5            330
                                                                  -----------------------
Net amount recognized at end of year                              $   (585)      $   (445)
                                                                  =======================

Amounts recognized in the statement of
  financial position consist of:
       Prepaid benefit cost                                       $     --       $     --
       Accrued benefit cost                                           (585)          (445)
       Additional minimum liability                                     --             --
                                                                  -----------------------
Net amount recognized at end of year                              $   (585)      $   (445)
                                                                  =======================
</TABLE>

     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 $905, $653, and $0, respectively, as of December 31, 2000 and
$445, $256, and $0, respectively, as of December 31, 1999.


                                                                              29
<PAGE>   30

NOTE 10.  PREFERRED STOCK

     The Company has 134,000 shares of Series B Preferred Stock ("Series B
Preferred Stock") outstanding, having a stated value of $100 per share. Annual
dividends on the Series B Preferred Stock are $9.00 per share and are
cumulative. Dividends shall accrue whether or not declared by the Board of
Directors. The Series B Preferred Stock is not currently convertible, but may
become convertible into shares of the Company's common stock under certain
circumstances. In such event, the Series B Preferred Stock would be convertible
into an aggregate of approximately 3,358,000 shares of the common stock at a
conversion rate of $3.99 per share. The Series B Preferred Stock is redeemable
at the option of the Company. As of December 31, 2000 and 1999 the Company had
accrued but unpaid dividends on the Series B Preferred Stock of $6,030 and
$4,824, respectively. For all periods in which the Series B Preferred Stock
accrued dividends the Company had an accumulated deficit. Accordingly, and in
compliance with Georgia laws, dividends on the Series B Preferred Stock were
accrued out of additional paid in capital.

     Effective December 29, 2000, the Company issued 25,000 shares of Series C
Preferred Stock ("Series C Preferred Stock"), having a stated value of $100 per
share. Annual dividends are $9.00 per share and are cumulative. The Series C
Preferred Stock is not currently convertible but may become convertible into
shares of the Company's common stock under certain circumstances. In such event,
the Series C Preferred Stock would be convertible into an aggregate of
approximately 627,000 shares of the common stock at a conversion price of $3.99
per share. The Series C Preferred Stock is redeemable at the option of the
Company. The Company received $1,750 from the sale of the Series C Preferred
Stock in December 2000 and had a receivable for the remaining $750 as of
December 31, 2000, which was received in January 2001.




                                                                              30
<PAGE>   31

NOTE 11.  EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED DECEMBER 31, 2000
                                                             --------------------------------------------------
                                                                                                     PER SHARE
                                                              INCOME             SHARES               AMOUNT
                                                             --------------------------------------------------
<S>                                                          <C>                 <C>                 <C>
BASIC EARNINGS PER COMMON SHARE
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS                  $   3,632            21,044
LESS PREFERRED DIVIDENDS                                        (1,206)               --
                                                             ---------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                      2,426                                 $   .12
                                                                                                   ------------
DILUTED EARNINGS PER COMMON SHARE
EFFECT OF DILUTIVE STOCK OPTIONS                                    --                 6
                                                             ---------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
     PLUS ASSUMED CONVERSIONS                                $   2,426            21,050               $   .12
                                                             ==================================================
<CAPTION>
                                                                    For the Year Ended December 31, 1999
                                                             --------------------------------------------------
                                                                                                    Per Share
                                                              Income              Shares              Amount
                                                             --------------------------------------------------
<S>                                                          <C>                 <C>                 <C>
Basic Earnings Per Common Share
Net income before preferred stock dividends                  $  10,910            20,030
Less preferred dividends                                        (1,206)               --
                                                             ---------------------------
Net income available to common shareholders                      9,704            20,030              $    .48
                                                                                                   ------------
Diluted Earnings Per Common Share
Effect of dilutive stock options                                    --               122
Effect of Series B Preferred Stock                               1,206             3,358
                                                             ---------------------------
Net income available to common shareholders
     plus assumed conversions                                $  10,910            23,510              $    .46
                                                             ==================================================
<CAPTION>
                                                                    For the Year Ended December 31, 1998
                                                             --------------------------------------------------
                                                                                                    Per Share
                                                              Income              Shares              Amount
                                                             --------------------------------------------------
<S>                                                          <C>                 <C>                 <C>
Basic Earnings Per Common Share
Net income before preferred stock dividends                  $   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
                                                             ==================================================
</TABLE>

Outstanding stock options of 804,000 and 748,000 were excluded from the earnings
per common share calculation in 2000 and 1999, respectively, since their impact
was antidilutive. The assumed conversion of the Series A Preferred Stock was
excluded from the above earnings per common share calculations for 1998 since
its impact was antidilutive. The assumed conversion of the Series B and Series C
Preferred Stock was excluded from the earnings per common share calculation for
2000 since its impact was antidilutive.


                                                                              31
<PAGE>   32

NOTE 12.  STATUTORY REPORTING

     The assets, liabilities and results of operations have been reported on the
basis of GAAP, which varies from statutory accounting practices ("SAP")
prescribed or permitted by insurance regulatory authorities. The principal
differences between SAP and GAAP are that under SAP: (i) certain assets that are
non-admitted assets are eliminated from the balance sheet; (ii) acquisition
costs for policies are expensed as incurred, while they are deferred and
amortized over the estimated life of the policies under GAAP; (iii) 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:

<TABLE>
<CAPTION>
                                                2000          1999            1998
                                            -----------------------------------------
<S>                                         <C>            <C>              <C>
Life and Health, net income                 $  2,515       $   2,866        $   1,477
Property and Casualty, net income              2,420           3,909            7,098
                                            -----------------------------------------
       Statutory net income                 $  4,935       $   6,775        $   8,575
                                            =========================================

Life and Health, surplus                    $ 23,726       $  26,462        $  25,998
Property and Casualty, surplus                58,206          62,145*          49,492
                                            -----------------------------------------
       Total surplus                        $ 81,932       $  88,607        $  75,490
                                           ==========================================
</TABLE>


*Includes $16,018 attributable to ACIC, which was acquired in 1999.

     Under the insurance code of the state of jurisdiction under which each
insurance subsidiary operates, dividend payments to the Company by its insurance
subsidiaries are subject to certain limitations without the prior approval of
the Insurance Commissioner. The Company received dividends of $6,082 and $5,406
in 2000 and 1999, respectively, from its insurance subsidiaries. In 2001,
dividend payments by the insurance subsidiaries in excess of $8,876 would
require prior approval.

     In 1999, the NAIC completed a process to codify statutory accounting
practices for certain insurance enterprises ("Codification"). Codification may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. It is expected that the most
significant of these changes will be the recognition of deferred taxes and, as
such, the impact of Codification could be material to the Company's surplus and
net income on a statutory-basis. Management continues to evaluate the impact of
Codification on its statutory-basis financial statements. Codification will not,
however, impact the Company's financial statements prepared in accordance with
generally accepted accounting principles.


                                                                              32
<PAGE>   33

NOTE 13.  RELATED PARTY AND OTHER TRANSACTIONS

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

     The Company leases approximately 65,489 square feet of office and covered
garage space from an affiliated company. In the years ended December 31, 2000,
1999, and 1998, the Company paid $904, $898 and $895, respectively, under the
leases.

     Financing for the Company has been provided through affiliates of the
Company or its Chairman, in the form of the Series B Preferred Stock. Effective
December 29, 2000, the Company has also issued 25,000 shares of Series C
Preferred Stock to the Company's Chairman and certain of his affiliates for a
purchase price of $2,500. (See note 10).

     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, 2000 and 1999, the balance of
mortgage loans owed by Leath to various of the Company's insurance subsidiaries
was $3,538 and $3,645, respectively. For 2000, 1999, and 1998, interest on the
mortgage loans totaled $333, $352, and $373, respectively.

     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, 2000 and 1999, the Company owned 650,000 and 620,000 common shares
of Bull Run, respectively, and 354,060 shares of Gray Series A Common Stock and
6,000 shares of Gray Series B Common Stock. The Company also held $4,000 and
$1,500 in Gray 10.625% debentures at December 31, 2000 and 1999, 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 2000 were
$2,238 and $288, respectively, and in 1999 were $1,691 and $232, respectively.



                                                                              33
<PAGE>   34


NOTE 14.  SEGMENT INFORMATION

     The Company's primary insurance subsidiaries operate with relative autonomy
and each company is evaluated based on its individual performance. American
Southern, Association Casualty, and Georgia Casualty operate in the Property and
Casualty insurance market, while Bankers Fidelity operates in the Life and
Health insurance market. All segments derive revenue from the collection of
premiums, as well as from investment income. Substantially all revenue other
than those in the corporate and other segment are from external sources. One
account at American Southern, with the State of South Carolina, accounted for
approximately $17,198, $15,064, and $14,403 of total revenue in 2000, 1999 and
1998, respectively.

<TABLE>
<CAPTION>
                             AMERICAN       GEORGIA         BANKERS      ASSOCIATION     CORPORATE      ADJUSTMENTS
                             SOUTHERN      CASUALTY        FIDELITY        CASUALTY       & OTHER      & ELIMINATIONS  CONSOLIDATED
                            -------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>            <C>           <C>             <C>           <C>             <C>
AS OF DECEMBER 31, 2000

INSURANCE PREMIUMS          $  37,172       $ 28,576       $  47,639       $ 20,110       $      --       $      --       $ 133,497
INVESTMENT INCOME,
  INCLUDING NET
  REALIZED GAINS                5,235          3,445           5,948          2,626           1,103            (883)         17,474
OTHER INCOME                       80             27              --            554           5,774          (5,148)          1,287
                            -------------------------------------------------------------------------------------------------------
     TOTAL REVENUE             42,487         32,048          53,587         23,290           6,877          (6,031)        152,258
INSURANCE BENEFITS
 AND LOSSES INCURRED           26,185         22,192          33,452         15,799              --              --          97,628
EXPENSES DEFERRED              (5,242)        (5,918)         (3,544)        (4,100)             --              --         (18,804)
AMORTIZATION EXPENSE            5,224          5,699           2,177          4,308             140              --          17,548
OTHER EXPENSES                 10,190         11,159          17,131          7,027          11,654          (6,031)         51,130
                            -------------------------------------------------------------------------------------------------------
     TOTAL EXPENSES            36,357         33,132          49,216         23,034          11,794          (6,031)        147,502
                            -------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE
    INCOME TAXES            $   6,130       $ (1,084)      $   4,371       $    256       $  (4,917)      $      --       $   4,756
                            =======================================================================================================
TOTAL ASSETS                $ 109,592       $ 77,237       $ 103,066       $ 80,918       $ 137,334       $(132,370)      $ 375,777
                            =======================================================================================================
</TABLE>

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


<TABLE>
<CAPTION>
                             AMERICAN       GEORGIA         BANKERS      CORPORATE      ADJUSTMENTS
                             SOUTHERN      CASUALTY        FIDELITY      & OTHER      & ELIMINATIONS   CONSOLIDATED
                            --------------------------------------------------------------------------------------
<S>                         <C>             <C>            <C>           <C>             <C>           <C>
As of December 31, 1998
Insurance premiums          $  35,002       $ 21,813       $  34,477       $     --       $      --       $  91,292
Investment income,
  Including net
  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 incurred          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       $ 102,637       $114,412       $(110,587)      $ 273,131
                            =======================================================================================
</TABLE>



                                                                              34
<PAGE>   35

NOTE 15.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                                            2000                        1999
                                                                  ---------------------------------------------------
                                                                   CARRYING     ESTIMATED     Carrying      Estimated
                                                                    AMOUNT     FAIR VALUE      Amount       Fair Value
                                                                  ---------------------------------------------------
<S>                                                               <C>          <C>            <C>           <C>
Assets:
  Cash and cash equivalents, including short-term investments      $ 31,914      $ 31,914      $ 34,306      $ 34,306
  Bonds                                                             159,404       159,404       137,000       137,000
  Common and preferred stocks                                        43,945        43,945        48,684        48,684
  Mortgage loans                                                      3,538         4,040         3,645         4,237
  Policy and student loans                                            3,098         3,098         3,749         3,749
  Other invested assets                                               5,862         5,862         5,717         5,717
Liabilities:
  Debt                                                               46,500        46,500        51,000        51,000
</TABLE>

     The fair value estimates as of December 31, 2000 and 1999 are based on
pertinent information available to management as of the respective dates.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, current estimates of fair value may differ
significantly from amounts that might ultimately be realized.

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

     CASH AND CASH EQUIVALENTS, INCLUDING SHORT-TERM INVESTMENTS

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

     BONDS, COMMON AND PREFERRED STOCKS AND PUBLICLY TRADED OTHER INVESTED
     ASSETS

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

     NON-PUBLICLY TRADED INVESTED ASSETS

       The carrying amount approximates fair value.

     MORTGAGE LOANS

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

     DEBT PAYABLE

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


                                                                              35
<PAGE>   36

NOTE 16.  RECONCILIATION OF OTHER COMPREHENSIVE INCOME


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

     Other than net income, the other components of comprehensive income (loss)
     for the years ended December 31, 2000, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                          ------------------------------------
                                                                            2000          1999          1998
                                                                          ------------------------------------
<S>                                                                       <C>           <C>            <C>
Gain on the sale of securities included in net income                     $ 1,922       $  2,831       $ 2,909
                                                                          ====================================

Other comprehensive income (loss):

              Net pre-tax unrealized gain (loss) arising during year      $   359       $(13,900)      $ 2,197
              Reclassification adjustment                                  (1,922)        (2,831)       (2,909)
                                                                          ------------------------------------
              Net pre-tax unrealized loss recognized in
              other comprehensive income (loss)                            (1,563)       (16,731)         (712)

              Deferred income tax benefit (expense) attributable to
              other comprehensive income (loss)                               547         (4,219)           --
                                                                          ------------------------------------
              Net unrealized loss recognized in
              other comprehensive income (loss)                           $(1,016)      $(20,950)      $  (712)
                                                                          ====================================
</TABLE>


                                                                              36
<PAGE>   37
NOTE 17.  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, 2000 and 1999:

<TABLE>
<CAPTION>
                                                            2000                                         1999
                                        -----------------------------------------------------------------------------------------

                                         FIRST       SECOND      THIRD     FOURTH      First      Second(1)   Third      Fourth
                                        QUARTER      QUARTER    QUARTER    QUARTER    Quarter     Quarter    Quarter     Quarter
                                        -----------------------------------------------------------------------------------------

<S>                                     <C>          <C>        <C>        <C>        <C>         <C>        <C>         <C>
Revenue                                 $ 36,891     $ 36,845   $38,658    $ 39,864   $ 27,337    $ 27,979   $ 33,476     $35,529
                                        =========================================================================================
Income (loss):
    Income (loss) before income tax
    (provision) benefit                 $  1,726     $  1,075   $ 1,447    $    508   $  1,480    $    668   $   (638)    $ 2,412
    Income tax (provision) benefit          (574)        (364)       48        (234)       (27)        (17)       (49)      7,081
                                        -----------------------------------------------------------------------------------------
      Net income (loss)                 $  1,152     $    711   $ 1,495    $    274   $  1,453    $    651   $   (687)    $ 9,493
                                        =========================================================================================

Per common share data:

Basic net income (loss) per share       $    .04     $    .02   $   .06    $    .00   $    .06    $    .02   $   (.05)    $   .44
                                        =========================================================================================

Diluted net income (loss) per share     $    .04     $    .02   $   .06    $    .00   $    .06    $    .02   $   (.05)    $   .39
                                        =========================================================================================
</TABLE>

(1)      Association Casualty was acquired on July 1, 1999 and is included in
         consolidated results of operations from that date.


                                                                              37
<PAGE>   38

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

         The following is management's discussion and analysis of the financial
condition and results of operations of Atlantic American Corporation ("Atlantic
American" or the "Company") and its subsidiaries for each of the three years in
the periods ended December 31, 2000, 1999 and 1998. This discussion should be
read in conjunction with the consolidated financial statements and notes
thereto.

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

OVERALL CORPORATE RESULTS
(Dollars in thousands)

<TABLE>
<CAPTION>
REVENUES

                                         2000            1999            1998
                                      ---------       ---------       ---------
<S>                                   <C>             <C>             <C>
Property and Casualty:
  American Southern                   $  42,487       $  42,926       $  39,748
  Association Casualty                   23,290           9,844              --
  Georgia Casualty                       32,048          23,214          24,970
                                      ---------       ---------       ---------
     Total property and casualty         97,825          75,984          64,718

Life and Health:
  Bankers Fidelity                       53,587          47,511          40,049

Corporate and Other                         846             826           1,299
                                      ---------       ---------       ---------
Total Revenues                        $ 152,258       $ 124,321       $ 106,066
                                      =========       =========       =========

INCOME BEFORE TAXES

Property and Casualty:
  American Southern                   $   6,130       $   6,336       $   6,682
  Association Casualty                      256             301              --
  Georgia Casualty                       (1,084)         (1,271)          1,495
                                      ---------       ---------       ---------
    Total property and casualty           5,302           5,366           8,177

Life and Health:
  Bankers Fidelity                        4,371           3,982           3,550

Corporate and Other                      (4,917)         (5,426)         (3,024)
                                      ---------       ---------       ---------

Total income before taxes             $   4,756       $   3,922       $   8,703
                                      =========       =========       =========
</TABLE>


                                                                              38
<PAGE>   39

         On a consolidated basis the Company's net income for 2000 was $3.6
million ($.12 per diluted share) compared to net income of $10.9 million ($.46
per diluted share) in 1999 and net income of $8.6 million ($.37 per diluted
share) in 1998. In 1999, net income was favorably impacted by a $7.0 million
deferred tax benefit related primarily to a reduction in the Company's valuation
allowance that had previously been established against its net deferred tax
asset. Pre-tax income increased to $4.8 million in 2000 from $3.9 million in
1999. Premium revenue for the year increased 24.1% or $25.9 million, with the
acquisition of Association Casualty accounting for $11.6 million and the
remaining increase of $14.3 million resulting from significant growth in the
Company's insurance subsidiaries. All of the Company's operating units reported
profitable results except for Georgia Casualty, which, however, has made
significant improvements in its operations and, consequently, produced better
underwriting results.

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

UNDERWRITING RESULTS

AMERICAN SOUTHERN

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

<TABLE>
<CAPTION>
                                               2000            1999            1998
                                             --------        --------        --------
<S>                                          <C>             <C>             <C>
Gross written premiums                       $ 47,643        $ 44,070        $ 39,084
Ceded premiums                                 (4,603)         (5,540)         (5,215)
                                             --------        --------        --------

Net written premiums                         $ 43,040        $ 38,530        $ 33,869
                                             ========        ========        ========

Net earned premiums                          $ 37,172        $ 38,166        $ 35,002
Net losses and loss adjustment expenses        26,185          26,934          23,135
Underwriting expenses                          10,172           9,656           9,931
                                             --------        --------        --------

Underwriting income                          $    815        $  1,576        $  1,936
                                             ========        ========        ========

Loss ratio                                       70.4%           70.6%           66.1%
Expense ratio                                    27.4%           25.3%           28.4%
                                             --------        --------        --------

Combined ratio                                   97.8%           95.9%           94.5%
                                             ========        ========        ========
</TABLE>

         Gross written premiums at American Southern increased $3.6 million
during 2000 principally as a result of business produced by American Auto Club
Insurance Agency ("the Agency"), a joint venture between American Southern and
the AAA of the Carolinas Motor Club. American Southern holds a 50% interest in
the joint venture and underwrites the majority of the standard automobile
business written by the Agency. This program, which began writing business in
1999, had gross written premiums of approximately $7.2 million for the year, an
increase of 43.6% or $2.2 million from prior year. The decline in ceded premiums
in 2000 of $0.9 million is primarily due to a specific reinsurance agreement put
into place by American Southern. The reinsurance agreement provides for
additional penalty premium based on losses. In 1999, the company collected $0.8
million in penalty premiums and remitted them to the reinsurer. During 2000,
there were no penalty premiums collected causing the decrease in ceded premiums
as compared to 1999. Effective July 1, 1998 the reinsurance agreement was
canceled but provided, however, that any occurrences prior to this date shall
continue to be covered by the reinsurance agreement and more penalty premium
could be collected if losses develop.

         In addition to the business written through the joint venture, American
Southern produces much of its business through contracts with various states and
municipalities, some of which represent significant amounts of revenue for the
company. These contracts are periodically subject to competitive renewal quotes
and the loss of a significant contract could have a material adverse effect on
the business or financial condition of American Southern and of the Company.

         During 2000, American Southern renewed one of its larger accounts.
Although this contract was renewed through a competitive bidding process, one of
the parties bidding for this particular contract contested the award of this
business to American Southern and filed a claim to obtain the nullification of
the contract. During the fourth quarter of 2000, American Southern received an
unfavorable judgment and has appealed the ruling. The contract is to remain in
effect pending appeal. American Southern is vigorously defending the case and
has recognized, as written premium, the remaining premium balance on this
contract. While management believes that the


                                                                              39
<PAGE>   40

effect of an adverse outcome on this case would not materially affect the
current financial position of the Company, it may have a material impact on the
future results of its operations. This contract, when renewed, was done so at a
lower rate than the previous year resulting in a slight decrease in net earned
premium of 2.6% in 2000. While American Southern renewed this contract at a
lower rate, it is management's opinion that this contract will remain
profitable.

     The following table presents a break out of American Southern's earned
premiums by line of business (dollars in thousands):

<TABLE>
<CAPTION>
                                  2000         1999         1998
                                -------      -------      -------
<S>                             <C>          <C>          <C>
Automobile liability            $22,795      $24,573      $23,396
Automobile physical damage        7,397        6,112        4,288
General liability                 3,536        4,302        4,291
Property                          3,383        3,118        2,970
Surety                               61           61           57
                                -------      -------      -------

Total earned premium            $37,172      $38,166      $35,002
                                =======      =======      =======
</TABLE>

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

         The combined ratio for American Southern for 2000 was 97.8% up slightly
from the 1999 combined ratio of 95.9%. The loss ratio decreased slightly to
70.4% in 2000 from 70.6% in 1999. The decrease in the loss ratio is a result of
lower than anticipated losses on the personal auto line of business. The expense
ratio for 2000 is up to 27.4% from 25.3% in 1999. This increase in the expense
ratio is a direct result of American Southern's business structure. The majority
of American Southern's business is structured in such a way that the agents are
rewarded or penalized based upon the loss ratio of the business they submit to
the company. By structuring its business in this manner, American Southern
provides its agents with an economic incentive to place profitable business with
the company. As a result of this arrangement, in periods where losses and the
loss ratio decrease, commission and underwriting expenses increase.


                                                                              40
<PAGE>   41

ASSOCIATION CASUALTY

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

<TABLE>
<CAPTION>
                                                     2000               (1)   1999
                                                  ----------            ----------
  <S>                                             <C>                   <C>
  Gross written premiums                          $   24,967             $   9,299
  Ceded premiums                                      (2,314)                 (775)
                                                  ----------             ---------

  Net written premiums                            $   22,653             $   8,524
                                                  ==========             =========

  Net earned premiums                             $   20,110             $   8,498
  Net losses and loss adjustment expenses             15,799                 6,380
  Underwriting expenses                           *    6,410             *   2,751
                                                  ----------             ---------

  Underwriting loss                               $   (2,099)            $    (633)
                                                  ==========             =========

  Loss ratio                                            78.5%                 75.1%
  Expense ratio                                   *     31.9%            *    32.4%
                                                  ----------             ---------

  Combined ratio                                       110.4%                107.5%
                                                  ==========             =========
</TABLE>

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

*        Excludes the interest expense on an intercompany surplus note
         associated with the acquisition of Association Casualty.

         Association Casualty writes predominately workers' compensation
insurance in the state of Texas (95% of net earned premiums). The Texas workers'
compensation market remains extremely competitive; however, Association Casualty
has been successful in attracting new business and in increasing the rates it is
charging for renewal business. As a result of these efforts, the company has
been able to increase gross written premiums. The company also added
approximately $0.7 million of premium related to commercial lines other than
workers' compensation such as general liability, property, and other commercial
coverages to complement its existing book of business.

         The combined ratio for Association Casualty during 2000 of 110.4% was
higher than is desired by management. This is primarily attributable to
increased losses. The higher than expected losses in 2000 are largely due to
negative development stemming from second and third surgeries on previously
closed claims as well as a continuing rise in medical costs. It is anticipated
that the rate increases will ultimately mitigate these increases.

         Expenses as a percentage of earned premium declined slightly primarily
as a result of the increase in earned premium and only a moderate increase in
fixed expenses.


                                                                              41
<PAGE>   42

GEORGIA CASUALTY

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

<TABLE>
<CAPTION>
                                               2000            1999            1998
                                             --------        --------        --------
<S>                                          <C>             <C>             <C>
Gross written premiums                       $ 35,031        $ 26,798        $ 24,468
Ceded premiums                                 (3,925)         (5,928)         (3,203)
                                             --------        --------        --------

Net written premiums                         $ 31,106        $ 20,870        $ 21,265
                                             ========        ========        ========

Net earned premiums                          $ 28,576        $ 19,403        $ 21,813
Net losses and loss adjustment expenses        22,192          16,535          16,216
Underwriting expenses                          10,940           7,950           7,259
                                             --------        --------        --------

Underwriting loss                            $ (4,556)       $ (5,082)       $ (1,662)
                                             ========        ========        ========

Loss ratio                                       77.7%           85.2%           74.3%
Expense ratio                                    38.3%           41.0%           33.3%
                                             --------        --------        --------

Combined ratio                                  116.0%          126.2%          107.6%
                                             ========        ========        ========
</TABLE>

         Gross written premiums at Georgia Casualty increased 30.7% or $8.2
million in 2000. The increase in premium is the result of several factors.
First, during 2000 the company began evaluating and underwriting insurance for
large associations and other homogenous risks. In addition, the company has been
aggressively increasing rates on its new and renewal business. Lastly, the new
management team at Georgia Casualty, through its relationships in the insurance
industry, has broadened the agency force used by the company. The decline in
ceded premiums is the result of the discontinuation of the stop-loss reinsurance
agreement that the company had put into place in 1999. Due to the improved
results seen by Georgia Casualty, the protection offered by the stop-loss
agreement was, in the opinion of management, no longer necessary.

         Gross written premiums increased $2.3 million in 1999 compared to 1998.
The business relationships brought in by the new management team is the primary
cause of the growth in premium for 1999. The increase in ceded premium during
1999 compared to 1998 is due to the aforementioned stop-loss reinsurance
agreement.


                                                                              42
<PAGE>   43

         The following table presents a break out of Georgia Casualty's earned
premiums by line of business (dollars in thousands):

<TABLE>
<CAPTION>

                             2000         1999         1998
                           -------      -------      -------
<S>                        <C>          <C>          <C>
Workers' compensation      $16,741      $13,157      $14,344
Business automobile          4,918        2,876        3,750
General liability            2,531        1,251        1,619
Property                     4,386        2,119        2,100
                           -------      -------      -------

Total earned premium       $28,576      $19,403      $21,813
                           =======      =======      =======
</TABLE>

         The combined ratio for Georgia Casualty for 2000 decreased to 116.0%
from 126.2% in 1999. The loss ratio declined to 77.7% in 2000 from 85.2% in
1999. The primary reason for the decline is the complete elimination during the
latter part of 1999 of two underwriting programs, the performance of which was
substandard. In addition, the company is seeing the benefits of the increased
rates that began during 1999. Also, the mix of business that Georgia Casualty
underwrites has changed from one of higher hazards (e.g. logging and
habitational contractors) to low and moderate hazards (e.g. retail and light
manufacturing).

         During 2000, in an effort to strengthen loss reserves and reposition
the company, a comprehensive review of all loss reserves and open claims was
performed. Consequently, reserves were increased to levels deemed more
appropriate by management. These initiatives resulted in a loss ratio that is
higher than is desired by management but which is needed to support the
significant growth Georgia Casualty is experiencing and better position the
company to capitalize on market opportunities.

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


                                                                              43
<PAGE>   44

BANKERS FIDELITY

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

<TABLE>
<CAPTION>
                                                Premiums
                                     2000         1999         1998
                                   -------      -------      -------
<S>                                <C>          <C>          <C>
Medicare supplement                $31,295      $25,822      $19,743
Other health products                2,899        3,206        2,986
Life insurance                      13,445       12,499       11,748
                                   -------      -------      -------

Total premiums                     $47,639      $41,527      $34,477
                                   =======      =======      =======

<CAPTION>
                                         Operating Expenses
                                     2000         1999         1998
                                   -------      -------      -------
<S>                                <C>          <C>          <C>
Insurance benefits and losses      $33,452      $28,313      $21,494
Commissions and underwriting
  expenses                          15,764       15,216       15,005
                                   -------      -------      -------

Total expenses                     $49,216      $43,529      $36,499
                                   =======      =======      =======
</TABLE>

         Premium revenue at Bankers Fidelity increased 14.7% or $6.1 million
over 1999 results. The largest increase is in the Medicare Supplement line of
business, which is up 21.2% for the year. During 1999, Bankers Fidelity had
expanded its Medicare Supplement product into additional states and, as a
result, increased the sales of this product over the course of the year. The
effects of this expansion are now being realized. In addition, several of
Bankers Fidelity's competitors have exited this line of business which has
increased the flow of business to Bankers Fidelity. Also, during the fourth
quarter of 1999 and the first quarter of 2000 Bankers Fidelity implemented rate
increases on this product, in some cases up to 30%. While the full effect of
these rate increases is just now beginning to impact renewal business, it is
reflected in the new business written by the company. In spite of these
increases, the renewal rate retention on this product was in excess of 86% for
the year. Bankers Fidelity is also continuing to see increased sales in its life
products, up 7.6% as compared to 1999. The company is continuing to emphasize
this product line in its marketing efforts. The increase in premium volume from
1998 to 1999 is attributable to the same reasons outlined in the aforementioned
paragraph.

         Insurance benefits and losses at Bankers Fidelity increased 18.2% or
$5.1 million during 2000. This increase is directly attributable to the increase
in premium volume. As a percentage of earned premium, benefits and losses were
70.2% for the year compared to 68.2% in 1999. The increase is primarily due to
increased medical costs. It is anticipated that the rate increases that Bankers
Fidelity has put in place will ultimately mitigate the increases in medical
costs.

         As a result of an effort to reduce commission costs as well as
streamline expenses, commissions and other expenses increased only slightly to
$15.8 million from $15.2 million in 1999. As a percentage of earned premium,
these expenses were 33.1% for the year compared to 36.6% in 1999.

INVESTMENT INCOME AND REALIZED GAINS

         Investment income for the year of $15.6 million represents an increase
of 22.2% or $2.8 million over 1999 results. The inclusion of Association
Casualty is responsible for $1.5 million of this increase in 2000. The Company
also benefited from a significant gain in a real estate partnership in which it
is involved. The investment, which is accounted for under the equity method,
generated income of approximately $0.6 million during 2000. The remaining
increase is the result of the Company shifting securities from short-term to
longer-term securities to take advantage of the steepening yield curve in the
first half of 2000. Investment income increased 10.7% or $1.2 million in 1999
from 1998. The addition of Association Casualty added over $30.0 million to the
investment portfolio of Atlantic American in 1999 and accounted for $1.1 million
of the increase in investment income from 1998 to 1999. Management has continued
to focus on investing in short and medium maturity bonds of high quality, in
addition to government-backed securities. The common and preferred stock
portfolio of Atlantic American decreased $4.7 million during 2000 due to
declines in the trading prices of several of its investments. During the fourth
quarter of 2000, interest rates began to decline. As a result of falling
interest rates on the Company's


                                                                              44
<PAGE>   45

bond portfolio, the declines in the equity investments were partially offset by
the increases in the bond portfolio. Consequently, unrealized investment gains
decreased slightly from $12.1 million at December 31, 1999 to $10.5 million at
December 31, 2000.

         Realized investment gains decreased to $1.9 million in 2000 from $2.8
million in 1999. Management is continually evaluating the Company's investment
portfolio and will periodically divest appreciated investments as deemed
appropriate.

INTEREST EXPENSE

         Interest expense increased from $2.8 million in 1999 to $4.4 million in
2000. In conjunction with the acquisition of Association Casualty, the Company
entered into a $30.0 million revolving credit facility with Wachovia Bank, N.A.
In 1999, the Company had drawn down $26.0 million on this facility. This
facility, coupled with the $25.0 million variable rate demand bonds issued
during the second quarter of 1999, brought the total debt of the Company to
$51.0 million as of December 31, 1999, up from $26.0 million at the end of 1998.
During 2000, the Company paid down $4.5 million of the credit facility reducing
the debt to $46.5 million at December 31, 2000 compared to $51.0 million as of
December 31, 1999. The increased debt associated with the acquisition of
Association Casualty along with rising interest rates accounted for the increase
in interest expense.

OTHER EXPENSES

         The increase in other operating expenses (commissions, underwriting
expenses, and other expenses) is primarily attributable to the acquisition of
Association Casualty which accounts for $4.1 million of the $6.0 million
increase. The remaining increase of $1.9 million is the result of increased
costs associated with the staffing needs for Georgia Casualty to support the
premium growth in addition to an increase in state assessments, specifically the
second injury trust fund assessment. These increased costs were partially offset
by a reduction in the bad debt reserve due to improvements as to the
collectiblity of certain receivables from agents with whom the company conducts
business. In 1999, other operating expenses increased $5.0 million. The
acquisition of Association Casualty accounted for $3.2 million of this increase.
The remaining increase of $1.8 million was due primarily to an initiative taken
by the Company in 1999 to streamline its operations in addition to an overall
increase in general operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

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

         Dividend payments to the Company by its insurance subsidiaries are
subject to annual limitations and are restricted to the greater of 10% of
statutory surplus or statutory earnings before recognizing realized investment
gains of the individual insurance subsidiaries. At December 31, 2000 the
Company's insurance subsidiaries had statutory surplus of $81.9 million.

         The Company provides certain administrative, purchasing and other
services for each of its subsidiaries. The amount charged to and paid by the
subsidiaries was $7.6 million, $6.7 million, and $6.5 million in 2000, 1999, and
1998, respectively. In addition, the Company has a formal tax-sharing agreement
with each of its insurance subsidiaries. A net total of $1.0 million, $2.0
million and $1.9 million was paid to the Company under the tax sharing agreement
in 2000, 1999, and 1998, respectively. Dividends were paid to Atlantic American
by one of its subsidiaries totaling $3.6 million in 2000, 1999, and 1998. As a
result of the Company's tax loss carryforwards, which totaled approximately
$31.6 million at December 31, 2000, it is anticipated that the tax sharing
agreement will provide the Company with additional funds with which to meet its
cash flow obligations.

         The Company is a party to a five-year revolving credit facility ("the
Revolving Credit Facility") that provides for borrowings up to $30.0 million.
The interest rate on the borrowings under this facility may be fixed, at the
Company's option, for a period of one, three, six or twelve months and is based
upon the London Interbank Offered Rate ("LIBOR") plus an applicable margin,
2.50% at December 31, 2000. The margin varies based upon the Company's leverage
ratio (debt to total capitalization, as defined) and ranges from 1.75% to 3.75%.
Interest on the Revolving Credit Facility is currently payable monthly. The
Revolving Credit Facility provides for the payment of all of the outstanding
principal balance at June 30, 2004 with no required


                                                                              45
<PAGE>   46

principal payments prior to that time, except as provided below. The interest
rate on this facility at December 31, 2000 and 1999 was 9.12% and 8.49%,
respectively.

         The Company also has outstanding $25.0 million of Series 1999, Variable
Rate Demand Bonds (the "Bonds") due July 1, 2009 issued through a private
placement. The Bonds, which are redeemable at the Company's option, pay a
variable interest rate that approximates 30-day LIBOR. The Bonds are backed by a
letter of credit issued by Wachovia Bank, N.A., which is automatically renewable
on a monthly basis until thirteen months after such time as Wachovia gives the
Company notice of its option not to renew the letter of credit. The Bonds are
subject to mandatory redemption upon termination of the letter of credit, if an
alternative letter of credit facility is not secured. The Company expects that
it would be able to replace the letter of credit facility within the prescribed
period if Wachovia should give notice of its intention not to renew the existing
facility. The cost of the letter of credit and its associated fees are 2.50%
making the effective rate on the Bonds, LIBOR plus 2.50% at December 31, 2000.
The interest on the Bonds is payable monthly and the letter of credit fees are
payable quarterly. The interest rate on the Bonds, along with the related fees,
at December 31, 2000 and 1999 was 9.15% and 8.29%, respectively. The Bonds do
not require the repayment of any principal prior to maturity, except as provided
above.

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

         Effective December 30, 2000, the Revolving Credit Facility and letter
of credit were both amended by Wachovia Bank, N.A. The amendment establishes new
covenants pertaining to ratios related to funded debt, total capitalization,
interest coverage, EBITDA, and authorized control level risk-based capital. In
addition, the Company is required to enter into and maintain at all times
thereafter, interest rate protection agreements with respect to at least 30
percent of the aggregate principal amount of the total debt. On March 21, 2001,
the Company entered into an interest rate swap agreement with Wachovia Bank,
N.A. to hedge its interest rate risk on a portion of the outstanding borrowings
under the Revolving Credit Facility. Also, beginning March 31, 2003 and each
quarter thereafter, the commitment on the Revolving Credit Facility shall be
permanently reduced in an amount equal to $1.0 million. Each such reduction
shall be accompanied by a prepayment of the loans to the extent that the loans
exceed the amount of the commitment after giving affect to each quarterly
reduction. At December 31, 2000 the Company was in compliance with all debt
covenants, as revised on December 30, 2000.

         The Company intends to repay its obligations under both facilities
using dividend and tax sharing payments from its subsidiaries. In addition, the
Company believes that, if necessary, at maturity, the Revolving Credit Facility
can be refinanced with the current lender and that an additional series of bonds
could be issued when the Bonds mature.

         The Company also has outstanding $15.9 million of preferred stock
issued to affiliates. The preferred stock accrues a dividend of 9.0% per year
and at December 31, 2000 the Company had accrued but unpaid dividends on the
preferred stock totaling $6.0 million.

         Net cash provided by operating activities totaled $16.7 million in
2000, $5.4 million in 1999 and $5.5 million in 1998. Cash and short-term
investments at December 31, 2000 were $31.9 million and are believed to be more
than sufficient to meet the Company's near-term needs.

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

     In 1999, the National Association of Insurance Commissioners ("NAIC")
completed a process to codify statutory accounting practice for certain
insurance enterprises ("Codification"). Codification may result in changes to
the accounting practices that the Company uses to prepare its statutory-basis
financial statements. It is expected that the most significant of these changes
will be the recognition of deferred taxes and, as such, the impact of
Codification could be material to the Company's surplus and net income on a
statutory-basis. Management continues to evaluate the impact of Codification on
its statutory-basis financial statements. Codification will not, however, impact
the Company's financial statements prepared in accordance with generally
accepted accounting principles.

NEW ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenues in financial statements and requires adoption no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company


                                                                              46
<PAGE>   47

adopted SAB 101 in the fourth quarter of 2000. The adoption did not have any
impact on the Company's results of operations or financial position.

         In June 1998, the Financial Accounting Standards board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires
the recognition of the fair value of all derivative instruments on the balance
sheet and establishes specific accounting methods for hedges. In June 1999, the
FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Election Date of FASB Statement 133" ("SFAS 137").
Subsequent to the issuance of SFAS 133, as amended by SFAS 137, the FASB
received many requests to clarify certain issues causing difficulties in
implementation. In June 2000, the FASB issued SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," ("SFAS 138"), which
responds to these requests by amending certain provisions of SFAS 133. The
Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on
January 1, 2001. Management has determined that the impact of initially adopting
SFAS 133, as amended by SFAS 137 and SFAS 138 will not have a material effect on
the Company's financial condition or results of operations.

IMPACT OF INFLATION

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

INTEREST RATE AND MARKET RISK

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

         The Company is also subject to risk from changes in equity prices.
Atlantic American owned $14.2 million of common stock of Wachovia Corporation at
December 31, 2000. A 10% decrease in the share price of the common stock of
Wachovia Corporation would result in a decrease of approximately $0.9 million to
shareholders' equity.

         The interest rate on the Company's debt is tied to LIBOR. A 100 point
basis increase in the LIBOR would result in an additional $0.5 million in
interest expense. On March 21, 2001, the Company entered into an interest rate
swap agreement with Wachovia Bank, N.A. to hedge its interest rate risk on a
portion of the outstanding borrowings under the revolving credit facility.

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

<TABLE>
<CAPTION>
(Dollars in thousands)       +200bp       +100bp       Fair value      -100bp       -200bp
----------------------      --------     --------      ----------     --------     --------
<S>                         <C>          <C>           <C>            <C>          <C>
December 31, 2000           $148,749     $154,357       $159,404      $163,215     $166,020
December 31, 1999           $122,815     $128,677       $137,000      $139,704     $143,704
</TABLE>


                                                                              47
<PAGE>   48

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

<TABLE>
<CAPTION>
(Dollars in thousands)                    +20%         +10%     Fair Value       -10%         -20%
----------------------                  -------      -------    ----------     -------      -------
<S>                                     <C>          <C>        <C>            <C>          <C>
December 31, 2000

Investment in Wachovia Corporation      $17,005      $15,588      $14,171      $12,754      $11,337
Other equity holdings                    35,729       32,751       29,774       26,797       23,819
                                        -------      -------      -------      -------      -------

Total equity holdings                   $52,734      $48,339      $43,945      $39,551      $35,156
                                        =======      =======      =======      =======      =======

December 31, 1999

Investment in Wachovia Corporation      $22,668      $20,779      $18,890      $17,001      $15,112
Other equity holdings                    35,753       32,773       29,794       26,815       23,835
                                        -------      -------      -------      -------      -------

Total equity holdings                   $58,421      $53,552      $48,684      $43,816      $38,947
                                        =======      =======      =======      =======      =======
</TABLE>

         The interest rate on the Company's debt is variable and tied to LIBOR.
The table below summarizes the effect that changes in interest rates would have
on the Company's interest expense. The impact of the changes in interest rates
at December 31, 2000 excludes the impact of the interest rate swap agreement the
Company entered into on March 21, 2001, discussed above.

<TABLE>
<CAPTION>
                                            Interest Expense                                      Interest Expense
                                    ------------------------------                         -----------------------------
(Dollars in thousands)                +200bp              +100bp              Debt           -100bp             -200bp
----------------------              ----------          ----------          --------       ----------         ----------
<S>                                 <C>                 <C>                 <C>            <C>                <C>
December 31, 2000                       $930               $465             $46,500          $(465)             $  (930)
December 31, 1999                     $1,020               $510             $51,000          $(510)             $(1,020)
</TABLE>

DEFERRED TAXES

         At December 31, 2000, the Company had a net deferred tax asset of $3.8
million comprised of a deferred tax asset of $20.8 million, a deferred tax
liability of $9.1 million and a valuation allowance of $7.9 million. The
valuation allowance was established against deferred tax assets relating to net
operating loss carryforwards that might not be realized.

         Until the end of 1999, the Company established a full valuation
allowance against these deferred income tax benefits as they were not considered
realizable from expected future reversals of existing taxable temporary
differences. The Company believed that it was more likely than not that the net
deferred income tax benefits would not be realized through future taxable income
prior to the expiration dates of net operating loss carryforwards. However, with
the acquisition of Association Casualty and several years of profitability, the
Company believes it is now more likely than not that a portion of its net
deferred income tax benefits relating to net operating loss carryforwards
scheduled to expire between 2006 and 2010 will be realized based on future
taxable income. Management also can and would implement tax-planning strategies
to prevent these carryforwards from expiring. As of December 31, 2000, a
valuation allowance has been established for deferred income tax benefits
relating primarily to net operating loss carryforwards scheduled to expire
between 2002 and 2003. Since the Company's ability to generate taxable income
from operations and utilize available tax-planning strategies in the near term
is dependent upon various factors, many of which are beyond management's
control, management believes that it is more likely than not that the deferred
income tax benefits relating to these carryforwards will not be realized.
However, realization of the remaining deferred income tax benefits will be
assessed periodically based on the Company's current and anticipated results of
operations and amounts could increase or decrease in the near term if estimates
of future taxable income change. The Company has a formal tax-sharing agreement
and files a consolidated income tax return with its subsidiaries.


                                                                              48
<PAGE>   49

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, 2000, and the other filings made by the Company from time to time
with the Securities and Exchange Commission.


                                                                              49
<PAGE>   50

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, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements (pages 9 through 37) referred
to above present fairly, in all material respects, the financial position of
Atlantic American Corporation and subsidiaries as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.


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

Atlanta, Georgia
March 27, 2001


                                                                              50
<PAGE>   51

                                  SUBSIDIARIES

                               PRINCIPAL OFFICERS

                     BANKERS FIDELITY LIFE INSURANCE COMPANY
                                  EUGENE CHOATE
                                    President

                        GEORGIA CASUALTY & SURETY COMPANY
                                 BOB J. KITCHEN
                                    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

                     ASSOCIATION CASUALTY INSURANCE COMPANY
                   ASSOCIATION RISK MANAGEMENT GENERAL AGENCY
                                HAROLD K. FISCHER
                                    President

                       SELF-INSURANCE ADMINISTRATORS, INC.
                                ANDY M. THOMPSON
                                    President


                                                                              51
<PAGE>   52

                         MARKET INFORMATION (UNAUDITED)

         The common stock of the Company is quoted on the Nasdaq National Market
under the symbol "AAME." As of December 31, 2000, the Company had approximately
4,980 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, 2000. Since 1988, the Company has retained its earnings
to support the growth of its business.

<TABLE>
<CAPTION>
                                                                                   2000                         1999
                                                                       --------------------------------------------------------

                                                                           HIGH            LOW          High            Low
                                                                       --------------------------------------------------------
<S>                                                                     <C>             <C>           <C>           <C>
First quarter                                                            $ 2 15/16      $  2 1/4      $  4 5/8      $ 3 15/16
Second quarter                                                              3  3/8         2 1/2       4 11/16          3 7/8
Third quarter                                                               2 3/4          1 3/4         4 1/8          2 3/8
Fourth quarter                                                              2 1/2          1 3/4       2 15/16          2 1/4

<CAPTION>
                                                                   2000       1999            1998           1997        1996
                                                                 --------------------------------------------------------------
<S>                                                              <C>         <C>             <C>            <C>         <C>
December 31, closing stock price per share                          $2       $2 5/16         $ 4 7/8        $5 1/16     $3 1/16
Stock price percentage of change from prior year                 -13.5%        -52.6%           -3.7%         +65.3%      +32.4%
</TABLE>


                                                                              52
<PAGE>   53

                                    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

                                HAROLD K. FISCHER
                                    President
                     Association Casualty Insurance Company

                                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

                                ROBERT A. RENAUD
                   Vice President and Chief Financial Officer

                                  MARC LA PALME
                       Vice President, Actuarial Services
                          Property & Casualty Division

                                CLARK W. BERRYMAN
                      Vice President, Information Services

                               MICHAEL J. BRASSER
                         Vice President, Internal Audit



                                                                              53
<PAGE>   54

                                  JANIE L. RYAN
                               Corporate Secretary

                                BARBARA B. SNYDER
                  Vice President and Director, Human Resources


                                                                              54
<PAGE>   55

SHAREHOLDER INFORMATION

ANNUAL MEETING

Atlantic American's annual meeting of shareholders will be held on Tuesday, May
15, 2001, 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 19, 2001, 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) 441-5001 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) 441-5001 or (404) 266-5532. Please visit our web site at:
www.atlam.com.


                                                                              55
<PAGE>   56

4370 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30319-3000
TELEPHONE:        404-266-5500
FACSIMILE:        404-266-5702
WWW.ATLAM.COM









                                                                              56