##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-K

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year Ended December 31,
    2003                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-3722



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ATLANTIC AMERICAN CORPORATION

(Exact name of registrant as specified in its
charter)


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

(Registrants telephone number, including
area code)

(404) 266-5500


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

None


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

Common Stock, $1.00 par value

(Title of class)




---

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

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

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



---

The aggregate market value of voting and
nonvoting common stock held by non-affiliates of the registrant
as of June 30, 2003, the last business day of the
registrants most recently completed second fiscal quarter,
was $13,284,152. On March 19, 2004 there were
21,272,604 shares of the registrants common stock,
par value $1.00 per share, outstanding.



---

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrants Proxy
Statement for the Annual Meeting of Shareholders, to be held on
May 4, 2004, have been incorporated by reference in
Items 10, 11, 12, 13 and 14 of Part III of this
Form 10-K.





---
















TABLE OF CONTENTS

|                                                 |  |                                                                                                                      |  |      |    | 
|------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                 |  |                                                                                                                      |  | Page
|                                                 |  |                                                                                                                      |  |     
|PART I                                          
|Item 1.                                          |  | Business                                                                                                             |  |      | 2  | 
|                                                 |  | The Company                                                                                                          |  |      | 2  | 
|                                                 |  | Marketing                                                                                                            |  |      | 5  | 
|                                                 |  | Underwriting                                                                                                         |  |      | 6  | 
|                                                 |  | Policyholder and
    Claims Services                                                                                 |  |      | 7  | 
|                                                 |  | Reserves                                                                                                             |  |      | 8  | 
|                                                 |  | Reinsurance                                                                                                          |  |      | 11 | 
|                                                 |  | Competition                                                                                                          |  |      | 12 | 
|                                                 |  | Ratings                                                                                                              |  |      | 13 | 
|                                                 |  | Regulation                                                                                                           |  |      | 13 | 
|                                                 |  | NAIC Ratios                                                                                                          |  |      | 14 | 
|                                                 |  | Risk-Based
    Capital                                                                                               |  |      | 15 | 
|                                                 |  | Investments                                                                                                          |  |      | 15 | 
|                                                 |  | Employees                                                                                                            |  |      | 16 | 
|                                                 |  | Financial
    Information by Industry Segment                                                                        |  |      | 16 | 
|                                                 |  | Available
    Information                                                                                            |  |      | 16 | 
|                                                 |  | Executive
    Officers of the Registrant                                                                             |  |      | 17 | 
|                                                 |  | Forward-Looking
    Statements                                                                                       |  |      | 17 | 
|Item 2.                                          |  | Properties                                                                                                           |  |      | 18 | 
|Item 3.                                          |  | Legal Proceedings                                                                                                    |  |      | 18 | 
|Item 4.                                          |  | Submission of Matters to a
    Vote of Security Holders                                                              |  |      | 18 | 
|PART II                                         
|Item 5.                                          |  | Market for Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities |  |      | 19 | 
|Item 6.                                          |  | Selected Financial Data                                                                                              |  |      | 20 | 
|Item 7.                                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |  |      | 21 | 
|Item 7A.                                         |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                       |  |      | 36 | 
|Item 8.                                          |  | Financial Statements and
    Supplementary Data                                                                      |  |      | 38 | 
|Item 9.                                          |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |  |      | 70 | 
|Item 9A.                                         |  | Controls and Procedures                                                                                              |  |      | 70 | 
|PART III                                        
|Item 10.                                         |  | Directors and Executive Officers of the Registrant                                                                   |  |      | 70 | 
|Item 11.                                         |  | Executive Compensation                                                                                               |  |      | 70 | 
|Item 12.                                         |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters                   |  |      | 70 | 
|Item 13.                                         |  | Certain Relationships and Related Transactions                                                                       |  |      | 70 | 
|Item 14.                                         |  | Principal Accountant Fees and Services                                                                               |  |      | 70 | 
|PART IV                                         
|Item 15.                                         |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                  |  |      | 71 | 
|EX-14.1 CODE OF ETHICS                          
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT          
|EX-23.1 CONSENT OF DELOITTE AND TOUCHE LLP      
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO    
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO    
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO/CFO



1



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##### Table of Contents






PART I






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




The Company

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

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






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

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



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

American Southern.American Southern provides tailored fleet automobile and
long-haul physical damage insurance coverage, on a multi-year
contract basis, to state governments, local municipalities and
other large motor pools and fleets (block accounts)
that can be specifically rated and underwritten. The size of the
block accounts insured by American Southern are such that
individual class experience generally can be determined, which
allows for customized policy terms and rates. American Southern
produces business in 20 of the 25 states in the Southeast
and Midwest in which it is authorized to conduct business.
Additionally, American Southern provides personal automobile
insurance to the members of the Carolina Motor Club, Inc.
(AAA Carolinas), an affiliate of the American
Automobile Association. While the majority of American
Southerns premiums are derived from auto liability and
auto physical damage, American Southern also provides property,
general liability and surety coverage.

2



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##### Table of Contents



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

|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|-------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                           |       |                        
|                           |       | Year Ended December 31,
|                           |       |                        
|                           |       | 2003                    |        | 2002   |  | 2001 |        | 2000   |  | 1999
|                           |       |                         |        |        |  |      |        |        |  |     
|                           |       |                        
|                           |       | (In thousands)         
|Automobile Liability       |       | $                       | 17,947 |        |  | $    | 22,748 |        |  | $    | 23,677 |        |  | $ | 22,795 |        |  | $ | 24,573 |       
|Automobile Physical Damage |       |                         | 9,451  |        |  |      | 9,829  |        |  |      | 8,732  |        |  |   | 7,397  |        |  |   | 6,112  |       
|General Liability          |       |                         | 5,777  |        |  |      | 3,647  |        |  |      | 3,161  |        |  |   | 3,536  |        |  |   | 4,302  |       
|Property                   |       |                         | 3,819  |        |  |      | 3,627  |        |  |      | 3,386  |        |  |   | 3,383  |        |  |   | 3,118  |       
|Surety                     |       |                         | 364    |        |  |      | 63     |        |  |      | 67     |        |  |   | 61     |        |  |   | 61     |       
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                           | Total |                         | $      | 37,358 |  |      | $      | 39,914 |  |      | $      | 39,023 |  |   | $      | 37,172 |  |   | $      | 38,166 | 
|                           |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

Georgia Casualty.Georgia Casualty is a property-casualty insurance company
providing workers compensation, property, general
liability, automobile, umbrella, inland marine and mechanical
breakdown coverage to businesses throughout the Southeastern
United States. Georgia Casualtys primary marketing focus
is toward small to middle market accounts with low to moderate
hazard grades, ranging from $20,000 to $250,000 in written
premiums. In addition to the wide range of commercial products
available, Georgia Casualty offers customized products for nine
classes of business, including, but not limited to, light
manufacturing, restaurants, golf clubs and artisan contractors.
These products, along with innovative risk management services
and exceptional claims handling, are offered through an
exclusive network of independent agents. Georgia Casualty is
licensed to do business in thirteen states. Its principal
marketing territories include Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina and Tennessee.

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

|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|--------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                      |       |                        
|                      |       | Year Ended December 31,
|                      |       |                        
|                      |       | 2003                    |        | 2002   |  | 2001 |        | 2000   |  | 1999
|                      |       |                         |        |        |  |      |        |        |  |     
|                      |       |                        
|                      |       | (In thousands)         
|Workers Compensation |       | $                       | 11,071 |        |  | $    | 10,592 |        |  | $    | 10,744 |        |  | $ | 16,741 |        |  | $ | 13,157 |       
|Business Automobile   |       |                         | 8,767  |        |  |      | 7,388  |        |  |      | 5,412  |        |  |   | 4,918  |        |  |   | 2,876  |       
|General Liability     |       |                         | 2,272  |        |  |      | 1,761  |        |  |      | 2,610  |        |  |   | 2,531  |        |  |   | 1,251  |       
|Property              |       |                         | 12,209 |        |  |      | 10,003 |        |  |      | 6,813  |        |  |   | 4,386  |        |  |   | 2,119  |       
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                      | Total |                         | $      | 34,319 |  |      | $      | 29,744 |  |      | $      | 25,579 |  |   | $      | 28,576 |  |   | $      | 19,403 | 
|                      |       |                         |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       

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

3



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##### Table of Contents



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

|                          |       |                         |        |        |  |      |        |        |  |         |        |        |  |   |        |        |  |   |       |       | 
|------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ------- | ------ | ------ |  | - | ------ | ------ |  | - | ----- | ----- | 
|                          |       |                        
|                          |       | Year Ended December 31,
|                          |       |                        
|                          |       | 2003                    |        | 2002   |  | 2001 |        | 2000   |  | 1999(1)
|                          |       |                         |        |        |  |      |        |        |  |        
|                          |       |                        
|                          |       | (In thousands)         
|Workers Compensation     |       | $                       | 13,196 |        |  | $    | 18,950 |        |  | $       | 22,784 |        |  | $ | 19,051 |        |  | $ | 8,158 |      
|Business Automobile       |       |                         | 2,307  |        |  |      | 1,811  |        |  |         | 671    |        |  |   | 64     |        |  |   |      |      
|General Liability         |       |                         | 385    |        |  |      | 221    |        |  |         | 117    |        |  |   | 5      |        |  |   |      |      
|Property                  |       |                         | 4,464  |        |  |      | 3,080  |        |  |         | 1,001  |        |  |   | 81     |        |  |   |      |      
|Group Accident and Health |       |                         |       |        |  |      | 182    |        |  |         | 1,138  |        |  |   | 909    |        |  |   | 340   |      
|                          |       |                         |        |        |  |      |        |        |  |         |        |        |  |   |        |        |  |   |       |      
|                          | Total |                         | $      | 20,352 |  |      | $      | 24,244 |  |         | $      | 25,711 |  |   | $      | 20,110 |  |   | $     | 8,498 | 
|                          |       |                         |        |        |  |      |        |        |  |         |        |        |  |   |        |        |  |   |       |      



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






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

Bankers Fidelity.Bankers Fidelity constitutes the life and health operations of
the Company and offers a variety of life and supplemental health
products with a focus on the senior markets. Products offered by
Bankers Fidelity include: ordinary life, Medicare Supplement,
cancer, and other supplemental health insurance products. Health
business, primarily Medicare Supplement, accounted for 78.4% of
Bankers Fidelitys net earned premiums in 2003. Life
insurance, including both whole and term life insurance
policies, accounted for 21.6% of Bankers Fidelitys
premiums in 2003. In terms of the number of policies written in
2003, 34% were life policies and 66% were health policies.

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

|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|--------------------------------- | ------------ | ----------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                  |              |                        
|                                  |              | Year Ended December 31,
|                                  |              |                        
|                                  |              | 2003                    |        | 2002   |        | 2001 |        | 2000   |        | 1999
|                                  |              |                         |        |        |        |      |        |        |        |     
|                                  |              |                        
|                                  |              | (In thousands)         
|Life Insurance                    |              | $                       | 13,541 |        |        | $    | 15,421 |        |        | $    | 14,096 |        |        | $ | 13,445 |        |        | $ | 12,499 |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Medicare Supplement               |              |                         | 46,190 |        |        |      | 42,298 |        |        |      | 38,268 |        |        |   | 31,295 |        |        |   | 25,822 |       
|Cancer, Accident and Other Health |              |                         | 2,952  |        |        |      | 2,878  |        |        |      | 2,912  |        |        |   | 2,899  |        |        |   | 3,206  |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  | Total Health |                         |        | 49,142 |        |      |        | 45,176 |        |      |        | 41,180 |        |   |        | 34,194 |        |   |        | 29,028 |       
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                  |              | Total                   |        | $      | 62,683 |      |        | $      | 60,597 |      |        | $      | 55,276 |   |        | $      | 47,639 |   |        | $      | 41,527 | 
|                                  |              |                         |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       

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

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

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

4



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##### Table of Contents






Marketing



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

American Southern.A
portion of American Southerns business is marketed through
a small number of specialized, experienced independent agents.
Most of American Southerns agents are paid a moderate
up-front commission with the potential for additional commission
by participating in a profit sharing arrangement that is
directly linked to the profitability of the business generated.
In arrangements similar to those with its agents, the premium
assumed from some of these parties is adjusted based upon the
profitability of the assumed business. American Southern also
solicits business from governmental entities. As an experienced
writer for certain governmental programs, the company actively
pursues this market on a direct basis. Much of this business is
priced by means of competitive bid situations and there can be
no assurance that the company can retain such business at
contract renewal. During 1998, American Southern formed American
Auto Club Insurance Agency, LLC in a 50/50 joint venture with
AAA Carolinas to market personal automobile insurance to the
members of the automobile club. This program produced gross
written premiums of approximately $8.3 million during 2003.

Association
Casualty.Association Casualty is
represented by a field force of 69 independent agencies with 92
locations in Texas for the sale and distribution of its
insurance products. Each agency is a party to a standard agency
contract that sets forth the commission structure and other
terms and can be terminated by either party. Association
Casualty also offers a contingent profit sharing arrangement
that allows agents to earn additional commissions when specific
loss experience and premium growth goals are achieved. Marketing
efforts are handled by an experienced staff of insurance
professionals, and complimented by the assistance of the
underwriting, loss control and claims staffs.

Georgia Casualty.Georgia Casualty is represented by a field force of 60
independent agencies with 101 locations in eight states for the
sale and distribution of its insurance products. Each agency is
a party to a standard agency contract that sets forth the
commission structure and other terms and can be terminated by
either party. Georgia Casualty also offers a contingent
profit-sharing arrangement that allows agents to earn additional
commissions when specific loss experience and premium growth
goals are achieved. Marketing efforts, directed by experienced
marketing professionals, are complimented by the underwriting,
risk management, and audit staffs of Georgia Casualty, who are
available to assist agents in the presentation of all insurance
products and services to their insureds.



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

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

Bankers Fidelity has implemented a selective
agent qualification process and had 2,533 licensed agents as of
December 31, 2003. The agents concentrate their sales
activities in either the accident and health or life insurance
product lines. During 2003, a total of 885 agents wrote policies
on behalf of Bankers Fidelity.

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

5



---



##### Table of Contents



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

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




Underwriting



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

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

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

American Southern also acts as a reinsurer with
respect to all of the risks associated with certain automobile
policies issued by various state administrative agencies, naming
the state and various local governmental entities as insureds.
Premiums written from such policies constituted
$5.5 million, or 12.5%, of American Southerns gross
premiums written in 2003 as compared to $18.7 million in
2002 and $20.4 million in 2001.



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

Bankers Fidelity issues a variety of products for
both life and health, which includes senior life products
typically with small face amounts of not less than $1,000 and up
to $30,000 and Medicare Supplement. The majority of its products
are Yes or No applications that are
underwritten on a non-medical basis. Bankers Fidelity offers
products to all age groups; however its primary focus is the
senior market. For life products other than the senior market,
Bankers Fidelity may require medical information such as medical
examinations subject to age and face amount based on published
guidelines. Approximately 95% of the net premiums earned for
both life and health insurance sold during 2003 were derived
from insurance written below Bankers Fidelitys medical
limits. For the senior market, Bankers Fidelity issues products
primarily on an accept-or-reject basis with face amounts up to
$30,000 for ages 45-70, $20,000 for ages 71-80 and
$10,000 for ages 81-85. Bankers Fidelity retains a maximum
amount of $50,000 with respect to any individual life (see
Reinsurance).

Applications for insurance are reviewed to
determine the face amount, age, and medical history. Depending
upon information obtained from the insured, Medical Information
Bureau (M.I.B.) report, paramedical testing, and/or medical
records, special testing may be ordered. If deemed necessary,
Bankers Fidelity may use investigative services to supplement
and substantiate information. For certain limited coverages,
Bankers Fidelity has adopted simplified policy issue procedures
by which an application containing a variety of Yes/No health
related questions is submitted. For these plans, a M.I.B. report
is

6



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##### Table of Contents



ordered, however, paramedical testing and medical
records are not ordered in most cases. All applications for
individuals age 60 and above are verified by telephone
interview.





Policyholder and Claims Services

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

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



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

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



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

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

7



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##### Table of Contents






Reserves

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

|                               |                          |                         |         |         |        |      |         |         |         |   |         |         |         | 
|------------------------------ | ------------------------ | ----------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                               |                          |                        
|                               |                          | Year Ended December 31,
|                               |                          |                        
|                               |                          | 2003                    |         | 2002    |        | 2001
|                               |                          |                         |         |         |        |     
|                               |                          |                        
|                               |                          | (In thousands)         
|Balance at January 1           |                          | $                       | 148,691 |         |        | $    | 143,515 |         |         | $ | 133,220 |        
|Less: Reinsurance recoverables |                          |                         | (39,380 | )       |        |      | (47,729 | )       |         |   | (38,851 | )      
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|                               | Net balance at January 1 |                         |         | 109,311 |        |      |         | 95,786  |         |   |         | 94,369  |        
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|Incurred related to:           |                          |                         |         |         |        |      |         |         |         |   |         |        
|                               | Current year             |                         |         | 98,536  |        |      |         | 104,724 |         |   |         | 108,068 |        
|                               | Prior years              |                         |         | 139     |        |      |         | (57     | )       |   |         | (2,415  | )      
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|                               |                          | Total incurred          |         |         | 98,675 |      |         |         | 104,667 |   |         |         | 105,653 | 
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|Paid related to:               |                          |                         |         |         |        |      |         |         |         |   |         |        
|                               | Current year             |                         |         | 56,229  |        |      |         | 52,253  |         |   |         | 59,506  |        
|                               | Prior years              |                         |         | 43,417  |        |      |         | 38,889  |         |   |         | 44,730  |        
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|                               |                          | Total paid              |         |         | 99,646 |      |         |         | 91,142  |   |         |         | 104,236 | 
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|Net balance at December 31     |                          |                         | 108,340 |         |        |      | 109,311 |         |         |   | 95,786  |        
|Plus: Reinsurance recoverables |                          |                         | 41,752  |         |        |      | 39,380  |         |         |   | 47,729  |        
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        
|Balance at December 31         |                          | $                       | 150,092 |         |        | $    | 148,691 |         |         | $ | 143,515 |        
|                               |                          |                         |         |         |        |      |         |         |         |   |         |        



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

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

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

8



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##### Table of Contents



The table on the following page sets forth the
development of the balance sheet reserves for unpaid losses and
claims determined using generally accepted accounting principles
of the casualty operations insurance lines for 1993
through 2003. Development from acquired companies are included
from the year of acquisition. Specifically excluded from the
table on the following page are the life and health
divisions claims reserves, which are included in the
consolidated loss and claims reserves. The top line of the table
represents the estimated amount of losses and LAE for claims
arising in all prior years that were unpaid at the balance sheet
date for each of the indicated periods, including an estimate of
losses that have been incurred but not yet reported. The amounts
represent initial reserve estimates at the respective balance
sheet dates for the current and all prior years. The next
portion of the table shows the cumulative amounts paid with
respect to claims in each succeeding year. The lower portion of
the table shows the re-estimated amounts of previously recorded
reserves based on experience as of the end of each succeeding
year.

The reserve estimates are modified as more
information becomes known about the frequency and severity of
claims for individual years. The cumulative redundancy or
deficiency for each year represents the aggregate change
in such years estimates through the end of 2003. In
evaluating this information, it should be noted that the amount
of the redundancy or deficiency for any year represents the
cumulative amount of the changes from initial reserve estimates
for such year. Operations for any year may be affected,
favorably or unfavorably, by the amount of the change in the
estimate for such years; however, because such analysis is based
on the reserves for unpaid losses and claims, before
consideration of reinsurance, the total indicated redundancies
and/or deficiencies may not ultimately be reflected in the
Companys net income. Further, conditions and trends that
have affected development of the reserves in the past may not
necessarily occur in the future and there could be future events
or actions that would impact future development which have not
existed in the past. Accordingly, it is inappropriate to predict
future redundancies or deficiencies based on the data in the
following table.

9



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##### Table of Contents



|                                           |                   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |         |        | 
|------------------------------------------ | ----------------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                           |                   |                        
|                                           |                   | Year Ended December 31,
|                                           |                   |                        
|                                           |                   | 2003                    |         | 2002    |  | 2001 |         | 2000    |  | 1999 |         | 1998    |  | 1997 |         | 1996    |  | 1995 |         | 1994    |  | 1993
|                                           |                   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |     
|                                           |                   |                        
|                                           |                   | (In thousands)         
|Reserve for losses and LAE                 |                   | $                       | 139,560 |         |  | $    | 139,802 |         |  | $    | 135,948 |         |  | $    | 126,263 |         |  | $    | 120,235 |         |  | $    | 81,070 |        |  | $ | 81,657 |        |  | $ | 79,776 |        |  | $ | 74,677 |        |  | $ | 35,492 |        |  | $ | 32,643  |       
|Cumulative paid as of:                     |                   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|                                           | One year later    |                         |         |         |  |      |         | 48,628  |  |      |         | 52,644  |  |      |         | 48,780  |  |      |         | 38,957  |  |      |        | 26,357 |  |   |        | 25,799 |  |   |        | 25,925 |  |   |        | 30,117 |  |   |        | 5,581  |  |   |         | 8,655  | 
|                                           | Two years later   |                         |         |         |  |      |         |         |  |      |         | 78,654  |  |      |         | 78,496  |  |      |         | 63,496  |  |      |        | 43,749 |  |   |        | 38,756 |  |   |        | 38,330 |  |   |        | 42,581 |  |   |        | 17,972 |  |   |         | 11,807 | 
|                                           | Three years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         | 93,599  |  |      |         | 80,824  |  |      |        | 54,408 |  |   |        | 48,330 |  |   |        | 45,073 |  |   |        | 49,288 |  |   |        | 21,193 |  |   |         | 22,842 | 
|                                           | Four years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         | 90,266  |  |      |        | 61,981 |  |   |        | 54,840 |  |   |        | 50,334 |  |   |        | 53,224 |  |   |        | 23,112 |  |   |         | 25,634 | 
|                                           | Five years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        | 66,467 |  |   |        | 58,891 |  |   |        | 53,833 |  |   |        | 56,517 |  |   |        | 24,635 |  |   |         | 27,399 | 
|                                           | Six years later   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        | 61,600 |  |   |        | 56,534 |  |   |        | 59,398 |  |   |        | 26,431 |  |   |         | 28,842 | 
|                                           | Seven years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        | 59,029 |  |   |        | 61,320 |  |   |        | 27,783 |  |   |         | 30,576 | 
|                                           | Eight years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 63,570 |  |   |        | 29,412 |  |   |         | 31,832 | 
|                                           | Nine years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 31,284 |  |   |         | 33,459 | 
|                                           | Ten years later   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |         | 35,326 | 
|Ultimate losses and LAE reestimated as of: |                   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |         |       
|                                           | End of year       |                         |         | 139,560 |  |      |         | 139,802 |  |      |         | 135,948 |  |      |         | 126,263 |  |      |         | 120,235 |  |      |        | 81,070 |  |   |        | 81,657 |  |   |        | 79,776 |  |   |        | 74,677 |  |   |        | 35,492 |  |   |         | 32,643 | 
|                                           | One year later    |                         |         |         |  |      |         | 143,771 |  |      |         | 136,606 |  |      |         | 130,415 |  |      |         | 115,019 |  |      |        | 80,174 |  |   |        | 75,243 |  |   |        | 76,269 |  |   |        | 79,620 |  |   |        | 30,813 |  |   |         | 36,895 | 
|                                           | Two years later   |                         |         |         |  |      |         |         |  |      |         | 143,901 |  |      |         | 136,425 |  |      |         | 117,289 |  |      |        | 81,023 |  |   |        | 73,037 |  |   |        | 70,734 |  |   |        | 76,712 |  |   |        | 37,604 |  |   |         | 31,856 | 
|                                           | Three years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         | 140,039 |  |      |         | 122,099 |  |      |        | 83,149 |  |   |        | 75,199 |  |   |        | 68,816 |  |   |        | 73,383 |  |   |        | 37,974 |  |   |         | 40,117 | 
|                                           | Four years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         | 125,006 |  |      |        | 83,033 |  |   |        | 76,758 |  |   |        | 70,932 |  |   |        | 72,944 |  |   |        | 35,960 |  |   |         | 41,163 | 
|                                           | Five years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        | 83,182 |  |   |        | 76,832 |  |   |        | 72,430 |  |   |        | 74,695 |  |   |        | 37,986 |  |   |         | 39,835 | 
|                                           | Six years later   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        | 76,886 |  |   |        | 72,243 |  |   |        | 76,275 |  |   |        | 41,071 |  |   |         | 41,841 | 
|                                           | Seven years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        | 72,401 |  |   |        | 75,986 |  |   |        | 41,868 |  |   |         | 44,954 | 
|                                           | Eight years later |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        | 76,323 |  |   |        | 41,447 |  |   |         | 45,840 | 
|                                           | Nine years later  |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        | 42,206 |  |   |         | 45,384 | 
|                                           | Ten years later   |                         |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |         |         |  |      |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |        |        |  |   |         | 46,238 | 
|Cumulative redundancy (deficiency)         |                   |                         |         |         |  | $    | (3,969  | )       |  | $    | (7,953  | )       |  | $    | (13,776 | )       |  | $    | (4,771  | )       |  | $    | (2,112 | )      |  | $ | 4,771  |        |  | $ | 7,375  |        |  | $ | (1,646 | )      |  | $ | (6,714 | )      |  | $ | (13,595 | )     
|                                           |                   |                         |         |         |  |      | -2.8    | %       |  |      | -5.9    | %       |  |      | -10.9   | %       |  |      | -4.0    | %       |  |      | -2.6   | %      |  |   | 5.8    | %      |  |   | 9.2    | %      |  |   | -2.2   | %      |  |   | -18.9  | %      |  |   | -41.6   | %     

Note: Because this analysis is based on
reserves for unpaid losses and claims, before consideration of
reinsurance, the total indicated redundancies and/or
deficiencies may not ultimately be reflected in the
Companys net income.

10



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##### Table of Contents





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

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




Reinsurance

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



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

American Southern.American Southern retains a maximum amount of $240,000 per
occurrence. Limits per occurrence within reinsurance treaties
are as follows: Fire, inland marine and commercial
automobile  $125,000 excess $50,000 retention; All
other lines vary by type of policy and generally have retentions
in excess of $100,000, up to $240,000. American Southern
maintains a property catastrophe treaty with a $6.6 million
limit excess of $400,000 retention. American Southern also
issues surety bonds with face amounts up to $750,000 that are
not subject to reinsurance.

Association
Casualty.Association Casualty retains
a maximum amount of $300,000 per occurrence on
workers compensation up to $20.0 million. Limits per
occurrence within the treaties are as follows: Automobile and
general liability  $1.7 million excess $300,000
retention; Property  $2.7 million excess
$300,000 retention. The property lines of coverage are protected
with an excess of loss treaty, which affords recovery for
property losses in excess of $3.0 million up to a maximum
of $15.0 million. Association Casualty maintains a property
catastrophe treaty with a $7.15 million limit excess of
$350,000.

Georgia Casualty.Georgia Casualtys basic treaties cover all claims in
excess of $300,000 per occurrence. Limits per occurrence
within the treaties and excess of the retention are as follows:
Workers compensation  $20.0 million;
Property per location  $15.0 million; Excess of
policy and extra contractual obligations 
$10.0 million; Liability  $6.0 million; and
Surety  $3.0 million. Georgia Casualty maintains
a property catastrophe treaty with a $7.15 million limit
excess of $350,000 retention. During 2003, Georgia Casualty
entered into a quota share reinsurance agreement to cover 20% of
the first $300,000 of occurrence losses and the first $350,000
of catastrophe losses on policies written from January 1,
2003 to December 31, 2003. Also in 2003, Georgia Casualty
terminated its 2002 30% quota share contract as of
December 31, 2003.



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

Bankers Fidelity.Bankers Fidelity has entered into reinsurance contracts ceding
the excess of their retention to several primary reinsurers.
Maximum retention by Bankers Fidelity on any one individual in
the case of life insurance policies is $50,000. At
December 31, 2003, Bankers Fidelity reinsured
$25.0 million of the $305.8 million of life insurance
in force, generally under yearly renewable term agreements.
Certain prior year reinsurance agreements remain in force
although they no longer provide reinsurance for new business.

11



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##### Table of Contents






Competition



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

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

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

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



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

The life and health insurance business remains
highly competitive and includes a large number of insurance
companies, many of which have substantially greater financial
resources. Bankers Fidelity focuses on three core products in
the senior market; Medicare Supplement, small face amount life
insurance and short-term nursing home coverage. Bankers Fidelity
believes that the primary competitors in this market are
Continental Life, Standard Life & Accident, The London
Group, United American, American Pioneer and Blue Cross/ Blue
Shield. Bankers Fidelity competes with these as well as other
insurers on the basis of premium rates, policy benefits, and
service to policyholders. Bankers Fidelity also competes with
other insurers to attract and retain the allegiance of its
independent agents through commission arrangements,
accessibility and marketing assistance, lead programs,
reputation, and market expertise. Bankers Fidelity utilizes a
proprietary lead generation program to attract and retain
independent agents. Bankers Fidelity has expanded into other
markets through cross-selling strategies with the companys
sister property and casualty affiliations, offering turn-key
marketing programs to facilitate business through these
relationships. Bankers Fidelity continues to expand in niche
markets through long-term relationships with a select number of
independent marketing organizations including credit union
business and association endorsements. Bankers Fidelity has a
proven track record of competing in its chosen markets through
long-standing relationships with independent agents by providing
proprietary marketing initiatives and

12



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##### Table of Contents



outstanding service to distribution and
policyholders. Bankers Fidelity believes that it competes
effectively on the basis of policy benefits, services, and
market expertise.





Ratings

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

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

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

Association
Casualty.Association Casualty is
currently rated A- (Excellent) by A.M. Best.

Georgia Casualty.Georgia Casualty is currently rated B++ (Very Good)
by A.M. Best.

Bankers Fidelity.Bankers Fidelity is currently rated B++ (Very Good)
by A.M. Best.

Since 1999, Atlantic American had been
voluntarily rated by Standard and Poors Rating Services
(S&P). In the initial review, the Company was
assigned a single A- counterparty credit and
financial strength rating. On March 14, 2001, the
Companys rating was lowered to a BBB+. On
February 11, 2003, S&P placed the Companys BBB+
counterparty credit and financial strength rating on CreditWatch
with negative implications pending a review of the capital
allocation and the support of the individual companies in the
group. On April 4, 2003, S&P lowered its counterparty
credit and financial strength ratings for Bankers Fidelity,
American Southern, and Association Casualty to BBB
from BBB+ and for Georgia Casualty to
BBB- from BBB+ and removed them from
CreditWatch. These rating actions did not have a significant
impact on the Companys financial position or results of
operations. On May 15, 2003, S&P affirmed its
counterparty credit and financial strength ratings and then, at
the Companys request, withdrew the ratings. While ratings
are important in the insurance industry, management believes
that Bests Insurance Reports is a more closely followed
rating service within the insurance industry.




Regulation

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

13



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##### Table of Contents



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

A state may require that acceptable securities be
deposited for the protection either of policyholders located in
those states or of all policyholders. As of December 31,
2003, securities with an amortized cost of $17.0 million
were on deposit either directly with various state authorities
or with third parties pursuant to various custodial agreements
on behalf of the Companys insurance subsidiaries.

Virtually all of the states in which the
Companys insurance subsidiaries are licensed to transact
business require participation in their respective guaranty
funds designed to cover claims against insolvent insurers.
Insurers authorized to transact business in these jurisdictions
are generally subject to assessments of up to 4% of annual
direct premiums written in that jurisdiction to pay such claims,
if any. The occurrence and amount of such assessments has
increased significantly in recent years. The likelihood and
amount of any future assessments cannot be estimated until an
insolvency has occurred. For 2003, 2002, and 2001 the amounts
expensed by the Company were $0.5 million,
$0.4 million, and $0.3 million, respectively.

Workers compensation insurance carriers
authorized to transact business in certain states are required
to participate in second injury trust funds of those states. A
second injury fund is a state-mandated monetary reserve designed
to remove financial disincentives from employment of individuals
with disabilities. Without a second injury fund, the employer or
insurer might be required to absorb full indemnity and/or
medical and rehabilitation costs if a worker suffered increased
disability from a work-related injury because of a pre-existing
condition. Second injury funds are used to reimburse indemnity
and medical costs to employer/ insurers on accepted, qualified
second injury cases. In recent years the Company has experienced
significant increases in second injury trust fund assessments.
For 2003, 2002, and 2001 the amounts expensed by the Company
were $1.8 million, $1.8 million, $0.6 million,
respectively.




NAIC Ratios

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

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

For the year ended December 31, 2003,
Bankers Fidelity and American Southern were within the NAIC
usual range for all 13 financial ratios.
Association Casualty was outside the usual range on
three ratios: the two year overall operating ratio,
the investment yield, and the two year reserve development
to policyholders surplus. The two year overall
operating ratio and the two year reserve development to
policyholders surplus were outside the usual
range primarily due to adverse development on prior year losses.
The investment yield ratio variance resulted from declining
interest yields in Association Casualtys bond portfolio.
Georgia Casualty was outside the usual range on
two ratios: the two year reserve development to
policyholders surplus and the estimated current reserve
deficiency to policyholders surplus. The two year
reserve development to policyholders surplus estimate and
the current reserve deficiency to policyholders surplus
variances were primarily attributable to adverse development on
prior year losses, specifically accident years 1999 and 2000.

14



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##### Table of Contents






Risk-Based Capital

Risk-based capital (RBC) is used by
rating agencies and regulators as an early warning tool to
identify weakly capitalized companies for the purpose of
initiating further regulatory action. The RBC calculation
determines the amount of adjusted capital needed by a company to
avoid regulatory action. Authorized Control Level
Risk-Based Capital (ACL) is calculated, and if
a companys adjusted capital is 200% or lower than ACL, it
is subject to regulatory action. At December 31, 2003, all
of the Companys insurance subsidiaries exceeded the RBC
regulatory levels.




Investments

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

|                                              |                                                       |                           |        |         |         |        |      |         |      |        |        |         |         |  |      |       |      |  |        |         |         |  |      |       |      | 
|--------------------------------------------- | ----------------------------------------------------- | ------------------------- | ------ | ------- | ------- | ------ | ---- | ------- | ---- | ------ | ------ | ------- | ------- |  | ---- | ----- | ---- |  | ------ | ------- | ------- |  | ---- | ----- | ---- | 
|                                              |                                                       |                          
|                                              |                                                       | December 31,             
|                                              |                                                       |                          
|                                              |                                                       |                           |        |         |         |       
|                                              |                                                       | 2003                      |        | 2002    |         | 2001  
|                                              |                                                       |                           |        |         |         |       
|                                              |                                                       | Amount                    |        | Percent |         | Amount |      | Percent |      | Amount |        | Percent
|                                              |                                                       |                           |        |         |         |        |      |         |      |        |        |        
|                                              |                                                       |                          
|                                              |                                                       | (Dollars in thousands)   
|Fixed maturities:                             |                                                       |                           |        |         |         |        |      |         |      |        |        |         |         |  |      |       |      |  |        |         |         |  |      |      
|                                              | U.S. Government agencies and authorities              |                           | $      | 121,521 |         |        |      | 39.1    | %    |        | $      | 120,348 |         |  |      | 44.2  | %    |  | $      | 81,440  |         |  |      | 34.2  | %   
|                                              | States, municipalities and
    political subdivisions |                           |        | 1,446   |         |        |      | 0.5     |      |        |        | 3,064   |         |  |      | 1.1   |      |  |        | 4,317   |         |  |      | 1.8   |     
|                                              | Public utilities                                      |                           |        | 7,309   |         |        |      | 2.3     |      |        |        | 8,074   |         |  |      | 3.0   |      |  |        | 4,229   |         |  |      | 1.8   |     
|                                              | Convertibles and bonds with warrants attached         |                           |        |        |         |        |      | NIL     |      |        |        |        |         |  |      | NIL   |      |  |        |        |         |  |      | NIL   |     
|                                              | All other corporate bonds                             |                           |        | 73,868  |         |        |      | 23.8    |      |        |        | 49,038  |         |  |      | 18.0  |      |  |        | 42,124  |         |  |      | 17.7  |     
|                                              | Redeemable preferred stock                            |                           |        | 24,205  |         |        |      | 7.8     |      |        |        | 25,180  |         |  |      | 9.3   |      |  |        | 30,311  |         |  |      | 12.7  |     
|                                              | Certificates of deposit                               |                           |        | 1,100   |         |        |      | 0.3     |      |        |        | 1,306   |         |  |      | 0.5   |      |  |        | 1,360   |         |  |      | 0.6   |     
|                                              |                                                       |                           |        |         |         |        |      |         |      |        |        |         |         |  |      |       |      |  |        |         |         |  |      |      
|                                              |                                                       | Total fixed maturities(1) |        |         | 229,449 |        |      |         | 73.8 |        |        |         | 207,010 |  |      |       | 76.1 |  |        |         | 163,781 |  |      |       | 68.8 | 
|Common and non-redeemable preferred stocks(2) |                                                       |                           | 44,000 |         |         |        | 14.2 |         |      |        | 32,062 |         |         |  | 11.8 |       |      |  | 24,317 |         |         |  | 10.2 |      
|Mortgage, policy and student loans(3)         |                                                       |                           | 5,564  |         |         |        | 1.8  |         |      |        | 5,739  |         |         |  | 2.1  |       |      |  | 6,134  |         |         |  | 2.6  |      
|Other invested assets(4)                      |                                                       |                           | 4,639  |         |         |        | 1.5  |         |      |        | 5,031  |         |         |  | 1.9  |       |      |  | 4,854  |         |         |  | 2.0  |      
|Real estate                                   |                                                       |                           |       |         |         |        | NIL  |         |      |        |       |         |         |  | NIL  |       |      |  | 46     |         |         |  | NIL  |      
|Investment in unconsolidated trusts           |                                                       |                           | 1,238  |         |         |        | 0.4  |         |      |        | 542    |         |         |  | 0.2  |       |      |  |       |         |         |  | NIL  |      
|Short-term investments(5)                     |                                                       |                           | 25,819 |         |         |        | 8.3  |         |      |        | 21,487 |         |         |  | 7.9  |       |      |  | 39,151 |         |         |  | 16.4 |      
|                                              |                                                       |                           |        |         |         |        |      |         |      |        |        |         |         |  |      |       |      |  |        |         |         |  |      |      
|                                              | Total investments                                     |                           | $      | 310,709 |         |        |      | 100.0   | %    |        | $      | 271,871 |         |  |      | 100.0 | %    |  | $      | 238,283 |         |  |      | 100.0 | %   
|                                              |                                                       |                           |        |         |         |        |      |         |      |        |        |         |         |  |      |       |      |  |        |         |         |  |      |      



|    |                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fixed maturities are carried on the balance sheet
    at market value. Total cost of fixed maturities was
    $223.2 million as of December 31, 2003,
    $200.7 million as of December 31, 2002, and
    $158.5 million as of December 31, 2001.
|   
|(2) | Equity securities are valued at market. Total
    cost of equity securities was $21.7 million as of
    December 31, 2003, $17.1 million as of
    December 31, 2002, and $15.4 million as of
    December 31, 2001.                             
|   
|(3) | Mortgage, policy and student loans are valued at
    historical cost.                                                                                                                                                                            
|   
|(4) | Investments in other invested assets which are
    traded are valued at estimated market value and those in which
    the Company has significant influence are accounted for using
    the equity method. Total cost                            

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##### Table of Contents



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | of other invested assets was $4.6 million as
    of December 31, 2003, $5.3 million as of
    December 31, 2002 and $5.1 million as of
    December 31, 2001.
|   
|(5) | Short-term investments are valued at cost, which
    approximates market value.                                                                              

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

|                               |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                               |  |                        
|                               |  | Year Ended December 31,
|                               |  |                        
|                               |  | 2003                    |         | 2002 |  | 2001
|                               |  |                         |         |      |  |     
|                               |  |                        
|                               |  | (Dollars in thousands) 
|Average investments(1)         |  | $                       | 283,873 |      |  | $    | 246,704 |   |  | $ | 227,922 |  
|Net investment income          |  |                         | 15,359  |      |  |      | 13,793  |   |  |   | 14,141  |  
|Average yield on investments   |  |                         | 5.41    | %    |  |      | 5.59    | % |  |   | 6.20    | %
|Realized investment gains, net |  |                         | 360     |      |  |      | 587     |   |  |   | 1,708   |  



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated as the average of the balances at the
    beginning of the year and at the end of each of the succeeding
    four quarters.

Managements investment strategy is an
increased investment in short and medium maturity bonds and
common and preferred stocks.




Employees

The Company and its subsidiaries employed 254
people at December 31, 2003.




Financial Information By Industry
Segment

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




Available Information

The Company files annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, amendments to those reports and other
information with the Securities and Exchange Commission (the
SEC). The public can read and obtain copies of those
materials by visiting the SECs Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website that contains reports, proxy and information statements
and other information regarding issuers like Atlantic American
that file electronically with the SEC. The address of the
SECs web site is http://www.sec.gov. In addition, as soon
as reasonably practicable after such materials are filed with or
furnished to the SEC by the Company, the Company makes copies
available to the public, free of charge, on or through its web
site at http://www.atlam.com.

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##### Table of Contents






Executive Officers of the Registrant

The table below and the information following the
table set forth, for each executive officer of the Company as of
March 1, 2004, his name, age, positions with the Company
and business experience for the past five years, as well as any
prior service with the Company (based upon information supplied
by each of them).

|                      |  |     |    |                           |  |                             |  |  |      | 
|--------------------- |  | --- | -- | ------------------------- |  | --------------------------- |  |  | ---- | 
|                      |  |     |    |                           |  | Director or                
|Name                  |  | Age |    | Position with the Company |  | Officer Since              
|                      |  |     |    |                           |  |                            
|J. Mack Robinson      |  |     | 80 |                           |  | Chairman of the Board       |  |  | 1974 | 
|Hilton H. Howell, Jr. |  |     | 41 |                           |  | Director, President & CEO   |  |  | 1992 | 
|John G. Sample, Jr.   |  |     | 47 |                           |  | Senior Vice President & CFO |  |  | 2002 | 

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

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

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

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




Forward-Looking Statements

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

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##### Table of Contents








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

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

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

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

Self Insurance Administrators, Inc.
(SIA), a non-insurance subsidiary of the Company,
leases space for its office in a building located in Stone
Mountain, Georgia. The lease term expires December 31,
2004. Under the terms of the lease, SIA occupies
1,787 square feet.






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

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






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

There were no matters submitted to a vote of the
Companys shareholders during the quarter ended
December 31, 2003.

18



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##### Table of Contents






PART II






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

The Companys common stock is quoted on the
Nasdaq National Market (Symbol: AAME). As of March 19,
2004, there were 4,739 shareholders of record. The
following table sets forth for the periods indicated the high
and low sale prices of the Companys common stock as
reported on the Nasdaq National Market.

|                        |             |      |   |      |  |  |   |      | 
|----------------------- | ----------- | ---- | - | ---- |  |  | - | ---- | 
|Year Ended December 31, |             | High |   | Low 
|                        |             |      |   |     
|2003                    |             |      |   |      |  |  |   |     
|                        | 1st quarter |      | $ | 1.84 |  |  | $ | 0.95 | 
|                        | 2nd quarter |      |   | 2.90 |  |  |   | 1.17 | 
|                        | 3rd quarter |      |   | 2.75 |  |  |   | 2.16 | 
|                        | 4th quarter |      |   | 3.32 |  |  |   | 2.30 | 
|2002                    |             |      |   |      |  |  |   |     
|                        | 1st quarter |      | $ | 2.67 |  |  | $ | 1.60 | 
|                        | 2nd quarter |      |   | 2.73 |  |  |   | 1.87 | 
|                        | 3rd quarter |      |   | 2.46 |  |  |   | 1.62 | 
|                        | 4th quarter |      |   | 2.35 |  |  |   | 1.25 | 

The Company has not paid dividends to its common
shareholders since the fourth quarter of 1988. Payment of
dividends in the future will be at the discretion of the
Companys Board of Directors and will depend upon the
financial condition, capital requirements, and earnings of the
Company as well as other factors as the Board of Directors may
deem relevant. The Companys primary sources of cash for
the payment of dividends are dividends from its subsidiaries.
Under the insurance code of the state of jurisdiction under
which each insurance subsidiary operates, dividend payments to
the Company by its insurance subsidiaries without the prior
approval of the Insurance Commissioner of the applicable state,
are limited to the greater of 10% of accumulated statutory
earnings or statutory net income before recognizing realized
investment gains. The Companys principal insurance
subsidiaries had the following accumulated statutory earnings as
of December 31, 2003: Georgia Casualty 
$22.2 million, American Southern 
$34.5 million, Association Casualty 
$18.2 million, Bankers Fidelity Life 
$31.2 million. The Company has elected to retain its
earnings to grow its business and does not anticipate paying
cash dividends on its common stock in the foreseeable future.

Equity Compensation Plan Information

The following table sets forth, as of
December 31, 2003, the number of securities outstanding
under the Companys equity compensation plans, the weighted
average exercise price of such securities and the number of
securities remaining available for grant under these plans:

|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ---------------- |  | ----------------------- | ---- | ---- |  |  | --------- | --------- | 
|                                                               |       |                      |           | Weighted-        |  | Number of securities   
|                                                               |       |                      |           | average exercise |  | remaining available for
|                                                               |       | Number of securities |           | price of         |  | future issuance under  
|                                                               |       | to be issued upon    |           | outstanding      |  | equity compensation    
|                                                               |       | exercise of          |           | options,         |  | plans (excluding       
|                                                               |       | outstanding options, |           | warrants and     |  | securities reflected in
|Plan Category                                                  |       | warrants and rights  |           | rights           |  | the first column)      
|                                                               |       |                      |           |                  |  |                        
|Equity compensation plans approved by security
    holders     |       |                      | 1,015,500 |                  |  | $                       | 1.82 |      |  |  | 2,452,150 |          
|Equity compensation plans not approved by
    security holders |       |                      |          | (1)              |  |                         |     | (1)  |  |  |          | (1)      
|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |          
|                                                               | Total |                      |           | 1,015,500        |  |                         | $    | 1.82 |  |  |           | 2,452,150 | 
|                                                               |       |                      |           |                  |  |                         |      |      |  |  |           |          



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

19



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##### Table of Contents








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

|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |     |         |         | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------- | ----------------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | --- | ------- | ------- | ------- | --- | ------- | ------- | ------- | --- | ------- | ------- | 
|                                                                                       |                                                                       |                                              
|                                                                                       |                                                                       | Year Ended December 31,                      
|                                                                                       |                                                                       |                                              
|                                                                                       |                                                                       | 2003                                          |                   | 2002 |         | 2001    |         | 2000 |         | 1999   
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |        
|                                                                                       |                                                                       |                                              
|                                                                                       |                                                                       | (Dollars in thousands, except per share data)
|Insurance premiums                                                                     |                                                                       | $                                             | 154,712           |      |         | $       | 154,499 |      |         | $       | 145,589 |     |         | $       | 133,497 |     |         | $       | 107,594 |    
|Investment income                                                                      |                                                                       |                                               | 15,628            |      |         |         | 14,011  |      |         |         | 14,317  |     |         |         | 15,552  |     |         |         | 12,724  |    
|Other income                                                                           |                                                                       |                                               | 900               |      |         |         | 1,148   |      |         |         | 1,694   |     |         |         | 1,287   |     |         |         | 1,172   |    
|Realized investment gains, net                                                         |                                                                       |                                               | 360               |      |         |         | 587     |      |         |         | 1,708   |     |         |         | 1,922   |     |         |         | 2,831   |    
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       |                                                                       |                                               | Total revenue     |      |         | 171,600 |         |      |         | 170,245 |         |     |         | 163,308 |         |     |         | 152,258 |         |     |         | 124,321 | 
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Insurance benefits and losses incurred                                                 |                                                                       |                                               | 102,343           |      |         |         | 109,109 |      |         |         | 106,896 |     |         |         | 97,628  |     |         |         | 78,162  |    
|Other expenses                                                                         |                                                                       |                                               | 62,732            |      |         |         | 58,033  |      |         |         | 52,159  |     |         |         | 49,874  |     |         |         | 42,237  |    
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       |                                                                       | Total benefits and expenses                   |                   |      | 165,075 |         |         |      | 167,142 |         |         |     | 159,055 |         |         |     | 147,502 |         |         |     | 120,399 |        
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Income before income taxes and cumulative effect
    of change in accounting principle |                                                                       |                                               | 6,525             |      |         |         | 3,103   |      |         |         | 4,253   |     |         |         | 4,756   |     |         |         | 3,922   |    
|Income tax (benefit) expense                                                           |                                                                       |                                               | (319              | )    |         |         | (498    | )    |         |         | 656     |     |         |         | 1,124   |     |         |         | (6,988  | )  
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Income before cumulative effect of change in
    accounting principle                  |                                                                       |                                               | 6,844             |      |         |         | 3,601   |      |         |         | 3,597   |     |         |         | 3,632   |     |         |         | 10,910  |    
|Cumulative effect of change in accounting
    principle(1)                             |                                                                       |                                               |                  |      |         |         | (15,816 | )    |         |         |        |     |         |         |        |     |         |         |        |    
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       |                                                                       |                                               | Net income (loss) |      | $       | 6,844   |         |      | $       | (12,215 | )       |     | $       | 3,597   |         |     | $       | 3,632   |         |     | $       | 10,910  | 
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Basic earnings (loss) per common share:                                                |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                                               | $                 | .26  |         |         | $       | .10  |         |         | $       | .10 |         |         | $       | .12 |         |         | $       | .48 |        
|                                                                                       | Cumulative effect of change in accounting
    principle(1)            |                                               |                   |     |         |         |         | (.74 | )       |         |         |    |         |         |         |    |         |         |         |    |        
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       | Net income (loss)                                                     |                                               | $                 | .26  |         |         | $       | (.64 | )       |         | $       | .10 |         |         | $       | .12 |         |         | $       | .48 |        
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Diluted earnings (loss) per common share:                                              |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                                               | $                 | .25  |         |         | $       | .10  |         |         | $       | .10 |         |         | $       | .12 |         |         | $       | .46 |        
|                                                                                       | Cumulative effect of change in accounting
    principle(1)            |                                               |                   |     |         |         |         | (.73 | )       |         |         |    |         |         |         |    |         |         |         |    |        
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|                                                                                       | Net income (loss)                                                     |                                               | $                 | .25  |         |         | $       | (.63 | )       |         | $       | .10 |         |         | $       | .12 |         |         | $       | .46 |        
|                                                                                       |                                                                       |                                               |                   |      |         |         |         |      |         |         |         |     |         |         |         |     |         |         |         |    
|Tangible book value per common share(2)                                                |                                                                       | $                                             | 3.30              |      |         | $       | 2.79    |      |         | $       | 2.49    |     |         | $       | 2.26    |     |         | $       | 2.14    |    
|Common shares outstanding                                                              |                                                                       |                                               | 21,199            |      |         |         | 21,374  |      |         |         | 21,246  |     |         |         | 21,157  |     |         |         | 21,027  |    
|Total assets                                                                           |                                                                       | $                                             | 443,552           |      |         | $       | 421,524 |      |         | $       | 412,019 |     |         | $       | 375,777 |     |         | $       | 351,144 |    
|Total long-term debt                                                                   |                                                                       | $                                             | 53,238            |      |         | $       | 48,042  |      |         | $       | 44,000  |     |         | $       | 46,500  |     |         | $       | 51,000  |    
|Total debt                                                                             |                                                                       | $                                             | 56,238            |      |         | $       | 50,042  |      |         | $       | 44,000  |     |         | $       | 46,500  |     |         | $       | 51,000  |    
|Total shareholders equity                                                             |                                                                       | $                                             | 86,893            |      |         | $       | 78,540  |      |         | $       | 87,526  |     |         | $       | 83,240  |     |         | $       | 78,948  |    



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

20



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

The following is managements discussion and
analysis of the financial condition and results of operations of
Atlantic American Corporation (Atlantic American or
the Company) and its subsidiaries for each of the
three years in the period ended December 31, 2003. This
discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere herein.

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

Critical Accounting Estimates

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

Unpaid loss and loss adjustment expensecomprised 42% of the Company
liabilities at December 31, 2003. This obligation includes
an estimate for: 1) unpaid losses on claims reported prior
to December 31, 2003, 2) future development on those
reported claims, 3) unpaid ultimate losses on claims
incurred prior to December 31, 2003 but not yet reported to
the Company and 4) unpaid claims adjustment expense for
reported and unreported claims incurred prior to
December 31, 2003. Quantification of loss estimates for
each of these components involves a significant degree of
judgment and estimates may vary, materially, from period to
period. Estimated unpaid losses on reported claims are developed
based on historical experience with similar claims by the
Company. Future development on reported claims, estimates of
unpaid ultimate losses incurred prior to December 31, 2003
but not yet reported to the Company, and estimates of unpaid
claims adjustment expense are developed based on the
Companys historical experience using actuarial methods to
assist in the analysis. The Companys actuarial staff
develops ranges of estimated future development on reported and
unreported claims as well as loss adjustment expenses using
various methods including the paid-loss development method, the
reported-loss development method, the paid Bornhuetter-Ferguson
method, the reported Bornhuetter-Ferguson method, the
Berquist-Sherman method and a frequency-severity method. Any
single method used to estimate ultimate losses has inherent
advantages and disadvantages due to the trends and changes
affecting the business environment and the Companys
administrative policies. Further, a variety of external factors,
such as legislative changes, medical inflation, and others may
directly or indirectly impact the relative adequacy of
liabilities for unpaid losses and loss adjustment expense. The
Companys approach is the selection of an estimate of
ultimate losses based on comparing results of a variety of
reserving methods, as opposed to total reliance on any single
method. Unpaid loss and loss adjustment expenses are generally
reviewed quarterly for significant lines of business, and when
current results differ from the original assumptions used to
develop such estimates, the amount of the Companys
recorded liability for unpaid claims and claim adjustment
expenses is adjusted.

Future policy benefitscomprised 13% of the Companys
total liabilities at December 31, 2003. These liabilities
relate to life insurance products and are based upon assumed
future investment yields, mortality

21



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##### Table of Contents



rates, and withdrawal rates after giving effect
to possible risks of adverse deviation. The assumed mortality
and withdrawal rates are based upon the Companys
experience. If actual results differ from the initial
assumptions, the amount of the Companys recorded liability
could require adjustment.


Deferred acquisition costscomprised 6% of the Companys
total assets at December 31, 2003. Deferred acquisition
costs are commissions, premium taxes, and other costs that vary
with and are primarily related to the acquisition of new and
renewal business and are generally deferred and amortized. The
deferred amounts are recorded as an asset on the balance sheet
and amortized to income in a systematic manner. Traditional life
insurance and long-duration health insurance deferred policy
acquisition costs are amortized over the estimated
premium-paying period of the related policies using assumptions
consistent with those used in computing the related liability
for policy benefit reserves. The deferred acquisition costs for
property and casualty insurance and short-duration health
insurance are amortized over the effective period of the related
insurance policies. Deferred policy acquisition costs are
expensed when such costs are deemed not to be recoverable from
future premiums (for traditional life and long-duration health
insurance) and from the related unearned premiums and investment
income (for property and casualty and short-duration health
insurance). Assessments of recoverability for property and
casualty and short-duration health insurance are extremely
sensitive to the estimates of a subsequent years projected
losses related to the unearned premiums. Projected loss
estimates for a current block of business for which unearned
premiums remain to be earned may vary significantly from the
indicated losses incurred in any given calendar year.

Receivablesare
amounts due from reinsurers, insureds and agents and comprised
19% of the Companys total assets at December 31,
2003. Allowances for uncollectible amounts are established, as
and when a loss has been determined probable, against the
related receivable. Annually, the Company and/or its reinsurance
broker perform an analysis of the credit worthiness of the
Companys reinsurers. Failure of reinsurers to meet their
obligations due to insolvencies or disputes could result in
uncollectible amounts and losses to the Company. Insured and
agent balances are evaluated periodically for collectibility.
Losses are recognized when determined on a specific account
basis and a general provision for loss is made based on the
Companys historical experience.

Cash and investmentscomprised 72% of the Companys
total assets at December 31, 2003. Substantially all
investments are in bonds and common and preferred stocks, which
are subject to significant market fluctuations. The Company
carries all investments as available for sale and accordingly at
their estimated market values. On occasion, the value of an
investment may decline to a value below its amortized purchase
price and remain at such value for an extended period of time.
When an investments indicated market value has declined
below its cost basis for a period of time, generally, not less
than nine months, the Company evaluates such investment for
other than a temporary impairment. If other than a temporary
impairment is deemed to exist, then the Company will write down
the amortized cost basis of the investment to a more appropriate
value. While such write down does not impact the reported value
of the investment in the Companys balance sheet, it is
reflected as a realized investment loss in the Companys
Consolidated Statements of Operations.

Deferred income taxescomprised less than 1% of the
Companys total liabilities at December 31, 2003.
Deferred income taxes reflect the effect of temporary
differences between assets and liabilities that are recognized
for financial reporting purposes and the amounts that are
recognized for tax purposes. These deferred income taxes are
measured by applying currently enacted tax laws and rates.
Valuation allowances are recognized to reduce the deferred tax
assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, management
considers estimates of future taxable income and tax planning
strategies.

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

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Overall Corporate Results

|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |        |         | 
|------------------------------------------------------------------------------------- | -------------------- | --------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                                      |                      |                            
|                                                                                      |                      | Year Ended December 31,    
|                                                                                      |                      |                            
|                                                                                      |                      | 2003                        |         | 2002   |         | 2001
|                                                                                      |                      |                             |         |        |         |     
|                                                                                      |                      |                            
|                                                                                      |                      | (Dollars in thousands)     
|Revenue                                                                               |                      |                             |         |        |         |      |         |        |         |   |         |       
|Property and Casualty:                                                                |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | American Southern    |                             | $       | 42,202 |         |      | $       | 44,353 |         |   | $       | 43,779 |        
|                                                                                      | Association Casualty |                             |         | 22,776 |         |      |         | 26,619 |         |   |         | 29,668 |        
|                                                                                      | Georgia Casualty     |                             |         | 37,523 |         |      |         | 33,093 |         |   |         | 28,515 |        
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      |                      | Total property and casualty |         |        | 102,501 |      |         |        | 104,065 |   |         |        | 101,962 | 
|Life and Health:                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | Bankers Fidelity     |                             |         | 68,333 |         |      |         | 65,276 |         |   |         | 60,244 |        
|Corporate and Other                                                                   |                      |                             | 766     |        |         |      | 904     |        |         |   | 1,102   |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Total Revenue                                                                         |                      | $                           | 171,600 |        |         | $    | 170,245 |        |         | $ | 163,308 |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Income before taxes and cumulative effect of
    change in accounting principle       |                      |                             |         |        |         |      |         |        |         |   |         |       
|Property and Casualty:                                                                |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | American Southern    |                             | $       | 7,847  |         |      | $       | 6,621  |         |   | $       | 6,796  |        
|                                                                                      | Association Casualty |                             |         | (612   | )       |      |         | (1,981 | )       |   |         | (2,925 | )      
|                                                                                      | Georgia Casualty     |                             |         | 1,115  |         |      |         | (178   | )       |   |         | 2,106  |        
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      |                      | Total property and casualty |         |        | 8,350   |      |         |        | 4,462   |   |         |        | 5,977   | 
|Life and Health:                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|                                                                                      | Bankers Fidelity     |                             |         | 5,269  |         |      |         | 4,065  |         |   |         | 3,370  |        
|Corporate and Other                                                                   |                      |                             | (7,094  | )      |         |      | (5,424  | )      |         |   | (5,094  | )     
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       
|Total income before taxes and cumulative effect
    of change in accounting principle |                      | $                           | 6,525   |        |         | $    | 3,103   |        |         | $ | 4,253   |       
|                                                                                      |                      |                             |         |        |         |      |         |        |         |   |         |       

On a consolidated basis, the Company had net
income for 2003 of $6.8 million, or $.25 per diluted
share. In 2002, the Company had a net loss of
$12.2 million, or $.63 per diluted share. Net income
was $3.6 million, or $.10 per diluted share in 2001.
The net loss for 2002 was primarily the result of a non-cash
charge of $15.8 million to reflect a change in accounting
for goodwill. Total revenue for 2003 increased slightly to
$171.6 million from $170.2 million in 2002. The
moderate increase in revenue during 2003 is primarily
attributable to the non-renewal of several accounts that were
unprofitable in addition to the loss of one of the
Companys larger contracts early in the second quarter of
2003, offset by continued new business growth and premium
increases on existing business. Total revenue for 2002 increased
$6.9 million, or 4.2%, to $170.2 million from
$163.3 million in 2001. The increase in revenue during 2002
was primarily due to significant premium rate increases at both
Georgia Casualty and Bankers Fidelity on new and renewal
business. During 2003, net income was favorably impacted by a
$1.5 million deferred tax benefit related to a reduction of
the Companys valuation allowance compared to a similar
$1.3 million and $0.8 million deferred tax benefit in
2002 and 2001, respectively. The reduction of the valuation
allowance was the result of reassessment as to the realization
of certain net operating loss carry forwards. Also, during 2003,
the Company recognized a tax benefit of approximately
$1.0 million related to prior years alternative
minimum tax payments, which did not occur in 2002 or 2001. At
the time such payments were made there was no assurance that
such amounts could be recovered in future periods. After filing
the Companys 2002 tax returns in 2003 and assessing the
current status of the life insurance versus non-life insurance
subsidiaries, the Company determined that the realization of
future benefit from prior years alternative minimum tax
payments was probable and, accordingly, the benefit was
recognized. Income before income taxes and cumulative effect of
change in accounting principle increased 110.3% to

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$6.5 million in 2003 as compared to 2002
primarily due to better operating performance from all of the
Companys subsidiaries. Income before income taxes and
cumulative effect of change in accounting principle decreased to
$3.1 million in 2002 from $4.3 million in 2001. The
decrease during 2002 was primarily due to adverse development on
prior years claims as well as a significant increase in
the second injury trust fund and insolvency assessments, both in
the casualty division.


The Companys casualty operations, referred
to as the Casualty Division, are comprised of American Southern,
Association Casualty, and Georgia Casualty. The Companys
life and health operations, referred to as the Life and Health
Division, are comprised of the operations of Bankers Fidelity.

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, for the periods
indicated, American Southerns premiums, losses and
underwriting ratios:

|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  |                        
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 2003                    |        | 2002 |  | 2001
|                                        |  |                         |        |      |  |     
|                                        |  |                        
|                                        |  | (Dollars in thousands) 
|Gross written premiums                  |  | $                       | 44,393 |      |  | $    | 48,713 |   |  | $ | 45,490 |  
|Ceded premiums                          |  |                         | (6,435 | )    |  |      | (6,878 | ) |  |   | (5,931 | )
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|Net written premiums                    |  | $                       | 37,958 |      |  | $    | 41,835 |   |  | $ | 39,559 |  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|Net earned premiums                     |  | $                       | 37,358 |      |  | $    | 39,914 |   |  | $ | 39,023 |  
|Net losses and loss adjustment expenses |  |                         | 20,977 |      |  |      | 26,353 |   |  |   | 26,069 |  
|Underwriting expenses                   |  |                         | 13,378 |      |  |      | 11,379 |   |  |   | 10,914 |  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|Underwriting income                     |  | $                       | 3,003  |      |  | $    | 2,182  |   |  | $ | 2,040  |  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|Loss ratio                              |  |                         | 56.2   | %    |  |      | 66.0   | % |  |   | 66.8   | %
|Expense ratio                           |  |                         | 35.8   |      |  |      | 28.5   |   |  |   | 28.0   |  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  
|Combined ratio                          |  |                         | 92.0   | %    |  |      | 94.5   | % |  |   | 94.8   | %
|                                        |  |                         |        |      |  |      |        |   |  |   |        |  

Gross written premiums at American Southern
decreased $4.3 million, or 8.9%, during 2003. The decrease
in premiums was attributable to the loss of American
Southerns largest account upon its contractual termination
on April 30, 2003 partially offset by new business. The
lost contract represented annualized premiums of
$14.3 million, or approximately 10% of annualized premium
revenue for Atlantic American and even though no individual
piece of new business is of the same magnitude as the lost
contract, American Southern has substantially replaced the
written premium with new contracts from a more diversified group
of clients.

Ceded premiums decreased $0.4 million, or
6.4%, during 2003. Although American Southern has experienced an
increase in reinsurance rates, the effective percent of premiums
ceded to premiums earned remained virtually unchanged in 2003
from 2002. Rate increases were offset by a reduction in
reinsurance costs attributable to the loss of American
Southerns largest account discussed previously. This
contract, which terminated on April 30, 2003, had higher
reinsurance costs than the other accounts in American
Southerns book of business.

Gross written premiums at American Southern
increased $3.2 million, or 7.1%, during 2002. The increase
in premiums was primarily attributable to significant rate
increases, new business generated by established agents
including one new state contract that contributed
$1.1 million in written premiums as well as premiums
provided by new agency appointments. Offsetting these increases
in gross written

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premiums was the loss of one state contract in
July 2001, which had contributed approximately $2.0 million
in written premiums during 2001. The loss of this particular
contract resulted in a reduction in annualized premium for 2002
of approximately $4.0 million.


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

American Southern produces much of its business
through contracts with various states and municipalities, some
of which represent significant amounts of revenue. These
contracts, which last from one to three years, 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 the
Company. In an effort to increase the number of programs
underwritten by American Southern and to insulate it from the
loss of any one program, American Southern is continually
evaluating new underwriting programs. There can be no assurance,
however, that new programs or new accounts will offset lost
business.

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

|                           |  |                         |        |      |  |      |        |  |  |   |        | 
|-------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2003                    |        | 2002 |  | 2001
|                           |  |                         |        |      |  |     
|                           |  |                        
|                           |  | (Dollars in thousands) 
|Automobile liability       |  | $                       | 17,947 |      |  | $    | 22,748 |  |  | $ | 23,677 | 
|Automobile physical damage |  |                         | 9,451  |      |  |      | 9,829  |  |  |   | 8,732  | 
|General liability          |  |                         | 5,777  |      |  |      | 3,647  |  |  |   | 3,161  | 
|Property                   |  |                         | 3,819  |      |  |      | 3,627  |  |  |   | 3,386  | 
|Surety                     |  |                         | 364    |      |  |      | 63     |  |  |   | 67     | 
|                           |  |                         |        |      |  |      |        |  |  |   |        | 
|Total earned premium       |  | $                       | 37,358 |      |  | $    | 39,914 |  |  | $ | 39,023 | 
|                           |  |                         |        |      |  |      |        |  |  |   |        | 

Net earned premiums for 2003 decreased
$2.6 million, or 6.4%, from 2002 primarily due to the loss
of American Southerns largest contract, which has been
previously discussed, partially offset by the new more
diversified business written in 2003.

Net earned premiums for 2002 increased
$0.9 million, or 2.3%, over 2001 also primarily due to the
factors discussed previously.

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

The combined ratio for American Southern
decreased from 94.5% in 2002 to a combined ratio of 92.0% in
2003. The loss ratio decreased to 56.2% in 2003 from 66.0% in
2002. The decrease in the loss ratio during 2003 was primarily
attributable to the loss of American Southerns largest
account, which expired on April 30, 2003. American
Southerns loss ratio in 2003 improved significantly as it
benefited from a substantial reduction in automobile claims
related to this account. The expense ratio for 2003 increased to
35.8% from 28.5% in 2002. The increase in the expense ratio in
2003 is a function of American Southerns contractual
arrangements, which compensate the companys agents in
relation to the

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loss ratios of the business they write. 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. By structuring its
business in this manner, American Southern provides its agents
with an economic incentive to place profitable business with
American Southern. As a result of this arrangement, in periods
where losses and the loss ratio decrease, commission and
underwriting expenses increase. American Southern is also
experiencing an increase in acquisition costs, specifically in
net fixed commissions, associated with new programs and accounts
the company has underwritten in 2003. As a percentage of gross
written premiums, net fixed commissions have increased from 9.2%
in 2002 to 14.2% in 2003.


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

Association
Casualty

The following table summarizes, for the periods
indicated, Association Casualtys premiums, losses and
underwriting ratios:

|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|--------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | ---
|                                        |  |                        
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 2003                    |        | 2002 |  | 2001
|                                        |  |                         |        |      |  |     
|                                        |  |                        
|                                        |  | (Dollars in thousands) 
|Gross written premiums                  |  | $                       | 26,853 |      |  | $    | 26,786 |   |  | $ | 34,648 |    
|Ceded premiums                          |  |                         | (4,584 | )    |  |      | (4,166 | ) |  |   | (3,692 | )  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|Net written premiums                    |  | $                       | 22,269 |      |  | $    | 22,620 |   |  | $ | 30,956 |    
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|Net earned premiums                     |  | $                       | 20,352 |      |  | $    | 24,244 |   |  | $ | 25,711 |    
|Net losses and loss adjustment expenses |  |                         | 15,245 |      |  |      | 20,402 |   |  |   | 23,613 |    
|Underwriting expenses                   |  |                         | 8,143  |      |  |      | 8,198  |   |  |   | 8,155  | (1)
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|Underwriting loss                       |  | $                       | (3,036 | )    |  | $    | (4,356 | ) |  | $ | (6,057 | )  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|Loss ratio                              |  |                         | 74.9   | %    |  |      | 84.2   | % |  |   | 91.8   | %  
|Expense ratio                           |  |                         | 40.0   |      |  |      | 33.8   |   |  |   | 31.7   | (1)
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    
|Combined ratio                          |  |                         | 114.9  | %    |  |      | 118.0  | % |  |   | 123.5  | %  
|                                        |  |                         |        |      |  |      |        |   |  |   |        |    



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

Gross written premiums at Association Casualty
increased $0.1 million in 2003. The slight increase in
gross written premiums was primarily attributable to the
continued rationalization of certain business along with
implementation of certain minimum account standards. During
2003, approximately $3.9 million in gross written premiums
were non-renewed as a result of these initiatives. Association
Casualty continues to re-underwrite the workers
compensation book of business, increase rates on renewal
business, and increase business writings for commercial lines
other than workers compensation such as general liability,
property and automobile.

Ceded premiums at Association Casualty increased
$0.4 million, or 10.0%, during 2003. In 2003, Association
Casualtys primary reinsurance agreement expired. Due to
the proposed renewal rates and terms associated therewith,
Association Casualty terminated the relationship with its
existing reinsurer and entered into a new reinsurance agreement.
The new reinsurance rates will result in a prospective pricing

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increase of approximately 12% over previous
rates. Furthermore, Association Casualty has also experienced
higher reinsurance rates due to the change in the companys
book of business. Ceded premiums have increased
disproportionately due to the higher reinsurance costs
associated with these new lines of business. Excluding assumed
written premiums of $3.6 million in 2003 that are not
subject to reinsurance and did not exist in 2002, reinsurance
premiums ceded as a percentage of written premiums increased to
19.7% in 2003 from 15.6% in 2002.


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

Ceded premiums at Association Casualty increased
$0.5 million, or 12.8%, during 2002. As Association
Casualty continued its diversification into commercial lines
other than workers compensation, ceded premiums increased
significantly due to the higher reinsurance costs associated
with these new lines of business.

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

|                          |  |                         |        |      |  |      |        |  |  |   |        | 
|------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                          |  |                        
|                          |  | Year Ended December 31,
|                          |  |                        
|                          |  | 2003                    |        | 2002 |  | 2001
|                          |  |                         |        |      |  |     
|                          |  |                        
|                          |  | (Dollars in thousands) 
|Workers compensation     |  | $                       | 13,196 |      |  | $    | 18,950 |  |  | $ | 22,784 | 
|Business automobile       |  |                         | 2,307  |      |  |      | 1,811  |  |  |   | 671    | 
|General liability         |  |                         | 385    |      |  |      | 221    |  |  |   | 117    | 
|Property                  |  |                         | 4,464  |      |  |      | 3,080  |  |  |   | 1,001  | 
|Group accident and health |  |                         |       |      |  |      | 182    |  |  |   | 1,138  | 
|                          |  |                         |        |      |  |      |        |  |  |   |        | 
|Total earned premium      |  | $                       | 20,352 |      |  | $    | 24,244 |  |  | $ | 25,711 | 
|                          |  |                         |        |      |  |      |        |  |  |   |        | 

Net earned premiums decreased $3.9 million,
or 16.1%, during 2003 and $1.5 million, or 5.7%, during
2002 primarily due to the reasons discussed previously.

The combined ratio for Association Casualty
decreased from 118.0% in 2002 to 114.9% in 2003. The loss ratio
decreased from 84.2% in 2002 to 74.9% in 2003. The decrease in
the loss ratio was primarily attributable to an extensive
re-underwriting of the workers compensation book of
business that began in 2002. Although Association Casualty is
benefiting from these initiatives, it continues to be adversely
impacted by the liberal interpretation of the workers
compensation laws in the state of Texas. As the law has evolved,
interpretive changes in the application of life time
medical and impairment rating provisions have
resulted in increased medical costs and the need to provide for
additional reserves. Association Casualty continues to increase
pricing and improve underwriting criteria to help to mitigate
these costs, as well as others. The expense ratio increased to
40.0% in 2003 from 33.8% in 2002, primarily as a result of a
consistent level of fixed expenses coupled with a decrease in
earned premiums.

The combined ratio for Association Casualty
decreased from 123.5% in 2001 to 118.0% in 2002. The loss ratio
decreased from 91.8% in 2001 to 84.2% in 2002. The decrease in
the loss ratio was primarily attributable to significant premium
rate increases in addition to benefits from non-renewing its
unprofitable workers compensation business as discussed
previously. The expense ratio increased to 33.8% in 2002 from
31.7% in 2001, primarily as a result of the change in the book
of business and the decline in earned premiums.

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##### Table of Contents



Georgia
Casualty

The following table summarizes, for the periods
indicated, Georgia Casualtys premiums, losses and
underwriting ratios:

|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|--------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                        |  |                        
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 2003                    |         | 2002 |  | 2001
|                                        |  |                         |         |      |  |     
|                                        |  |                        
|                                        |  | (Dollars in thousands) 
|Gross written premiums                  |  | $                       | 51,753  |      |  | $    | 52,406  |   |  | $ | 40,966  |  
|Ceded premiums                          |  |                         | (14,481 | )    |  |      | (17,889 | ) |  |   | (15,702 | )
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Net written premiums                    |  | $                       | 37,272  |      |  | $    | 34,517  |   |  | $ | 25,264  |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Net earned premiums                     |  | $                       | 34,319  |      |  | $    | 29,744  |   |  | $ | 25,579  |  
|Net losses and loss adjustment expenses |  |                         | 22,258  |      |  |      | 19,950  |   |  |   | 17,644  |  
|Underwriting expenses                   |  |                         | 14,150  |      |  |      | 13,321  |   |  |   | 8,765   |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Underwriting loss                       |  | $                       | (2,089  | )    |  | $    | (3,527  | ) |  | $ | (830    | )
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Loss ratio                              |  |                         | 64.9    | %    |  |      | 67.1    | % |  |   | 69.0    | %
|Expense ratio                           |  |                         | 41.2    |      |  |      | 44.8    |   |  |   | 34.3    |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Combined ratio                          |  |                         | 106.1   | %    |  |      | 111.9   | % |  |   | 103.3   | %
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  

Gross written premiums at Georgia Casualty
decreased $0.7 million, or 1.2%, in 2003. The decrease in
premiums was primarily attributable to the non-renewal of
several large accounts that were previously unprofitable in
addition to the complete elimination of a substandard
underwriting program, which began during the latter part of
2002. During 2003, approximately $4.3 million in gross
written premiums were non-renewed from these initiatives.
Through existing agents, Georgia Casualty continues to produce
new business and increase rates on renewal business.

Ceded premiums at Georgia Casualty decreased
$3.4 million, or 19.1%, in 2003. The decrease in ceded
premiums is primarily due to the quota share reinsurance
agreement. During 2003, the 30% quota share reinsurance
agreement that Georgia Casualty had put into place in the first
quarter of 2002 was reduced to a 20% quota share agreement
retroactive to January 1, 2003. The reduction in the quota
share agreement resulted in a decrease in ceded premiums of
approximately $3.6 million in 2003 as compared to 2002 when
the cession rate was higher.

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

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

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##### Table of Contents



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

|                      |  |                         |        |      |  |      |        |  |  |   |        | 
|--------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                      |  |                        
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 2003                    |        | 2002 |  | 2001
|                      |  |                         |        |      |  |     
|                      |  |                        
|                      |  | (Dollars in thousands) 
|Workers compensation |  | $                       | 11,071 |      |  | $    | 10,592 |  |  | $ | 10,744 | 
|Business automobile   |  |                         | 8,767  |      |  |      | 7,388  |  |  |   | 5,412  | 
|General liability     |  |                         | 2,272  |      |  |      | 1,761  |  |  |   | 2,610  | 
|Property              |  |                         | 12,209 |      |  |      | 10,003 |  |  |   | 6,813  | 
|                      |  |                         |        |      |  |      |        |  |  |   |        | 
|Total earned premium  |  | $                       | 34,319 |      |  | $    | 29,744 |  |  | $ | 25,579 | 
|                      |  |                         |        |      |  |      |        |  |  |   |        | 

Net earned premiums increased $4.6 million,
or 15.4%, during 2003. The increase in earned premiums was due
to several reasons including rate increases and new business.
While the cession for the quota share was reduced from 40% in
2001 to 30% in 2002, the bulk of written premiums ceded under
the 40% quota share agreement during 2001 were recognized in
2002, resulting in lower earned premiums in 2002 as compared to
2003 when the cession rate was lower. Additionally, in
2003 net earned premiums at Georgia Casualty increased by
$1.8 million due to another reduction in the quota share
reinsurance agreement discussed previously.

Net earned premiums increased $4.2 million,
or 16.3%, during 2002 primarily due to the factors discussed
previously. Partially offsetting the increase in net earned
premiums for 2002 was an increase in ceded earned premiums under
the quota share agreement. While the cession for the quota share
had been reduced from 40% in 2001 to 30% in 2002, the bulk of
the written premiums ceded under this agreement during 2001 were
recognized in 2002.

The combined ratio for Georgia Casualty decreased
from 111.9% in 2002 to 106.1% in 2003. The loss ratio decreased
from 67.1% in 2002 to 64.9% in 2003. The decrease in the loss
ratio was primarily attributable to better experience on Georgia
Casualtys net book of business during 2003 than in 2002.
During 2002, Georgia Casualty incurred several large losses. The
expense ratio decreased in 2003 to 41.2% from 44.8% in 2002. The
decrease in the expense ratio was primarily due to the reversal
of the companys accrued 2002 policyholder dividend payment
of $0.4 million due to substandard results for
workers compensation business in the states of Florida and
Georgia during 2003. In 2003 and 2002, Georgia Casualty accrued
and expensed $0 and $0.5 million, respectively, for
policyholder dividends. The reduction of the 2002 policyholder
dividend accrual in 2003 decreased expenses by $0.9 million
during 2003 as compared to the same period in 2002.

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

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##### Table of Contents





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

The following summarizes, for the periods
indicated, Bankers Fidelitys premiums and operating
expenses:

|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|----------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |        | 2002 |  | 2001
|                              |  |                         |        |      |  |     
|                              |  |                        
|                              |  | (Dollars in thousands) 
|Medicare Supplement           |  | $                       | 46,190 |      |  | $    | 42,298 |  |  | $ | 38,268 | 
|Other health products         |  |                         | 2,952  |      |  |      | 2,878  |  |  |   | 2,912  | 
|Life insurance                |  |                         | 13,541 |      |  |      | 15,421 |  |  |   | 14,096 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|Total earned premium          |  | $                       | 62,683 |      |  | $    | 60,597 |  |  | $ | 55,276 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|Insurance benefits and losses |  | $                       | 43,863 |      |  | $    | 42,404 |  |  | $ | 39,570 | 
|Underwriting expenses         |  |                         | 19,201 |      |  |      | 18,807 |  |  |   | 17,304 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 
|Total expenses                |  | $                       | 63,064 |      |  | $    | 61,211 |  |  | $ | 56,874 | 
|                              |  |                         |        |      |  |      |        |  |  |   |        | 

Premium revenue at Bankers Fidelity increased
$2.1 million, or 3.4%, during 2003. The Medicare Supplement
line of business increased $3.9 million, or 9.2%, and
accounts for 74% of total earned premiums. Bankers Fidelity
continues its market expansion throughout the Southeast,
Mid-Atlantic, and in the western United States. In 2003, the
companys key states in terms of premium revenue were
Georgia, Indiana, Pennsylvania, Utah and West Virginia, which
accounted for approximately 60% of total earned premium for
2003. The Medicare Supplement line of business in these states
increased approximately $1.5 million in 2003 as compared to
the same period in 2002. During 2003, rate increases were
implemented in varying amounts by state and plan. Rate increases
that were implemented in 2002 resulted in increased revenue and
profitability in 2003. During the same time, the life insurance
line of business decreased $1.9 million, or 12.2%. During
2002, Bankers Fidelity contracted varying amounts of whole life
insurance to certain former Cub Food workers for a single life
premium of $1.2 million, which did not occur in 2003. The
lack of such a significant contract in 2003 as well as a decline
in qualified leads resulted in a lower level of life insurance
premiums in 2003 than in 2002.

Premium revenue at Bankers Fidelity increased
$5.3 million, or 9.6%, during 2002. The most significant
increase in premium was in the Medicare Supplement line of
business, which increased $4.0 million, or 10.5%. During
2002, Bankers Fidelity generated additional Medicare Supplement
premium revenue in the state of Pennsylvania of approximately
$1.7 million. In addition, in both 2002 and 2001, rate
increases were implemented in varying amounts by state and type
of plan. Significant rate increases in 2001 resulted in
increased revenue and profitability in 2002, thereby requiring
smaller rate increases in 2002 than those experienced in 2001.
Additionally, the life insurance line of business increased
$1.3 million, or 9.4%, primarily due to $1.2 million
in single premium life sales.

The increase in both benefits and
losses and underwriting expenses during 2003
and 2002 was primarily attributable to the increase in premiums
for those periods. As a percentage of premiums, benefits and
losses were 70.0% in 2003 compared to 70.0% in 2002 and 71.6% in
2001. The increase in the loss ratio in 2001 was primarily due
to continued aging of the life business and higher medical costs
than expected for the health business. Rate increases
implemented by the company on the Medicare Supplement line of
business have helped to mitigate the impact of higher medical
costs.

Bankers Fidelity has been reasonably successful
in controlling operating costs, while continuing to add new
business. As a percentage of premiums, commissions and
underwriting expenses were 30.6% in 2003 compared to 31.0% in
2002 and 31.3% in 2001.

Investment Income and Realized Gains

Investment income for 2003 of $15.6 million
increased $1.6 million, or 11.5%, from 2002. The increase
in investment income during 2003 was primarily due to a shift
from short-term investments to

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##### Table of Contents



higher yielding fixed maturities. The
Companys investment in fixed maturities increased from
$207.0 million at December 31, 2002 to
$229.5 million as of December 31, 2003.


Realized investment gains were $0.4 million
in 2003, $0.6 million in 2002, and $1.7 million in
2001. During the years ended December 31, 2003 and 2002,
the Company recorded impairments of $1.0 million and
$0.2 million, respectively, related to a common stock
investment and $0.2 million and $0, respectively, related
to an other invested asset. There were no impairments recorded
for the year ended December 31, 2001. While the impairments
did not impact the carrying value of the investments, they
resulted in realized losses of $1.2 million in 2003 and
$0.2 million in 2002. Management continually evaluates the
Companys investment portfolio and when opportunities arise
will divest investments.

Investment income for 2002 of $14.0 million
decreased $0.3 million, or 2.1%, from 2001. The decrease in
investment income during 2002 was primarily attributable to
decreased interest rates. During both years, the decline in
interest rates resulted in several of the Companys higher
yielding callable fixed income securities being redeemed by the
issuers prior to maturity. The proceeds received from the early
redemptions of these fixed income securities were reinvested at
a lower yield, and as a result, investment income decreased
during 2002. In addition, the Companys equity investment
in its joint venture with AAA Carolinas was reduced by
$0.4 million in 2002 to reflect lower than expected premium
production and higher expenses compared to a decrease of
$0.2 million in the equity investment during 2001.

Interest Expense

Interest expense increased $0.6 million, or
21.8%, during 2003 to $3.1 million from $2.6 million
in 2002. As of December 31, 2003, total debt increased
$6.2 million to $56.2 million, from $50.0 million
at December 31, 2002. On December 4, 2002, the Company
participated in a pooled private placement offering of trust
preferred securities. In that offering, the Company issued to a
separate newly created Connecticut statutory trust approximately
$18.0 million in thirty year junior subordinated
debentures, and the trust sold $17.5 million of trust
preferred securities to third party investors. Of the
$17.0 million in net proceeds, $12.0 million was used
to reduce the principal balance on the Companys
outstanding term loan to $32.0 million from
$44.0 million. On May 15, 2003, the Company
participated in a second pooled private placement offering of
trust preferred securities. In that offering, the Company issued
to a separate newly created Connecticut statutory trust
approximately $23.2 million in thirty year junior
subordinated debentures, and that trust sold $22.5 million
of trust preferred securities to third party investors. Of the
$21.8 million in net proceeds, $17.0 million was used
to reduce the principal balance on the Companys
outstanding term loan to $15.0 million from
$32.0 million. Both trust preferred securities issuances,
which have a maturity of thirty years from their original date
of issuance, have an interest rate equivalent to the London
Interbank Offer Rate (LIBOR) plus an applicable
margin varying from 4.00% to 4.10% and the portion of the term
loan that was repaid with the proceeds from the trust preferred
issuances had an interest rate equivalent of LIBOR plus 2.50%.
The increase in debt level, along with the increased variable
rate paid thereon, results in the increase in interest expense
for 2003.

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

Other Expenses

Other expenses (commissions, underwriting
expenses, and other expenses) increased $4.1 million, or
7.5%, in 2003. The increase in other expenses during 2003 is
attributable to several factors. First, the Company experienced
an increase in acquisition costs on new and renewal business at
American Southern, which increased $1.9 million over 2002.
Of the $1.9 million increase in acquisition costs in 2003,
agents profit sharing commissions at American Southern
accounted for $0.7 million of the increase due primarily

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to lower loss ratios. The majority of American
Southerns business is structured in a way that agents are
rewarded or penalized based upon the loss ratio of the business
they submit to the company. In periods where the loss ratio
decreases, commissions and underwriting expenses will increase
and conversely in periods where the loss ratio increases,
commissions and underwriting expenses should decrease. In
addition, the bad debt reserve was increased by
$0.3 million due to uncertainty as to the collectibility of
certain agent and customer receivables. Also contributing to the
increase in other expenses was an overall increase in operating
expenses, primarily compensation which increased
$1.2 million as compared to 2002. On a consolidated basis,
as a percentage of earned premiums, other expenses increased to
38.5% from 35.9% in 2002.


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

Liquidity and Capital Resources

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

Dividend payments to the Company by its insurance
subsidiaries are subject to annual limitations and are
restricted to the greater of 10% of statutory surplus or
statutory earnings before recognizing realized investment gains
of the individual insurance subsidiaries. At December 31,
2003, the Companys insurance subsidiaries had statutory
surplus of $106.1 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 $5.9 million in
2003, 2002, and 2001, respectively. In addition, the Company has
a formal tax-sharing agreement with each of its insurance
subsidiaries. A net total of $0.9 million,
$2.8 million and $1.3 million was paid to the Company
under the tax sharing agreement in 2003, 2002, and 2001,
respectively. Dividends were paid to Atlantic American by its
subsidiaries totaling $5.7 million in 2003,
$7.1 million in 2002, and $7.1 million in 2001. As a
result of the Companys tax loss carryforwards, which
totaled approximately $17.2 million at December 31,
2003, it is anticipated that the tax sharing agreement will
continue to provide the Company with additional funds with which
to meet its cash flow obligations.

At December 31, 2003, the Companys
$56.2 million of borrowings consisted of $15.0 million
outstanding under a bank loan with Wachovia Bank, N.A.
(Wachovia) and an aggregate of $41.2 million of
outstanding junior subordinated deferrable interest debentures
(Junior Subordinated Debentures). Effective
June 30, 2003, the Company executed an amended and restated
credit agreement (Term Loan) with Wachovia with
respect to the outstanding $15.0 million bank debt. Terms
of the agreement require the Company to repay $2.0 million
in principal on July 1, 2004 and $1.0 million on
December 31, 2004. Beginning in 2005 and each year
thereafter, the Company must repay $0.5 million on
June 30 and $1.3 million on December 31 with one
final payment of $6.8 million at maturity on June 30,
2008. The interest rate on the Term Loan is equivalent to
three-month LIBOR plus an applicable margin, which was 2.50% at
December 31, 2003. The margin varies based upon the
Companys leverage ratio (debt to total capitalization) and
ranges from 1.75% to 2.50%. The Term Loan requires the Company to

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comply with certain covenants including, among
others, ratios that relate funded debt, as defined, to total
capitalization and earnings before interest, taxes,
depreciation, and amortization (EBITDA). The Company
must also comply with limitations on capital expenditures and
additional debt obligations. During 2003 and 2002, the Company
formed two Connecticut statutory business trusts, which exist
for the exclusive purpose of issuing trust preferred securities
representing undivided beneficial interests in the assets of the
trusts and investing the gross proceeds of the trust preferred
securities in Junior Subordinated Debentures of Atlantic
American Corporation. The outstanding $41.2 million of
Junior Subordinated Debentures have a maturity of thirty years
from their original date of issuance, are callable, in whole or
in part, only at the option of the Company after five years and
quarterly thereafter, and have an interest rate of three-month
LIBOR plus an applicable margin. The margin ranges from 4.00% to
4.10%. At December 31, 2003 the effective interest rate of
the trust preferred securities was 5.24%. The obligations of the
Company with respect to the issuance of the trust preferred
securities represent a full and unconditional guarantee by the
Company of each trusts obligations with respect to the
trust preferred securities. Subject to certain exceptions and
limitations, the Company may elect from time to time to defer
subordinated debenture interest payments, which would result in
a deferral of distribution payments on the related trust
preferred securities.


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

At December 31, 2003, the Company had a
$15.0 million notional amount interest rate swap agreement
with Wachovia that matures on June 30, 2004. The Company
pays a fixed interest rate of 5.1% and receives 3-month LIBOR
until maturity. Due to the significant decrease in LIBOR since
the interest rate swap agreement was incepted in 2001, and
assuming no future change in the LIBOR rate, the Company expects
a reduction in interest expense of approximately
$0.3 million subsequent to the swap maturity at
June 30, 2004 through December 31, 2004.

At December 31, 2003, the Company had two
series of preferred stock outstanding, substantially all of
which was held by affiliates of the Companys chairman and
principal shareholders. The outstanding shares of Series B
Preferred Stock (Series B Preferred Stock) have
a stated value of $100 per share; accrue annual dividends
at a rate of $9.00 per share and are cumulative; in certain
circumstances may be convertible into an aggregate of
approximately 3,358,000 shares of common stock; and are
redeemable at the Companys option. The Series B
Preferred Stock is not currently convertible. At
December 31, 2003, the Company had accrued, but unpaid,
dividends on the Series B Preferred Stock totaling
$9.6 million. The shares of Series C Preferred Stock
(Series C Preferred Stock) had a stated value
of $100 per share; accrued annual dividends at a rate of
$9.00 per share and are cumulative. During 2003, in
accordance with the terms of the Series C Preferred Stock,
the Company exercised its right to redeem 20,000 shares of
the outstanding shares of the Series C Preferred Stock.
These shares were redeemed at the redemption price specified in
the terms of the Series C Preferred Stock, $100 per
share, for $2.0 million, bringing the total outstanding
shares of Series C Preferred stock to 5,000 from 25,000 as
of December 31, 2003. The Company paid $0.1 million
and $0.2 million in dividends to the holders of the
Series C Preferred Stock during 2003 and 2002,
respectively. Subsequent to December 31, 2003, the
remaining 5,000 shares of Series C Preferred Stock
were redeemed for $100 per share, or $0.5 million.

Net cash provided by operating activities totaled
$13.9 million in 2003, $13.8 million in 2002 and
$15.8 million in 2001. Cash and short-term investments at
December 31, 2003 were $34.2 million and are believed
to be 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

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regulatory authorities which, if implemented,
would have a material adverse effect on the Companys
liquidity, capital resources or operations.


New Accounting Pronouncements

In January 2004, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position
No. 106-1, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, which addresses the accounting
and disclosure implications that are expected to arise as a
result of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. Adoption of this statement is not
anticipated to have an impact on the Companys financial
condition or results of operations.

In December 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 132
(revised 2003), Employers Disclosures about Pensions
and Other Postretirement Benefits. This statement requires
additional detailed disclosures regarding pension plan assets,
benefit obligations, cash flows, benefit costs and related
information. The Company adopted the new disclosures required as
of December 31, 2003.

Effective December 31, 2003, the Company
adopted the disclosure requirements of Emerging Issues Task
Force (EITF) Issue No. 03-01, The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments. Disclosures are required for
unrealized losses on fixed maturity and equity securities
classified as either available-for-sale or held-to-maturity. The
disclosure requirements include quantitative information
regarding the aggregate amount of unrealized losses and the
associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments
have been in an unrealized loss position. Certain qualitative
disclosures about the unrealized holdings are also required in
order to provide additional information that the Company
considered in concluding that the unrealized losses were not
other than temporary.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Adoption of this
statement did not have a material impact on the Companys
financial condition or results of operations.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The
statement amended and clarified accounting for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under
SFAS No. 133. The adoption of SFAS No. 149
did not have a material impact on the Companys financial
condition or results of operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51
(FIN 46), which requires an enterprise to
assess whether consolidation of an entity is appropriate based
upon its interests in a variable interest entity
(VIE). The adoption of FIN 46 did not have a
material impact on the Companys consolidated financial
condition or results of operations as there were no material
VIEs identified which required consolidation.

In December 2003, the FASB issued a revised
version of FIN 46 (FIN 46R), which
incorporated a number of modifications and changes made to
FIN 46. FIN 46R replaces the previously issued
FIN 46 and, subject to certain special provisions, is
effective no later than the end of the first reporting period
that ends after December 15, 2003 for entities considered
to be special-purpose entities. The Company adopted FIN 46R
in the fourth quarter of 2003. The adoption of FIN 46R did
not result in the consolidation of any material VIEs but
resulted in the deconsolidation of VIEs that issued Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts
(trust preferred securities). The Company is not the
primary beneficiary of the VIEs, which issued the trust
preferred securities. The Company does not own any of the trust
preferred securities, which were issued to unrelated third
parties. These trust preferred securities are considered the
principal variable interests issued by the VIEs. As a result,
the VIEs, which the Company

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previously consolidated, are no longer
consolidated. The sole assets of the VIEs are Junior
Subordinated Debentures issued by the Company with payment terms
identical to the trust preferred securities. Previously, the
trust preferred securities were reported as debt on the
Companys consolidated balance sheets. At December 31,
2003 and 2002, the impact of deconsolidation was to increase
both investment in unconsolidated trusts and debt by $1,238 and
$542, respectively.


In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45).
Adoption of this statement did not have an impact on the
Companys financial condition or results of operations.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses
financial accounting and reporting for costs associated with
exit or disposal activities and supercedes EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)
(Issue 94-3). Adoption of this statement did not
have an impact on the Companys financial condition or
results of operations.

In April 2002, the FASB issued FASB No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. Adoption of the provisions of
SFAS No. 145 did not have an impact on the
Companys financial condition or results of operations.

In December 2003, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants (AcSEC) issued Statement of
Position 03-3, Accounting for Certain Loans or Debt
Securities (SOP 03-3). SOP 03-3
addresses the accounting for differences between contractual and
expected cash flows to be collected from an investment in loans
or fixed maturity securities acquired in a transfer if those
differences are attributable, at least in part, to credit
quality. Adoption of this statement is not expected to have
material impact on the Companys financial condition or
results of operations.

In July 2003, AcSEC issued financial Statement of
Position 03-1, Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts
and for Separate Accounts (the SOP). The SOP
addresses a wide variety of topics, many of which are not
applicable to the business which the Company sells. Adoption of
this statement is not expected to have a material impact on the
Companys financial condition or results of operations.

In August 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This standard
provides the financial accounting and reporting for the cost of
legal obligations associated with the retirement of tangible
long lived assets. In accordance with SFAS 143, asset
retirement obligations will be recorded at fair value in the
period they are incurred if a reasonable estimate can be made.
The adoption of SFAS 143 did not have a material impact on
the Companys consolidated 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.

Off-Balance Sheet Arrangements

As of December 31, 2003 the Company did not
have any material off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.

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Contractual Obligations

The following table discloses the amounts of
payments due under specified contractual obligations, aggregated
by category of contractual obligation, for specified time
periods:

|                               |       |                        |        |           |  |       |       |       |  |           |       |       |  |   |       |        |  |   |        |        | 
|------------------------------ | ----- | ---------------------- | ------ | --------- |  | ----- | ----- | ----- |  | --------- | ----- | ----- |  | - | ----- | ------ |  | - | ------ | ------ | 
|                               |       |                       
|                               |       | Payments Due by period
|                               |       |                       
|                               |       |                        |        | Less than |  | 1-3   |       | 3-5   |  | More than
|Contractual Obligations        |       | Total                  |        | 1 Year    |  | Years |       | Years |  | 5 Years  
|                               |       |                        |        |           |  |       |       |       |  |          
|                               |       |                       
|                               |       | (In thousands)        
|Bank debt payable              |       | $                      | 15,000 |           |  | $     | 3,000 |       |  | $         | 3,500 |       |  | $ | 8,500 |        |  | $ |       |       
|Junior Subordinated Debentures |       |                        | 41,238 |           |  |       |      |       |  |           |      |       |  |   |      |        |  |   | 41,238 |       
|Operating Leases               |       |                        | 6,918  |           |  |       | 1,589 |       |  |           | 2,187 |       |  |   | 1,519 |        |  |   | 1,623  |       
|                               |       |                        |        |           |  |       |       |       |  |           |       |       |  |   |       |        |  |   |        |       
|                               | Total |                        | $      | 63,156    |  |       | $     | 4,589 |  |           | $     | 5,687 |  |   | $     | 10,019 |  |   | $      | 42,861 | 
|                               |       |                        |        |           |  |       |       |       |  |           |       |       |  |   |       |        |  |   |        |       






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

Interest Rate and Market Risk

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

The Company is also subject to risk from changes
in equity prices. Atlantic American owned $20.6 million of
common stock of Wachovia Corporation at December 31, 2003.
A 10% decrease in the share price of the common stock of
Wachovia Corporation would result in a decrease of approximately
$1.3 million to shareholders equity.

The interest rate on the Companys debt is
tied to LIBOR. During 2001, the Company entered into an interest
rate swap agreement with Wachovia to hedge its interest rate
risk on a portion of its outstanding borrowings. (See
Note 7 of Notes to Consolidated Financial Statements). A
100 basis point increase in the LIBOR would result in an
additional $0.4 million in interest expense.

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

|                  |  |                        |         |        |  |            |         |        |  |        |         |  |  |   |         |  |  |   |         | 
|----------------- |  | ---------------------- | ------- | ------ |  | ---------- | ------- | ------ |  | ------ | ------- |  |  | - | ------- |  |  | - | ------- | 
|                  |  | +200bp                 |         | +100bp |  | Fair Value |         | -100bp |  | -200bp
|                  |  |                        |         |        |  |            |         |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2003 |  | $                      | 198,062 |        |  | $          | 212,521 |        |  | $      | 229,449 |  |  | $ | 247,935 |  |  | $ | 269,739 | 
|December 31, 2002 |  | $                      | 192,540 |        |  | $          | 204,272 |        |  | $      | 207,010 |  |  | $ | 217,538 |  |  | $ | 223,173 | 

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

|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | ---------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | +20%                   |        | +10% |  | Fair Value |        | -10% |  | -20%
|                                   |  |                        |        |      |  |            |        |      |  |     
|                                   |  |                       
|                                   |  | (Dollars in thousands)
|December 31, 2003                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 24,745 |      |  | $          | 22,683 |      |  | $    | 20,621 |  |  | $ | 18,559 |  |  | $ | 16,497 | 
|Other equity holdings              |  |                        | 28,055 |      |  |            | 25,717 |      |  |      | 23,379 |  |  |   | 21,041 |  |  |   | 18,703 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 52,800 |      |  | $          | 48,400 |      |  | $    | 44,000 |  |  | $ | 39,600 |  |  | $ | 35,200 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|December 31, 2002                  |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Investment in Wachovia Corporation |  | $                      | 19,354 |      |  | $          | 17,741 |      |  | $    | 16,128 |  |  | $ | 14,515 |  |  | $ | 12,902 | 
|Other equity holdings              |  |                        | 19,121 |      |  |            | 17,527 |      |  |      | 15,934 |  |  |   | 14,341 |  |  |   | 12,747 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total equity holdings              |  | $                      | 38,475 |      |  | $          | 35,268 |      |  | $    | 32,062 |  |  | $ | 28,856 |  |  | $ | 25,649 | 
|                                   |  |                        |        |      |  |            |        |      |  |      |        |  |  |   |        |  |  |   |        | 

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, prior to the expiration of the
interest rate swap agreements.

|                  |  |                        |     |        |  |                  |     |        |  |        |        |  |  |   |      |   |  |   |      |  
|----------------- |  | ---------------------- | --- | ------ |  | ---------------- | --- | ------ |  | ------ | ------ |  |  | - | ---- | - |  | - | ---- | -
|                  |  |                        |     |        |  |                 
|                  |  | Interest Expense       |     |        |  | Interest Expense
|                  |  |                        |     |        |  |                 
|                  |  | +200bp                 |     | +100bp |  | Debt             |     | -100bp |  | -200bp
|                  |  |                        |     |        |  |                  |     |        |  |       
|                  |  |                       
|                  |  | (Dollars in thousands)
|December 31, 2003 |  | $                      | 800 |        |  | $                | 400 |        |  | $      | 56,238 |  |  | $ | (400 | ) |  | $ | (800 | )
|December 31, 2002 |  | $                      | 690 |        |  | $                | 345 |        |  | $      | 50,042 |  |  | $ | (345 | ) |  | $ | (690 | )

Deferred Taxes

At December 31, 2003, the Company had a net
deferred tax liability of $0.9 million, comprised of a
deferred tax asset of $18.2 million, a deferred tax
liability of $16.8 million and a valuation allowance of
$2.3 million. The valuation allowance was established
against deferred income tax benefits relating primarily to net
operating loss carryforwards that may not be realized. Since the
Companys ability to generate taxable income from
operations and utilize available tax-planning strategies in the
near term is dependent upon various factors, many of which are
beyond managements control, management believes that the
deferred income tax benefits relating to these carryforwards may
not be realized. However, realization of the remaining deferred
income tax benefits will be assessed periodically based on the
Companys current and anticipated results of operations and
amounts could increase or decrease in the near term if estimates
of future taxable income change. The Company has a formal
tax-sharing agreement and files a consolidated income tax return
with its subsidiaries.

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

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                          |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                          |  | Page
|                                                                                                                          |  |     
|ATLANTIC AMERICAN CORPORATION                                                                                             |  |      |    | 
|Independent Auditors Report                                                                                              |  |      | 39 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                          |  |      | 41 | 
|Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2003               |  |      | 42 | 
|Consolidated Statements of Shareholders
    Equity for each of the three years in the period ended
    December 31, 2003 |  |      | 43 | 
|Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003               |  |      | 44 | 
|Notes to Consolidated Financial Statements                                                                                |  |      | 45 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of

Atlantic American Corporation:


We have audited the accompanying consolidated
balance sheets of ATLANTIC AMERICAN CORPORATIONand
subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations,
shareholders equity, and cash flows for the years then
ended. Our audit also included the 2003 and 2002 financial
statement schedules listed in the index at Item 15(a).
These financial statements and financial statement schedules are
the responsibility of the Companys management. Our
responsibility is to express an opinion on the 2003 and 2002
financial statements and financial statement schedules based on
our audits. The financial statements and financial statement
schedules of the Company as of December 31, 2001, and for
the year then ended, before the inclusion of the disclosures
discussed in Note 1 to the consolidated financial
statements, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on
those consolidated financial statements and stated that such
2001 financial statement schedules, when considered in relation
to the basic 2001 financial statements taken as a whole, fairly
state, in all material respects the financial data required to
be set forth therein, in their report dated March 25, 2002.

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

In our opinion, the 2003 and 2002 consolidated
financial statements present fairly, in all material respects,
the financial position of ATLANTIC AMERICAN CORPORATIONand subsidiaries at December 31, 2003 and 2002, and the
results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
the 2003 and 2002 financial statement schedules, when considered
in relation to the basic 2003 and 2002 consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.

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

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

DELOITTE & TOUCHE LLP

Atlanta, Georgia

March 26, 2004


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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Atlantic American Corporation:

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

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

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

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

ARTHUR ANDERSEN LLP

Atlanta, Georgia

March 25, 2002


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

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##### Table of Contents



ATLANTIC AMERICAN CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |         |         |         | 
|--------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                      
|                                                                                                                      |                                                                                                                                                                                               | December 31,                                                                                                                                                                         
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                      
|                                                                                                                      |                                                                                                                                                                                               | 2003                                                                                                                                                                                  |                                            | 2002  
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |       
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                      
|                                                                                                                      |                                                                                                                                                                                               | (Dollars in thousands,                                                                                                                                                               
|                                                                                                                      |                                                                                                                                                                                               | except per share data)                                                                                                                                                               
|ASSETS                                                                                                               
|Cash and cash equivalents, including short-term
    investments of $25,819 and $21,487 in 2003 and 2002, respectively |                                                                                                                                                                                               | $                                                                                                                                                                                     | 34,238                                     |        |         | $       | 41,638  |        
|Investments                                                                                                           |                                                                                                                                                                                               |                                                                                                                                                                                       | 284,890                                    |        |         |         | 250,384 |        
|Receivables:                                                                                                          |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|                                                                                                                      |                                                                                                                                                                                               | Reinsurance                                                                                                                                                                           |                                            |        | 42,913  |         |         |         | 49,875  |        
|                                                                                                                      |                                                                                                                                                                                               | Other, net of allowance for doubtful accounts of
    $1,418 and $1,121 in 2003 and 2002, respectively                                                                                 |                                            |        | 41,044  |         |         |         | 40,386  |        
|Deferred income taxes, net                                                                                            |                                                                                                                                                                                               |                                                                                                                                                                                       |                                           |        |         |         | 667     |        
|Deferred acquisition costs                                                                                            |                                                                                                                                                                                               |                                                                                                                                                                                       | 27,996                                     |        |         |         | 25,922  |        
|Other assets                                                                                                          |                                                                                                                                                                                               |                                                                                                                                                                                       | 9,463                                      |        |         |         | 9,644   |        
|Goodwill                                                                                                              |                                                                                                                                                                                               |                                                                                                                                                                                       | 3,008                                      |        |         |         | 3,008   |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|                                                                                                                      |                                                                                                                                                                                               | Total assets                                                                                                                                                                          |                                            | $      | 443,552 |         |         | $       | 421,524 |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                             
|Insurance reserves and policyholder funds                                                                             |                                                                                                                                                                                               | $                                                                                                                                                                                     | 263,745                                    |        |         | $       | 254,135 |        
|Accounts payable and accrued expenses                                                                                 |                                                                                                                                                                                               |                                                                                                                                                                                       | 35,734                                     |        |         |         | 38,807  |        
|Deferred income taxes, net                                                                                            |                                                                                                                                                                                               |                                                                                                                                                                                       | 942                                        |        |         |         |        |        
|Debt payable                                                                                                          |                                                                                                                                                                                               |                                                                                                                                                                                       | 56,238                                     |        |         |         | 50,042  |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|                                                                                                                      |                                                                                                                                                                                               | Total liabilities                                                                                                                                                                     |                                            |        | 356,659 |         |         |         | 342,984 |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|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, 5,000 shares and
    25,000 shares issued and outstanding in 2003 and 2002,
    respectively; $500 and $2,500 redemption value in 2003 and 2002,
    respectively |                                            |        | 5       |         |         |         | 25      |        
|                                                                                                                      | Common stock, $1 par, 50,000,000 shares
    authorized; 21,412,138 shares issued in 2003 and 2002 and
    21,198,553 shares outstanding in 2003 and
    21,374,370 shares outstanding in 2002 |                                                                                                                                                                                       |                                            | 21,412 |         |         |         | 21,412  |        
|                                                                                                                      | Additional paid-in capital                                                                                                                                                                    |                                                                                                                                                                                       |                                            | 51,978 |         |         |         | 55,204  |        
|                                                                                                                      | Accumulated deficit                                                                                                                                                                           |                                                                                                                                                                                       |                                            | (4,457 | )       |         |         | (11,270 | )      
|                                                                                                                      | Unearned compensation                                                                                                                                                                         |                                                                                                                                                                                       |                                            | (22    | )       |         |         | (30     | )      
|                                                                                                                      | Accumulated other comprehensive income                                                                                                                                                        |                                                                                                                                                                                       |                                            | 18,293 |         |         |         | 13,143  |        
|                                                                                                                      | Treasury stock, at cost, 213,585 shares in
    2003 and 37,768 shares in 2002                                                                                                                 |                                                                                                                                                                                       |                                            | (450   | )       |         |         | (78     | )      
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|                                                                                                                      |                                                                                                                                                                                               | Total shareholders equity                                                                                                                                                            |                                            |        | 86,893  |         |         |         | 78,540  |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       | Total liabilities and shareholders equity |        | $       | 443,552 |         |         | $       | 421,524 | 
|                                                                                                                      |                                                                                                                                                                                               |                                                                                                                                                                                       |                                            |        |         |         |         |        

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

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |         |         | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------- | ------ | ------- | ------- | ---- | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                       |                                                                       |                              
|                                                                                       |                                                                       | Year Ended December 31,      
|                                                                                       |                                                                       |                              
|                                                                                       |                                                                       | 2003                          |        | 2002    |         | 2001
|                                                                                       |                                                                       |                               |        |         |         |     
|                                                                                       |                                                                       |                              
|                                                                                       |                                                                       | (Dollars in thousands, except
|                                                                                       |                                                                       | per share data)              
|Revenue:                                                                               |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Insurance premiums                                                    |                               | $      | 154,712 |         |      | $       | 154,499 |         |   | $      | 145,589 |        
|                                                                                       | Investment income                                                     |                               |        | 15,628  |         |      |         | 14,011  |         |   |        | 14,317  |        
|                                                                                       | Other income                                                          |                               |        | 900     |         |      |         | 1,148   |         |   |        | 1,694   |        
|                                                                                       | Realized investment gains, net                                        |                               |        | 360     |         |      |         | 587     |         |   |        | 1,708   |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       |                                                                       | Total revenue                 |        |         | 171,600 |      |         |         | 170,245 |   |        |         | 163,308 | 
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Benefits and expenses:                                                                 |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Insurance benefits and losses incurred                                |                               |        | 102,343 |         |      |         | 109,109 |         |   |        | 106,896 |        
|                                                                                       | Commissions and underwriting expenses                                 |                               |        | 46,807  |         |      |         | 44,757  |         |   |        | 37,317  |        
|                                                                                       | Interest expense                                                      |                               |        | 3,120   |         |      |         | 2,562   |         |   |        | 3,234   |        
|                                                                                       | Other                                                                 |                               |        | 12,805  |         |      |         | 10,714  |         |   |        | 11,608  |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       |                                                                       | Total benefits and expenses   |        |         | 165,075 |      |         |         | 167,142 |   |        |         | 159,055 | 
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Income before income taxes and cumulative effect
    of change in accounting principle |                                                                       |                               | 6,525  |         |         |      | 3,103   |         |         |   | 4,253  |        
|Income tax (benefit) expense                                                           |                                                                       |                               | (319   | )       |         |      | (498    | )       |         |   | 656    |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Income before cumulative effect of change in
    accounting principle                  |                                                                       |                               | 6,844  |         |         |      | 3,601   |         |         |   | 3,597  |        
|Cumulative effect of change in accounting
    principle                                |                                                                       |                               |       |         |         |      | (15,816 | )       |         |   |       |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Net income (loss)                                                                      |                                                                       |                               | 6,844  |         |         |      | (12,215 | )       |         |   | 3,597  |        
|Preferred stock dividends                                                              |                                                                       |                               | (1,349 | )       |         |      | (1,431  | )       |         |   | (1,431 | )      
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Net income (loss) applicable to common stock                                           |                                                                       | $                             | 5,495  |         |         | $    | (13,646 | )       |         | $ | 2,166  |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Basic earnings (loss) per common share:                                                |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                               | $      | .26     |         |      | $       | .10     |         |   | $      | .10     |        
|                                                                                       | Cumulative effect of change in accounting
    principle               |                               |        |        |         |      |         | (.74    | )       |   |        |        |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Net income (loss)                                                     |                               | $      | .26     |         |      | $       | (.64    | )       |   | $      | .10     |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|Diluted earnings (loss) per common share:                                              |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Income before cumulative effect of change in
    accounting principle |                               | $      | .25     |         |      | $       | .10     |         |   | $      | .10     |        
|                                                                                       | Cumulative effect of change in accounting
    principle               |                               |        |        |         |      |         | (.73    | )       |   |        |        |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        
|                                                                                       | Net income (loss)                                                     |                               | $      | .25     |         |      | $       | (.63    | )       |   | $      | .10     |        
|                                                                                       |                                                                       |                               |        |         |         |      |         |         |         |   |        |        

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

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |   |         |  
|--------------------------------------------------------------------------- | --------------------- | ------------------------------------------------------------------ | --- | ------ | - | ---------- | ------ | ------------ | - | ------------ | ------ | ------------- | - | -------- | ------- | ----- | ------- | - | --- | - | - | - | ------ |  | ------ | - | ---- | - | - | - | ------ | - | ------- | -
|                                                                            |                       |                                                                    |     |        |   |            |        | Retained     |   |              |        | Accumulated   |   |          |         |      
|                                                                            |                       |                                                                    |     |        |   | Additional |        | Earnings     |   |              |        | Other         |   |          |         |      
|                                                                            |                       | Preferred                                                          |     | Common |   | Paid-In    |        | (Accumulated |   | Unearned     |        | Comprehensive |   | Treasury |         |      
|                                                                            |                       | Stock                                                              |     | Stock  |   | Capital    |        | Deficit)     |   | Compensation |        | Income        |   | Stock    |         | Total
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |      
|                                                                            |                       |                                                                   
|                                                                            |                       | (Dollars in thousands)                                            
|Balance, December 31, 2000                                                  |                       | $                                                                  | 159 |        |   | $          | 21,412 |              |   | $            | 56,997 |               |   | $        | (1,248  | )     |         | $ |    |   |   | $ | 6,820  |  |        | $ | (900 | ) |   | $ | 83,240 |  
|                                                                            | Comprehensive income: |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |   |        
|                                                                            |                       | Net income                                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       | 3,597   |   |     |   |  |   |        |  |       |   |      |   |  |   |        |   | 3,597   |  
|                                                                            |                       | Increase in unrealized investment gains                            |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 3,498  |   |      |   |  |   |        |   | 3,498   |  
|                                                                            |                       | Fair value adjustment to interest rate swap                        |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (532   | ) |      |   |  |   |        |   | (532    | )
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive income |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (1,038 | ) |      |   |  |   |        |   | (1,038  | )
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|                                                                            |                       | Total comprehensive income                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |      |   |  |   |        |   | 5,525   |  
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (436   | )             |   |          | (995    | )     |         |   |    |   |   |   |       |  |        |   |     |   |   |   | (1,431 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 45     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | 45     |  
|Purchase of 5,999 shares for treasury                                       |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (11  | ) |   |   | (11    | )
|Issuance of 94,460 shares for employee
    benefit plans and stock options  |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          | (257    | )     |         |   |    |   |   |   |       |  |        |   | 415  |   |   |   | 158    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|Balance, December 31, 2001                                                  |                       |                                                                    | 159 |        |   |            | 21,412 |              |   |              | 56,606 |               |   |          | 1,097   |       |         |   |    |   |   |   | 8,748  |  |        |   | (496 | ) |   |   | 87,526 |  
|                                                                            | Comprehensive loss:   |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |   |        
|                                                                            |                       | Net loss                                                           |     |        |  |            |        |              |  |              |        |               |  |          |         |       | (12,215 | ) |     |   |  |   |        |  |       |   |      |   |  |   |        |   | (12,215 | )
|                                                                            |                       | Increase in unrealized investment gains                            |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 7,144  |   |      |   |  |   |        |   | 7,144   |  
|                                                                            |                       | Fair value adjustment to interest rate swap                        |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (382   | ) |      |   |  |   |        |   | (382    | )
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive income |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (2,367 | ) |      |   |  |   |        |   | (2,367  | )
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|                                                                            |                       | Total comprehensive loss                                           |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |      |   |  |   |        |   | (7,820  | )
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (1,431 | )             |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | (1,431 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 41     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | 41     |  
|Restricted stock grants                                                     |                       |                                                                    |    |        |   |            |       |              |   |              | (12    | )             |   |          |        |       |         |   | (66 | ) |   |   |       |  |        |   | 78   |   |   |   |       |  
|Amortization of unearned compensation                                       |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   | 36  |   |   |   |       |  |        |   |     |   |   |   | 36     |  
|Purchase of 23,736 shares for treasury                                      |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (44  | ) |   |   | (44    | )
|Issuance of 152,395 shares for employee
    benefit plans and stock options |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          | (152    | )     |         |   |    |   |   |   |       |  |        |   | 384  |   |   |   | 232    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|Balance, December 31, 2002                                                  |                       |                                                                    | 159 |        |   |            | 21,412 |              |   |              | 55,204 |               |   |          | (11,270 | )     |         |   | (30 | ) |   |   | 13,143 |  |        |   | (78  | ) |   |   | 78,540 |  
|                                                                            | Comprehensive income: |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |   |        
|                                                                            |                       | Net income                                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       | 6,844   |   |     |   |  |   |        |  |       |   |      |   |  |   |        |   | 6,844   |  
|                                                                            |                       | Increase in unrealized investment gains                            |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 7,453  |   |      |   |  |   |        |   | 7,453   |  
|                                                                            |                       | Fair value adjustment to interest rate swap                        |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | 470    |   |      |   |  |   |        |   | 470     |  
|                                                                            |                       | Deferred income tax attributable to other
    comprehensive income |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  | (2,773 | ) |      |   |  |   |        |   | (2,773  | )
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|                                                                            |                       | Total comprehensive income                                         |     |        |  |            |        |              |  |              |        |               |  |          |         |       |        |   |     |   |  |   |        |  |       |   |      |   |  |   |        |   | 11,994  |  
|Preferred stock redeemed                                                    |                       |                                                                    | (20 | )      |   |            |       |              |   |              | (1,980 | )             |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | (2,000 | )
|Dividends accrued on preferred stock                                        |                       |                                                                    |    |        |   |            |       |              |   |              | (1,349 | )             |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | (1,349 | )
|Deferred share compensation expense                                         |                       |                                                                    |    |        |   |            |       |              |   |              | 52     |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   |     |   |   |   | 52     |  
|Restricted stock grants                                                     |                       |                                                                    |    |        |   |            |       |              |   |              | (1     | )             |   |          |        |       |         |   | (66 | ) |   |   |       |  |        |   | 67   |   |   |   |       |  
|Amortization of unearned compensation                                       |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   | 74  |   |   |   |       |  |        |   |     |   |   |   | 74     |  
|Acquisition of 371,582 shares for treasury                                  |                       |                                                                    |    |        |   |            |       |              |   |              |       |               |   |          |        |       |         |   |    |   |   |   |       |  |        |   | (698 | ) |   |   | (698   | )
|Issuance of 154,262 shares for employee
    benefit plans and stock options |                       |                                                                    |    |        |   |            |       |              |   |              | 52     |               |   |          | (31     | )     |         |   |    |   |   |   |       |  |        |   | 259  |   |   |   | 280    |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  
|Balance, December 31, 2003                                                  |                       | $                                                                  | 139 |        |   | $          | 21,412 |              |   | $            | 51,978 |               |   | $        | (4,457  | )     |         | $ | (22 | ) |   | $ | 18,293 |  |        | $ | (450 | ) |   | $ | 86,893 |  
|                                                                            |                       |                                                                    |     |        |   |            |        |              |   |              |        |               |   |          |         |       |         |   |     |   |   |   |        |  |        |   |      |   |   |   |        |  

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

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##### Table of Contents



ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |          |        | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | -------- | ------ | ---- | ------- | -------- | ------- | - | ------ | -------- | ------ | 
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | Year Ended December 31,                                 
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | 2003                                                     |         | 2002     |        | 2001
|                                                        |                                                                                              |                                                          |         |          |        |     
|                                                        |                                                                                              |                                                         
|                                                        |                                                                                              | (Dollars in thousands)                                  
|Cash flows from operating
    activities:               |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Net income (loss)                                                                            |                                                          | $       | 6,844    |        |      | $       | (12,215  | )       |   | $      | 3,597    |       
|                                                        | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                          |         |          |        |      |         |          |         |   |        |          |       
|                                                        | Cumulative effect of change in accounting
    principle                                      |                                                          |         |         |        |      |         | 15,816   |         |   |        |         |       
|                                                        | Amortization of deferred acquisition costs                                                   |                                                          |         | 18,478   |        |      |         | 17,610   |         |   |        | 16,892   |       
|                                                        | Acquisition costs deferred                                                                   |                                                          |         | (20,552  | )      |      |         | (18,851  | )       |   |        | (18,175  | )     
|                                                        | Realized investment gains, net                                                               |                                                          |         | (360     | )      |      |         | (587     | )       |   |        | (1,708   | )     
|                                                        | Increase in insurance reserves and policyholder
    funds                                    |                                                          |         | 9,610    |        |      |         | 13,447   |         |   |        | 18,035   |       
|                                                        | Compensation expense related to share awards                                                 |                                                          |         | 126      |        |      |         | 77       |         |   |        | 45       |       
|                                                        | Depreciation and amortization                                                                |                                                          |         | 1,138    |        |      |         | 924      |         |   |        | 1,680    |       
|                                                        | Deferred income tax (benefit) expense                                                        |                                                          |         | (1,163   | )      |      |         | (621     | )       |   |        | 507      |       
|                                                        | Decrease (increase) in receivables, net                                                      |                                                          |         | 5,759    |        |      |         | (4,226   | )       |   |        | (12,402  | )     
|                                                        | (Decrease) increase in other liabilities                                                     |                                                          |         | (6,076   | )      |      |         | 1,926    |         |   |        | 12,681   |       
|                                                        | Other, net                                                                                   |                                                          |         | 111      |        |      |         | 477      |         |   |        | (5,305   | )     
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Net cash provided by operating activities               |                                                                                              |                                                          | 13,915  |          |        |      | 13,777  |          |         |   | 15,847 |         
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Cash flows from investing
    activities:               |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Proceeds from investments sold                                                               |                                                          |         | 20,914   |        |      |         | 7,282    |         |   |        | 39,122   |       
|                                                        | Proceeds from investments matured, called or
    redeemed                                    |                                                          |         | 92,690   |        |      |         | 54,838   |         |   |        | 94,098   |       
|                                                        | Investments purchased                                                                        |                                                          |         | (136,804 | )      |      |         | (107,371 | )       |   |        | (109,249 | )     
|                                                        | Additions to property and equipment                                                          |                                                          |         | (425     | )      |      |         | (452     | )       |   |        | (930     | )     
|                                                        | Acquisition of Association Casualty                                                          |                                                          |         |         |        |      |         |         |         |   |        | (128     | )     
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Net cash (used in) provided by investing
    activities |                                                                                              |                                                          | (23,625 | )        |        |      | (45,703 | )        |         |   | 22,913 |         
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Cash flows from financing
    activities:               |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Net proceeds from issuance of junior subordinated
    debentures                             |                                                          |         | 21,824   |        |      |         | 16,974   |         |   |        |         |       
|                                                        | Proceeds from issuance of Series C Preferred
    Stock                                       |                                                          |         |         |        |      |         |         |         |   |        | 750      |       
|                                                        | Preferred stock redemption                                                                   |                                                          |         | (2,000   | )      |      |         |         |         |   |        |         |       
|                                                        | Preferred stock dividends                                                                    |                                                          |         | (143     | )      |      |         | (225     | )       |   |        | (225     | )     
|                                                        | Proceeds from exercise of stock options                                                      |                                                          |         | 25       |        |      |         | 13       |         |   |        | 158      |       
|                                                        | Purchase of treasury shares                                                                  |                                                          |         | (396     | )      |      |         | (44      | )       |   |        | (11      | )     
|                                                        | Repayments of debt                                                                           |                                                          |         | (17,000  | )      |      |         | (12,000  | )       |   |        | (2,500   | )     
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Net cash provided by (used in) financing
    activities |                                                                                              |                                                          | 2,310   |          |        |      | 4,718   |          |         |   | (1,828 | )       
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        |                                                                                              | Net (decrease) increase in cash and cash
    equivalents |         |          | (7,400 | )    |         |          | (27,208 | ) |        |          | 36,932 | 
|                                                        | Cash and cash equivalents at beginning of year                                               |                                                          |         | 41,638   |        |      |         | 68,846   |         |   |        | 31,914   |       
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Cash and cash equivalents at end of year                                                     |                                                          | $       | 34,238   |        |      | $       | 41,638   |         |   | $      | 68,846   |       
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|Supplemental cash flow information:                     |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Cash paid for interest                                                                       |                                                          | $       | 3,285    |        |      | $       | 2,282    |         |   | $      | 3,394    |       
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         
|                                                        | Cash paid for income taxes                                                                   |                                                          | $       | 537      |        |      | $       | 113      |         |   | $      | 176      |       
|                                                        |                                                                                              |                                                          |         |          |        |      |         |          |         |   |        |         

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

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands, except per share
amounts)




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



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

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, 2003, the Company had five
insurance subsidiaries, including Bankers Fidelity Life
Insurance Company (Bankers Fidelity), American
Southern Insurance Company and its wholly-owned subsidiary,
American Safety Insurance Company (together known as
American Southern), Association Casualty Insurance
Company and Georgia Casualty & Surety Company
(Georgia Casualty), in addition to two non-insurance
subsidiaries, Association Risk Management General
Agency, Inc., and Self-Insurance Administrators, Inc.
(SIA, Inc.). Association Casualty Insurance
Company and Association Risk Management General
Agency, Inc. are collectively known as Association
Casualty.



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

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



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

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

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impairment loss is recognized to the extent that
the carrying value of the goodwill exceeds the implied fair
value of the goodwill. The impact of adopting
SFAS No. 142 resulted in an impairment loss of $15,816
in the casualty division, and such loss was reflected as a
cumulative effect of change in accounting principle in the
Companys 2002 results of operations. The following
presents the impact on net income (loss) and net income per
share of SFAS No. 142:


|                                  |  |              |       |      |  |      |         |   |  |   |       | 
|--------------------------------- |  | ------------ | ----- | ---- |  | ---- | ------- | - |  | - | ----- | 
|                                  |  |             
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 2003         |       | 2002 |  | 2001
|                                  |  |              |       |      |  |     
|Net income (loss)                 |  | $            | 6,844 |      |  | $    | (12,215 | ) |  | $ | 3,597 | 
|Add back: Impairment loss         |  |              |      |      |  |      | 15,816  |   |  |   |      | 
|Add back: Goodwill amortization   |  |              |      |      |  |      |        |   |  |   | 802   | 
|                                  |  |              |       |      |  |      |         |   |  |   |       | 
|Adjusted net income               |  | $            | 6,844 |      |  | $    | 3,601   |   |  | $ | 4,399 | 
|                                  |  |              |       |      |  |      |         |   |  |   |       | 
|Basic earnings per common share   |  | $            | .26   |      |  | $    | .10     |   |  | $ | .14   | 
|                                  |  |              |       |      |  |      |         |   |  |   |       | 
|Diluted earnings per common share |  | $            | .25   |      |  | $    | .10     |   |  | $ | .14   | 
|                                  |  |              |       |      |  |      |         |   |  |   |       | 



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

The Companys investments in both fixed
maturities, which include bonds and redeemable preferred stocks
and equity securities, which include common and non-redeemable
preferred stocks, are classified as
available-for-sale and, accordingly, are carried at
fair market value with the after-tax difference from amortized
cost reflected in stockholders equity as a component of
accumulated other comprehensive income. The fair market value
for fixed maturities and equity securities are largely
determined by either independent methods prescribed by the
National Association of Insurance Commissioners
(NAIC), which do not differ materially from
nationally quoted market prices or independent broker
quotations. With the exception of short-term securities for
which amortized cost is predominately used to approximate fair
value, security prices are first sought from NAIC pricing
services with the remaining unpriced securities submitted to
brokers for prices. Mortgage loans, policy and student loans,
and real estate are carried at historical cost. Other invested
assets are comprised of investments in limited partnerships,
limited liability companies, and real estate joint ventures;
those which are publicly traded are carried at estimated market
value and others are accounted for using the equity method. If
the value of a common stock, preferred stock, other invested
asset, or publicly traded bond declines below its cost or
amortized cost, and the decline is considered to be other than
temporary, a realized loss is recorded to reduce the carrying
value of the investment to its estimated net realizable value,
which becomes the new cost basis. In evaluating impairment, the
Company considers, among other factors, the expected holding
period, the nature of the investment and the prospects for the
company and its industry. Premiums and discounts related to
investments are amortized or accreted over the life of the
related investment as an adjustment to yield using the effective
interest method. Dividends and interest income are recognized
when earned or declared. The cost of securities sold is based on
specific identification. Unrealized gains (losses) in the value
of invested assets are accounted for as a direct increase
(decrease) in accumulated other comprehensive income in
shareholders equity, net of deferred tax and, accordingly,
have no effect on net income.



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

Deferred income taxes represent the expected
future tax consequences when the reported amounts of assets and
liabilities are recovered or paid. They arise from differences
between the financial reporting and tax basis of assets and
liabilities and are adjusted for changes in tax laws and tax
rates as those changes are enacted. The provision for income
taxes represents the total amount of income taxes due related to
the current year, plus the change in deferred taxes during the
year. A valuation allowance is recognized if, based on
managements assessment of the relevant facts, it is more
likely than not that some portion of the deferred tax asset will
not be realized.

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

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



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

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

|                                                                                                                 |  |         |       |         |  |         |       |         |  |   |         |   |  |   |       |  
|---------------------------------------------------------------------------------------------------------------- |  | ------- | ----- | ------- |  | ------- | ----- | ------- |  | - | ------- | - |  | - | ----- | -
|                                                                                                                 |  | 2003(2) |       | 2002(1) |  | 2002(2) |       | 2001(2)
|                                                                                                                 |  |         |       |         |  |         |       |        
|Net income (loss), as reported                                                                                   |  | $       | 6,844 |         |  | $       | 3,601 |         |  | $ | (12,215 | ) |  | $ | 3,597 |  
|Add: Stock-based employee compensation expense
    included in reported net income, net of tax                   |  |         | 82    |         |  |         | 50    |         |  |   | 50      |   |  |   | 29    |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method, net of tax |  |         | (198  | )       |  |         | (270  | )       |  |   | (270    | ) |  |   | (199  | )
|                                                                                                                 |  |         |       |         |  |         |       |         |  |   |         |   |  |   |       |  
|Pro forma net income (loss)                                                                                      |  | $       | 6,728 |         |  | $       | 3,381 |         |  | $ | (12,435 | ) |  | $ | 3,427 |  
|                                                                                                                 |  |         |       |         |  |         |       |         |  |   |         |   |  |   |       |  
|Net income (loss) per common share:                                                                              |  |         |       |         |  |         |       |         |  |   |         |   |  |   |       |  
|Basic  as reported                                                                                              |  | $       | .26   |         |  | $       | .10   |         |  | $ | (.64    | ) |  | $ | .10   |  
|Basic  pro forma                                                                                                |  | $       | .25   |         |  | $       | .09   |         |  | $ | (.65    | ) |  | $ | .09   |  
|Diluted  as reported                                                                                            |  | $       | .25   |         |  | $       | .10   |         |  | $ | (.63    | ) |  | $ | .10   |  
|Diluted  pro forma                                                                                              |  | $       | .25   |         |  | $       | .09   |         |  | $ | (.64    | ) |  | $ | .09   |  



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

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



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

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

47



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

In January 2004, the FASB issued FASB Staff
Position No. 106-1, Accounting and Disclosure
Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003,
which addresses the accounting and disclosure implications that
are expected to arise as a result of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. Adoption
of this statement is not anticipated to have an impact on the
Companys financial condition or results of operations.

In December 2003, the FASB issued
SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement
Benefits. This statement requires additional detailed
disclosures regarding pension plan assets, benefit obligations,
cash flows, benefit costs and related information. The Company
adopted the new disclosures required as of December 31,
2003. See Note 9.

Effective December 31, 2003, the Company
adopted the disclosure requirements of Emerging Issues Task
Force (EITF) Issue No. 03-01, The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments. Disclosures are required for
unrealized losses on fixed maturity and equity securities
classified as either available-for-sale or held-to-maturity. The
disclosure requirements include quantitative information
regarding the aggregate amount of unrealized losses and the
associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments
have been in an unrealized loss position. Certain qualitative
disclosures about the unrealized holdings are also required in
order to provide additional information that the Company
considered in concluding that the unrealized losses were not
other than temporary. See Note 2.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. Adoption of this
statement did not have a material impact on the Companys
financial condition or results of operations.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The
statement amended and clarified accounting for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under
SFAS No. 133. The adoption of SFAS No. 149
did not have a material impact on the Companys financial
condition or results of operations.

In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51
(FIN 46), which requires an enterprise to
assess whether consolidation of an entity is appropriate based
upon its interests in a variable interest entity
(VIE). The adoption of FIN 46 did not have a
material impact on the Companys consolidated financial
condition or results of operations as there were no material
VIEs identified which required consolidation.

In December 2003, the FASB issued a revised
version of FIN 46 (FIN 46R), which
incorporated a number of modifications and changes made to
FIN 46. FIN 46R replaces the previously issued
FIN 46 and, subject to certain special provisions, is
effective no later than the end of the first reporting period
that ends after December 15, 2003 for entities considered
to be special-purpose entities. The Company adopted FIN 46R
in the fourth quarter of 2003. The adoption of FIN 46R did
not result in the consolidation of any material VIEs but
resulted in the deconsolidation of VIEs that issued Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts
(trust preferred securities). The Company is not the
primary beneficiary of the VIEs, which issued the trust
preferred securities. The Company does not own any of the trust
preferred securities, which were issued to unrelated third
parties. These trust preferred securities are considered the
principal variable interests issued by the VIEs. As a result,
the VIEs, which the Company previously consolidated, are no
longer consolidated. The sole assets of the VIEs are junior
subordinated debentures issued by the Company with payment terms
identical to the trust preferred securities. Previously, the
trust preferred securities were reported as debt on the
Companys consolidated balance sheets. At December 31,
2003 and 2002, the impact of deconsolidation was to increase
debt by $1,238 and $542, respectively. See Note 6 for
disclosure of information related to these VIEs.

48



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##### Table of Contents



In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
(FIN 45). Adoption of this statement did not
have an impact on the Companys financial condition or
results of operations.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses
financial accounting and reporting for costs associated with
exit or disposal activities and supercedes EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)
(Issue 94-3). Adoption of this statement did
not have an impact on the Companys financial condition or
results of operations.

In April 2002, the FASB issued FASB
No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Adoption of the provisions of
SFAS No. 145 did not have an impact on the
Companys financial condition or results of operations.

In December 2003, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants (AcSEC) issued Statement of
Position 03-3, Accounting for Certain Loans or Debt
Securities (SOP 03-3). SOP 03-3
addresses the accounting for differences between contractual and
expected cash flows to be collected from an investment in loans
or fixed maturity securities acquired in a transfer if those
differences are attributable, at least in part, to credit
quality. Adoption of this statement is not expected to have
material impact on the Companys financial condition or
results of operations.

In July 2003, AcSEC issued financial
Statement of Position 03-1, Accounting and Reporting
by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts (the
SOP). The SOP addresses a wide variety of topics,
many of which are not applicable to the business which the
Company sells. Adoption of this statement is not expected to
have a material impact on the Companys financial condition
or results of operations.

In August 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This standard
provides the financial accounting and reporting for the cost of
legal obligations associated with the retirement of tangible
long lived assets. In accordance with SFAS 143, asset
retirement obligations will be recorded at fair value in the
period they are incurred if a reasonable estimate can be made.
The adoption of SFAS 143 did not have a material impact on
the Companys consolidated 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.
Significant estimates and assumptions are used in developing and
evaluating deferred income taxes, deferred acquisition costs,
insurance reserves, investments, pension benefits, commitments
and contingencies, among others, and actual results could differ
from managements estimates.



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

Certain reclassifications have been made to prior
year financial information to conform to the current year
presentation.

49



---



##### Table of Contents





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

Investments were comprised of the following:

|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |         |         | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------- | ------- | ---------- | ------- | ---------- | ------ | --------- | ----- |  | ----- | ----- | ----- |  | ------- | ------- | ------- | 
|                                                |                                                                                           |                       
|                                                |                                                                                           | 2003                  
|                                                |                                                                                           |                       
|                                                |                                                                                           |                        |         | Gross      |         | Gross      |        |          
|                                                |                                                                                           | Carrying               |         | Unrealized |         | Unrealized |        | Amortized
|                                                |                                                                                           | Value                  |         | Gains      |         | Losses     |        | Cost     
|                                                |                                                                                           |                        |         |            |         |            |        |          
|Fixed Maturities:                               |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                | U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies |                        | $       | 117,442    |         |            | $      | 1,833     |       |  | $     | 1,812 |       |  | $       | 117,421 |        
|                                                | Obligations of states and political subdivisions                                          |                        |         | 1,446      |         |            |        | 98        |       |  |       |      |       |  |         | 1,348   |        
|                                                | Corporate securities                                                                      |                        |         | 82,277     |         |            |        | 4,910     |       |  |       | 208   |       |  |         | 77,575  |        
|                                                | Mortgage-backed securities (government guaranteed)                                        |                        |         | 4,079      |         |            |        | 136       |       |  |       |      |       |  |         | 3,943   |        
|                                                | Redeemable preferred stocks                                                               |                        |         | 24,205     |         |            |        | 1,537     |       |  |       | 198   |       |  |         | 22,866  |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                |                                                                                           | Total fixed maturities |         |            | 229,449 |            |        |           | 8,514 |  |       |       | 2,218 |  |         |         | 223,153 | 
|Common and non-redeemable preferred stocks      |                                                                                           |                        | 44,000  |            |         |            | 22,336 |           |       |  | 44    |       |       |  | 21,708  |        
|Other invested assets                           |                                                                                           |                        | 4,639   |            |         |            |       |           |       |  |      |       |       |  | 4,639   |        
|Mortgage loans (estimated fair value of $3,919) |                                                                                           |                        | 3,189   |            |         |            |       |           |       |  |      |       |       |  | 3,189   |        
|Policy and student loans                        |                                                                                           |                        | 2,375   |            |         |            |       |           |       |  |      |       |       |  | 2,375   |        
|Investment in unconsolidated trusts             |                                                                                           |                        | 1,238   |            |         |            |       |           |       |  |      |       |       |  | 1,238   |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                |                                                                                           |                        | 284,890 |            |         |            | 30,850 |           |       |  | 2,262 |       |       |  | 256,302 |        
|Short-term investments                          |                                                                                           |                        | 25,819  |            |         |            |       |           |       |  |      |       |       |  | 25,819  |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                | Total investments                                                                         |                        | $       | 310,709    |         |            | $      | 30,850    |       |  | $     | 2,262 |       |  | $       | 282,121 |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        

|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |         |         | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------- | ------- | ---------- | ------- | ---------- | ------ | --------- | ----- |  | ----- | ----- | ----- |  | ------- | ------- | ------- | 
|                                                |                                                                                           |                       
|                                                |                                                                                           | 2002                  
|                                                |                                                                                           |                       
|                                                |                                                                                           |                        |         | Gross      |         | Gross      |        |          
|                                                |                                                                                           | Carrying               |         | Unrealized |         | Unrealized |        | Amortized
|                                                |                                                                                           | Value                  |         | Gains      |         | Losses     |        | Cost     
|                                                |                                                                                           |                        |         |            |         |            |        |          
|Fixed Maturities:                               |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                | U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies |                        | $       | 114,307    |         |            | $      | 3,753     |       |  | $     |      |       |  | $       | 110,554 |        
|                                                | Obligations of states and political subdivisions                                          |                        |         | 3,064      |         |            |        | 121       |       |  |       |      |       |  |         | 2,943   |        
|                                                | Corporate securities                                                                      |                        |         | 58,418     |         |            |        | 2,996     |       |  |       | 977   |       |  |         | 56,399  |        
|                                                | Mortgage-backed securities (government guaranteed)                                        |                        |         | 6,041      |         |            |        | 265       |       |  |       |      |       |  |         | 5,776   |        
|                                                | Redeemable preferred stocks                                                               |                        |         | 25,180     |         |            |        | 600       |       |  |       | 410   |       |  |         | 24,990  |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                |                                                                                           | Total fixed maturities |         |            | 207,010 |            |        |           | 7,735 |  |       |       | 1,387 |  |         |         | 200,662 | 
|Common and non-redeemable preferred stocks      |                                                                                           |                        | 32,062  |            |         |            | 15,387 |           |       |  | 377   |       |       |  | 17,052  |        
|Other invested assets                           |                                                                                           |                        | 5,031   |            |         |            |       |           |       |  | 224   |       |       |  | 5,255   |        
|Mortgage loans (estimated fair value of $4,127) |                                                                                           |                        | 3,330   |            |         |            |       |           |       |  |      |       |       |  | 3,330   |        
|Policy and student loans                        |                                                                                           |                        | 2,409   |            |         |            |       |           |       |  |      |       |       |  | 2,409   |        
|Investment in unconsolidated trusts             |                                                                                           |                        | 542     |            |         |            |       |           |       |  |      |       |       |  | 542     |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                |                                                                                           |                        | 250,384 |            |         |            | 23,122 |           |       |  | 1,988 |       |       |  | 229,250 |        
|Short-term investments                          |                                                                                           |                        | 21,487  |            |         |            |       |           |       |  |      |       |       |  | 21,487  |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        
|                                                | Total investments                                                                         |                        | $       | 271,871    |         |            | $      | 23,122    |       |  | $     | 1,988 |       |  | $       | 250,737 |        
|                                                |                                                                                           |                        |         |            |         |            |        |           |       |  |       |       |       |  |         |        

Bonds and short-term investments having an
amortized cost of $16,988 and $16,166 were on deposit with
insurance regulatory authorities at December 31, 2003 and
2002, respectively, in accordance with statutory requirements.

50



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Securities with unrealized losses at
December 31, 2003 were as follows:

|                                                                                          |  |                     |        |                     |  |       |       |            |  |       |       |            |  |   |     |  |  |   |        |  |  |   |       | 
|----------------------------------------------------------------------------------------- |  | ------------------- | ------ | ------------------- |  | ----- | ----- | ---------- |  | ----- | ----- | ---------- |  | - | --- |  |  | - | ------ |  |  | - | ----- | 
|                                                                                          |  |                     |        |                     |  |      
|                                                                                          |  | Less than 12 months |        | 12 months or longer |  | Total
|                                                                                          |  |                     |        |                     |  |      
|                                                                                          |  | Fair                |        | Unrealized          |  | Fair  |       | Unrealized |  | Fair  |       | Unrealized
|                                                                                          |  | Value               |        | Losses              |  | Value |       | Losses     |  | Value |       | Losses    
|                                                                                          |  |                     |        |                     |  |       |       |            |  |       |       |           
|U.S. Treasury Securities and Obligations of
    U.S. Government Corporations and Agencies |  | $                   | 41,741 |                     |  | $     | 1,812 |            |  | $     |      |            |  | $ |    |  |  | $ | 41,741 |  |  | $ | 1,812 | 
|Corporate securities                                                                      |  |                     | 6,525  |                     |  |       | 184   |            |  |       | 3,043 |            |  |   | 24  |  |  |   | 9,568  |  |  |   | 208   | 
|Redeemable preferred stocks                                                               |  |                     | 1,102  |                     |  |       | 25    |            |  |       | 502   |            |  |   | 173 |  |  |   | 1,604  |  |  |   | 198   | 
|Common and non-redeemable preferred stocks                                                |  |                     | 1,260  |                     |  |       | 44    |            |  |       |      |            |  |   |    |  |  |   | 1,260  |  |  |   | 44    | 
|                                                                                          |  |                     |        |                     |  |       |       |            |  |       |       |            |  |   |     |  |  |   |        |  |  |   |       | 
|Total temporary impaired securities                                                       |  | $                   | 50,628 |                     |  | $     | 2,065 |            |  | $     | 3,545 |            |  | $ | 197 |  |  | $ | 54,173 |  |  | $ | 2,262 | 
|                                                                                          |  |                     |        |                     |  |       |       |            |  |       |       |            |  |   |     |  |  |   |        |  |  |   |       | 

Market changes in interest rates and credit
spreads result in changes in the fair values of investments and
are accumulated and reported as unrealized gains and losses. The
majority of the unrealized losses, $2,065 of the total
unrealized losses of $2,262, has been in an unrealized loss
position of less than twelve months and is primarily
attributable to recent increases in interest yields on
comparable investments.

Excluding U.S. Treasury Securities and
Obligations of U.S. Government Corporations and Agencies,
the Company held seventeen investments with unrealized losses,
four of which existed in excess of twelve months. Of the
seventeen investments with unrealized losses, only two (both
redeemable preferred stocks) had a fair value less than 90% of
the investments original amortized cost; and both had an
unrealized loss in excess of twelve months. One of the
redeemable preferred stocks was issued by a company providing
scheduled air transportation of passengers and cargo throughout
the U.S. and the world. The other redeemable preferred stock was
issued by a company providing parking and related services
primarily in the U.S., but also in Europe and Central and South
America. Both of these businesses are cyclical and are affected
by consumer confidence in the overall economy. The Company
continues to monitor these investments but at December 31,
2003 believed the impairments to be temporary.

During the years ended December 31, 2003 and
2002, the Company recorded impairments of $995 and $242,
respectively, related to a common stock investment and $159 and
$0, respectively, related to an other invested asset. There were
no impairments recorded for the year ended December 31,
2001.

As part of the Companys ongoing investment
review, the Company has reviewed its investment portfolio and
concluded that there were no additional other than temporary
impairments as of December 31, 2003 or 2002. Due to the
issuers continued satisfaction of the investment
obligations in accordance with their contractual terms and
managements expectation that they will continue to do so,
managements intent and ability to hold these securities,
as well as the evaluation of the fundamentals of the
issuers financial condition and other objective evidence,
the Company believes that unrealized losses on investments at
December 31, 2003 and 2002 were temporary.

The evaluation for other than temporary
impairments is a quantitative and qualitative process, which is
subject to risks and uncertainties in the determination of
whether declines in the fair value of investments are other than
temporary. The risks and uncertainties include changes in
general economic conditions, the issuers financial
condition or near term recovery prospects and the effects of
changes in interest rates.

The amortized cost and carrying value of fixed
maturities and short-term investments at December 31, 2003
by contractual maturity were as follows. Actual maturities may
differ from contractual

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maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.


|                                       |        |          |         |           |  |   |         |         | 
|-------------------------------------- | ------ | -------- | ------- | --------- |  | - | ------- | ------- | 
|                                       |        | Carrying |         | Amortized
|                                       |        | Value    |         | Cost     
|                                       |        |          |         |          
|Due in one year or less                |        | $        | 30,743  |           |  | $ | 30,637  |        
|Due after one year through five years  |        |          | 18,965  |           |  |   | 17,881  |        
|Due after five years through ten years |        |          | 34,488  |           |  |   | 32,376  |        
|Due after ten years                    |        |          | 166,993 |           |  |   | 164,134 |        
|Varying maturities                     |        |          | 4,079   |           |  |   | 3,944   |        
|                                       |        |          |         |           |  |   |         |        
|                                       | Totals |          | $       | 255,268   |  |   | $       | 248,972 | 
|                                       |        |          |         |           |  |   |         |        

Investment income was earned from the following
sources:

|                                           |                          |                       |        |        |        |   |        |        |        |  |                             |                          |                       |   |        |        |        | 
|------------------------------------------ | ------------------------ | --------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ |  | --------------------------- | ------------------------ | --------------------- | - | ------ | ------ | ------ | 
|                                           |                          | 2003                  |        | 2002   |        |   |        | 2001  
|                                           |                          |                       |        |        |        |   |        |       
|Fixed maturities                           |                          | $                     | 13,726 |        |        | $ | 11,966 |        |        |  | Bonds                       |                          |                       | $ | 10,530 |       
|Common and non-redeemable preferred stocks |                          |                       | 1,137  |        |        |   | 1,146  |        |        |  | Common and preferred stocks |                          |                       |   | 2,438  |       
|Mortgage loans                             |                          |                       | 299    |        |        |   | 311    |        |        |  | Mortgage loans              |                          |                       |   | 323    |       
|Short-term investments                     |                          |                       | 239    |        |        |   | 458    |        |        |  | Short-term investments      |                          |                       |   | 1,071  |       
|Other                                      |                          |                       | 227    |        |        |   | 130    |        |        |  | Other                       |                          |                       |   | (45    | )     
|                                           |                          |                       |        |        |        |   |        |        |        |  |                             |                          |                       |   |        |       
|                                           | Total investment income  |                       |        | 15,628 |        |   |        | 14,011 |        |  |                             | Total investment income  |                       |   |        | 14,317 |       
|                                           | Less investment expenses |                       |        | (269   | )      |   |        | (218   | )      |  |                             | Less investment expenses |                       |   |        | (176   | )     
|                                           |                          |                       |        |        |        |   |        |        |        |  |                             |                          |                       |   |        |       
|                                           |                          | Net investment income |        | $      | 15,359 |   |        | $      | 13,793 |  |                             |                          | Net investment income |   |        | $      | 14,141 | 
|                                           |                          |                       |        |        |        |   |        |        |        |  |                             |                          |                       |   |        |       

A summary of realized investment gains (losses)
follows:

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

|                                             |  |        |      |            |  |                 |     |       |  |   |   |  |  |   |      |  
|-------------------------------------------- |  | ------ | ---- | ---------- |  | --------------- | --- | ----- |  | - | - |  |  | - | ---- | -
|                                             |  |       
|                                             |  | 2002  
|                                             |  |       
|                                             |  |        |      | Fixed      |  | Other           |     |      
|                                             |  | Stocks |      | Maturities |  | Invested Assets |     | Total
|                                             |  |        |      |            |  |                 |     |      
|Gains                                        |  | $      | 556  |            |  | $               | 302 |       |  | $ | 5 |  |  | $ | 863  |  
|Losses                                       |  |        | (270 | )          |  |                 | (6  | )     |  |   |  |  |  |   | (276 | )
|                                             |  |        |      |            |  |                 |     |       |  |   |   |  |  |   |      |  
|Total realized investment gains (losses) net |  | $      | 286  |            |  | $               | 296 |       |  | $ | 5 |  |  | $ | 587  |  
|                                             |  |        |      |            |  |                 |     |       |  |   |   |  |  |   |      |  

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

52



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Proceeds from the sale of investments were as
follows:

|                                           |                |      |        |        |  |   |       |       |  |  |                             |                |  |   |        |        | 
|------------------------------------------ | -------------- | ---- | ------ | ------ |  | - | ----- | ----- |  |  | --------------------------- | -------------- |  | - | ------ | ------ | 
|                                           |                | 2003 |        | 2002   |  |   |       | 2001 
|                                           |                |      |        |        |  |   |       |      
|Common and non-redeemable preferred stocks |                | $    | 1,572  |        |  | $ | 360   |       |  |  | Common and preferred stocks |                |  | $ | 18,194 |       
|Fixed maturities                           |                |      | 18,344 |        |  |   | 6,066 |       |  |  | Bonds                       |                |  |   | 19,717 |       
|Student loans                              |                |      | 34     |        |  |   | 304   |       |  |  | Student loans               |                |  |   | 385    |       
|Other investments                          |                |      | 964    |        |  |   | 552   |       |  |  | Other investments           |                |  |   | 826    |       
|                                           |                |      |        |        |  |   |       |       |  |  |                             |                |  |   |        |       
|                                           | Total proceeds |      | $      | 20,914 |  |   | $     | 7,282 |  |  |                             | Total proceeds |  |   | $      | 39,122 | 
|                                           |                |      |        |        |  |   |       |       |  |  |                             |                |  |   |        |       

The Companys investment in the common stock
of Wachovia Corporation exceeds 10% of shareholders equity
at December 31, 2003. The carrying value of this investment
at December 31, 2003 was $20,621 with a cost basis of
$3,927.

The Companys bond portfolio included 99%
investment grade securities at December 31, 2003 as defined
by the NAIC.



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

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

|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------------- | ------------------------ | ---- | ------- | ------- |  | ------------------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |                          |      |         |         |  |                    
|                                       |                          |      |         |         |  | Amount of Insurance
|                                       |                          |      |         |         |  | in Force           
|                                       |                          |      |         |         |  |                    
|                                       |                          | 2003 |         | 2002    |  | 2003                |         | 2002   
|                                       |                          |      |         |         |  |                     |         |        
|Future policy benefits                 |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Life insurance policies:               |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Ordinary                 |      | $       | 37,639  |  |                     | $       | 34,896  |  |   | $       | 269,931 |  |   | $       | 266,682 | 
|                                       | Mass market              |      |         | 6,151   |  |                     |         | 6,669   |  |   |         | 10,814  |  |   |         | 11,974  | 
|                                       | Individual annuities     |      |         | 773     |  |                     |         | 821     |  |   |         |        |  |   |         |        | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 44,563  |         |  |                     | 42,386  |         |  | $ | 280,745 |         |  | $ | 278,656 |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|Accident and health insurance policies |                          |      | 2,663   |         |  |                     | 2,381   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       |                          |      | 47,226  |         |  |                     | 44,767  |         |  |   |         |         |  |   |         |        
|Unearned premiums                      |                          |      | 61,150  |         |  |                     | 55,900  |         |  |   |         |         |  |   |         |        
|Losses and claims                      |                          |      | 150,092 |         |  |                     | 148,691 |         |  |   |         |         |  |   |         |        
|Other policy liabilities               |                          |      | 5,277   |         |  |                     | 4,777   |         |  |   |         |         |  |   |         |        
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        
|                                       | Total policy liabilities |      | $       | 263,745 |  |                     | $       | 254,135 |  |   |         |         |  |   |         |         | 
|                                       |                          |      |         |         |  |                     |         |         |  |   |         |         |  |   |         |        

Annualized premiums for accident and health
insurance policies were $52,435 and $48,360 at December 31,
2003 and 2002, 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.

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

Activity in the liability for unpaid loss and
claim reserves is summarized as follows:

|                               |              |                |         |        |        |      |         |         |         |   |         |         |         | 
|------------------------------ | ------------ | -------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                               |              | 2003           |         | 2002   |        | 2001
|                               |              |                |         |        |        |     
|Balance at January 1           |              | $              | 148,691 |        |        | $    | 143,515 |         |         | $ | 133,220 |        
|Less: Reinsurance recoverables |              |                | (39,380 | )      |        |      | (47,729 | )       |         |   | (38,851 | )      
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|Net balance at January 1       |              |                | 109,311 |        |        |      | 95,786  |         |         |   | 94,369  |        
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|Incurred related to:           |              |                |         |        |        |      |         |         |         |   |         |        
|                               | Current year |                |         | 98,536 |        |      |         | 104,724 |         |   |         | 108,068 |        
|                               | Prior years  |                |         | 139    |        |      |         | (57     | )       |   |         | (2,415  | )      
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|                               |              | Total incurred |         |        | 98,675 |      |         |         | 104,667 |   |         |         | 105,653 | 
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|Paid related to:               |              |                |         |        |        |      |         |         |         |   |         |        
|                               | Current year |                |         | 56,229 |        |      |         | 52,253  |         |   |         | 59,506  |        
|                               | Prior years  |                |         | 43,417 |        |      |         | 38,889  |         |   |         | 44,730  |        
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|                               |              | Total paid     |         |        | 99,646 |      |         |         | 91,142  |   |         |         | 104,236 | 
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|Net balance at December 31     |              |                | 108,340 |        |        |      | 109,311 |         |         |   | 95,786  |        
|Plus: Reinsurance recoverables |              |                | 41,752  |        |        |      | 39,380  |         |         |   | 47,729  |        
|                               |              |                |         |        |        |      |         |         |         |   |         |        
|Balance at December 31         |              | $              | 150,092 |        |        | $    | 148,691 |         |         | $ | 143,515 |        
|                               |              |                |         |        |        |      |         |         |         |   |         |        

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

|                                            |                                              |      |        |         |  |      |         |         |  |   |         |         | 
|------------------------------------------- | -------------------------------------------- | ---- | ------ | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                            |                                              | 2003 |        | 2002    |  | 2001
|                                            |                                              |      |        |         |  |     
|Total incurred claims                       |                                              | $    | 98,675 |         |  | $    | 104,667 |         |  | $ | 105,653 |        
|State residual pool adjustments             |                                              |      | (75    | )       |  |      | 29      |         |  |   | (150    | )      
|Cash surrender value and matured endowments |                                              |      | 1,489  |         |  |      | 1,490   |         |  |   | 1,393   |        
|Benefit reserve changes                     |                                              |      | 2,254  |         |  |      | 2,923   |         |  |   |        |        
|                                            |                                              |      |        |         |  |      |         |         |  |   |         |        
|                                            | Total insurance benefits and losses incurred |      | $      | 102,343 |  |      | $       | 109,109 |  |   | $       | 106,896 | 
|                                            |                                              |      |        |         |  |      |         |         |  |   |         |        



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

In accordance with general practice in the
insurance industry, portions of the life, property and casualty
insurance written by the Company are reinsured; however, the
Company remains liable with respect to reinsurance ceded should
any reinsurer be unable to meet its obligations. Approximately
90% of the reinsurance receivables were due from four reinsurers
as of December 31, 2003. Reinsurance receivables of $18,297
were with General Reinsurance Corporation, rated AAA
by Standard & Poors and A++
(Superior) by A.M. Best, $3,769 were with First Colony Life
Insurance Company, rated AA by Standard &
Poors and A++ (Superior) by A.M. Best, $10,642
were with PMA Capital Insurance Company (PMA Re),
rated B++ (Very Good) by A.M. Best and $5,955 were
with Swiss Reinsurance Corporation, rated AA by
Standard & Poors and A+ (Superior) by
A.M. Best. Allowances for uncollectible amounts are established
against reinsurance receivables, if appropriate. On
November 4, 2003, A.M. Best downgraded the financial
strength rating of PMA Re to B++ (Very Good) from
A- (Excellent). The rating action reflects PMA
Res weak stand-alone capital position

54



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following its third major reinsurance or run-off
reserve charge in recent years and the uncertainty of the
capital structure and future strategic direction of the company.
Consequently, PMA Re decided to exit from the reinsurance
business. Management has evaluated the impact of the rating
downgrade and PMA Res intention to withdraw from the
reinsurance business and at this time does not have any
reason to believe an allowance for uncollectible amounts should
be established against the reinsurance receivables due from PMA
Re. The Company will continue to monitor the ongoing progress of
PMA Re and evaluate various alternatives, if necessary. Premiums
assumed of $20,410 and $22,708 in 2002 and 2001 respectively,
included a state contract with premiums of $14,309 and $14,054.
The contract premiums represented 9.3% and 9.7% of net premiums
earned for the years ended 2002 and 2001, respectively. During
2003, the Company prepared a renewal quote for this business;
however given the competitive nature of the current insurance
market place, the Company was unable to renew this account. The
following table reconciles premiums written to premiums earned
and summarizes the components of insurance benefits and losses
incurred.


|                                           |                                 |      |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------ | ------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                           |                                 | 2003 |         | 2002    |   | 2001
|                                           |                                 |      |         |         |   |     
|Direct premiums written                    |                                 | $    | 178,320 |         |   | $    | 168,500 |         |   | $ | 153,743 |        
|Plus  premiums assumed                    |                                 |      | 7,843   |         |   |      | 20,410  |         |   |   | 22,708  |        
|Less  premiums ceded                      |                                 |      | (25,562 | )       |   |      | (28,993 | )       |   |   | (25,399 | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Net premiums written                       |                                 |      | 160,601 |         |   |      | 159,917 |         |   |   | 151,052 |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Change in unearned premiums                |                                 |      | (5,250  | )       |   |      | (4,875  | )       |   |   | (11,889 | )      
|Change in unearned premiums ceded          |                                 |      | (639    | )       |   |      | (543    | )       |   |   | 6,426   |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net change in unearned premiums |      |         | (5,889  | ) |      |         | (5,418  | ) |   |         | (5,463  | )
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|                                           | Net premiums earned             |      | $       | 154,712 |   |      | $       | 154,499 |   |   | $       | 145,589 |  
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Provision for benefits and losses incurred |                                 | $    | 121,639 |         |   | $    | 132,567 |         |   | $ | 132,724 |        
|Reinsurance loss recoveries                |                                 |      | (19,296 | )       |   |      | (23,458 | )       |   |   | (25,828 | )      
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        
|Insurance benefits and losses incurred     |                                 | $    | 102,343 |         |   | $    | 109,109 |         |   | $ | 106,896 |        
|                                           |                                 |      |         |         |   |      |         |         |   |   |         |        

Components of reinsurance receivables were as
follows:

|                                                 |  |      |        |      |  |   |        | 
|------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                                                 |  | 2003 |        | 2002
|                                                 |  |      |        |     
|Receivable on unpaid losses                      |  | $    | 41,752 |      |  | $ | 39,380 | 
|Receivable on paid losses                        |  |      | 1,161  |      |  |   | 2,939  | 
|Receivable from reinsurance contract termination |  |      |       |      |  |   | 7,556  | 
|                                                 |  |      |        |      |  |   |        | 
|                                                 |  | $    | 42,913 |      |  | $ | 49,875 | 
|                                                 |  |      |        |      |  |   |        | 

55



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|        |             
|------- | ------------
|Note 5. | Income Taxes

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

|                                                          |                                                                         |                                          |       |        |      |      |       |        |      |   |       |      |     | 
|--------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------- | ----- | ------ | ---- | ---- | ----- | ------ | ---- | - | ----- | ---- | --- | 
|                                                          |                                                                         | 2003                                     |       | 2002   |      | 2001
|                                                          |                                                                         |                                          |       |        |      |     
|Federal income tax provision at statutory rate of
    35% |                                                                         | $                                        | 2,284 |        |      | $    | 1,086 |        |      | $ | 1,489 |     
|Tax exempt interest and dividends received
    deductions |                                                                         |                                          | (598  | )      |      |      | (628  | )      |      |   | (469  | )   
|Other permanent differences                               |                                                                         |                                          | 238   |        |      |      | 170   |        |      |   | 314   |     
|Change in asset valuation allowance due to:               |                                                                         |                                          |       |        |      |      |       |        |      |   |       |     
|                                                          | Change in judgment relating to realizability of
    deferred tax assets |                                          |       | (1,478 | )    |      |       | (1,786 | )    |   |       | (827 | )  
|                                                          | Prior years taxes                                                      |                                          |       |       |      |      |       | 537    |      |   |       |     |    
|Revision for prior year estimates                         |                                                                         |                                          | (767  | )      |      |      |      |        |      |   |      |     
|State income taxes                                        |                                                                         |                                          | 2     |        |      |      | 123   |        |      |   | 81    |     
|Alternative minimum tax                                   |                                                                         |                                          |      |        |      |      |      |        |      |   | 68    |     
|                                                          |                                                                         |                                          |       |        |      |      |       |        |      |   |       |     
|                                                          |                                                                         | Total (benefit) expense for income taxes |       | $      | (319 | )    |       | $      | (498 | ) |       | $    | 656 | 
|                                                          |                                                                         |                                          |       |        |      |      |       |        |      |   |       |     

Deferred tax liabilities and assets at
December 31, 2003 and 2002 were comprised of the following:

|                                      |                                  |                                |        |         |         |   |        |        |         |  
|------------------------------------- | -------------------------------- | ------------------------------ | ------ | ------- | ------- | - | ------ | ------ | ------- | -
|                                      |                                  | 2003                           |        | 2002   
|                                      |                                  |                                |        |        
|Deferred tax liabilities:             |                                  |                                |        |         |         |   |        |       
|                                      | Deferred acquisition costs       |                                | $      | (5,871  | )       |   | $      | (5,495 | )      
|                                      | Net unrealized investment gains  |                                |        | (10,006 | )       |   |        | (7,397 | )      
|                                      | Deferred and uncollected premium |                                |        | (830    | )       |   |        | (902   | )      
|                                      | Other                            |                                |        | (99     | )       |   |        | (118   | )      
|                                      |                                  |                                |        |         |         |   |        |       
|                                      |                                  | Total deferred tax liabilities |        |         | (16,806 | ) |        |        | (13,912 | )
|                                      |                                  |                                |        |         |         |   |        |       
|Deferred tax assets:                  |                                  |                                |        |         |         |   |        |       
|                                      | Net operating loss carryforwards |                                |        | 6,029   |         |   |        | 7,389  |        
|                                      | Insurance reserves               |                                |        | 10,193  |         |   |        | 10,173 |        
|                                      | Impaired assets                  |                                |        | 348     |         |   |        |       |        
|                                      | Alternative minimum tax credit   |                                |        | 722     |         |   |        |       |        
|                                      | Bad debts and other              |                                |        | 918     |         |   |        | 841    |        
|                                      |                                  |                                |        |         |         |   |        |       
|                                      |                                  | Total deferred tax assets      |        |         | 18,210  |   |        |        | 18,403  |  
|                                      |                                  |                                |        |         |         |   |        |       
|Asset valuation allowance             |                                  |                                | (2,346 | )       |         |   | (3,824 | )     
|                                      |                                  |                                |        |         |         |   |        |       
|Net deferred tax (liabilities) assets |                                  | $                              | (942   | )       |         | $ | 667    |       
|                                      |                                  |                                |        |         |         |   |        |       

The components of the (benefit) expense were:

|                   |       |      |        |      |   |      |      |      |   |   |     |     | 
|------------------ | ----- | ---- | ------ | ---- | - | ---- | ---- | ---- | - | - | --- | --- | 
|                   |       | 2003 |        | 2002 |   | 2001
|                   |       |      |        |      |   |     
|Current  Federal  |       | $    | 842    |      |   | $    |     |      |   | $ | 68  |    
|Current  State    |       |      | 2      |      |   |      | 123  |      |   |   | 81  |    
|Deferred  Federal |       |      | (1,163 | )    |   |      | (621 | )    |   |   | 507 |    
|                   |       |      |        |      |   |      |      |      |   |   |     |    
|                   | Total |      | $      | (319 | ) |      | $    | (498 | ) |   | $   | 656 | 
|                   |       |      |        |      |   |      |      |      |   |   |     |    

At December 31, 2003, the Company had
regular federal net operating loss carryforwards of
approximately $17,225 expiring generally between 2006 and 2009.
As of December 31, 2003 and 2002, a valuation allowance of
$2,346 and $3,824, respectively, was established against
deferred income tax benefits relating primarily to net operating
loss carryforwards that may not be realized. In 2003 and 2002,
the

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decrease of $1,478 and $1,249, respectively, in
the valuation allowance was 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 the
remaining deferred income tax benefits relating to the
carryforwards may not be realized. However, realization of the
remaining deferred income tax benefits will be assessed
periodically based on the Companys current and anticipated
results of operations and amounts could increase or decrease in
the near term if estimates of future taxable income change. The
Company has formal tax-sharing agreements and files a
consolidated income tax return with its subsidiaries.




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



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

At December 31, 2002, the Companys
$32,000 of bank debt with Wachovia Bank, N.A.
(Wachovia) consisted of a single term loan with an
annual installment of $2,000 due on or before December 31,
2003 together with a final payment of $30,000 due on
June 30, 2004. In connection with a May 2003 pooled private
placement of trust preferred securities, the bank debt was
reduced by $17,000 and the $2,000 installment due on or before
December 31, 2003 was satisfied. Subsequent thereto and
effective June 30, 2003, the Company negotiated and
executed an Amended and Restated Credit Agreement relating to
the remaining $15,000. The loan matures on June 30, 2008
and requires minimum annual payments as follows:
2004  $3,000; 2005  $1,750;
2006  $1,750; 2007 - $1,750; 2008  $6,750.
The interest rate on the borrowing is LIBOR plus a margin
ranging between 1.75% and 2.50%. The applicable margin rate is
determined based on the ratio of funded debt to consolidated
total capitalization, all as defined. As of December 31,
2003 the stated interest rate on the bank debt was LIBOR + 2.50%
or 3.64%. The loan requires the Company to comply with certain
covenants including, among others, ratios that relate funded
debt to capitalization and interest coverage as well as the
maintenance of minimum levels of tangible net worth. The Company
also must comply with limitations on capital expenditures,
additional debt obligations, equity repurchases and redemptions,
as well as minimum risked based capital levels.



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

The Company has formed two Connecticut statutory
business trusts, which exist for the exclusive purposes of:
(i) issuing trust preferred securities representing
undivided beneficial interests in the assets of the trusts;
(ii) investing the gross proceeds of the trust preferred
securities in junior subordinated deferrable interest debentures
(Junior Subordinated Debentures) of Atlantic
American Corporation; and (iii) engaging in only those
activities necessary or incidental thereto. In accordance with
the adoption of FIN 46R, the Company has deconsolidated the
trust preferred securities. For further discussion of the
adoption of FIN 46R, see Note 1.

57



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##### Table of Contents



The financial structure of Atlantic American
Statutory Trust I and II, as of December 31, 2003 and
2002, were as follows:

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



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



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

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

The estimated fair value and related carrying
value of the Companys interest rate swap agreement at
December 31, 2003 and 2002 was a liability of approximately
$444 and $914, respectively.

58



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##### Table of Contents





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



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

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



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

The Companys rental expense, including
common area charges, for operating leases was $1,867, $1,811,
and $1,732 in 2003, 2002, and 2001, respectively. The
Companys future minimum lease obligations under
non-cancelable operating leases are as follows:

|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|                        
|Year Ending December 31,
|2004                     |       | $ | 1,589 |      
|2005                     |       |   | 1,438 |      
|2006                     |       |   | 748   |      
|2007                     |       |   | 756   |      
|2008                     |       |   | 764   |      
|Thereafter               |       |   | 1,623 |      
|                         |       |   |       |      
|                         | Total |   | $     | 6,918 | 
|                         |       |   |       |      



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



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

In accordance with the Companys 1992
Incentive Plan, the Board of Directors may grant up to 1,800,000
stock options or share awards. The Board of Directors may grant:
(a) incentive stock options within the meaning of
Section 422 of the Internal Revenue Code;
(b) non-qualified stock options; (c) performance
units; (d) awards of restricted shares of the
Companys common stock and other stock unit awards;
(e) deferred shares of common stock; or (f) all or any
combination of the foregoing to officers and key employees.
Stock options granted under this plan expire five or ten years
from the date of grant, as specified in an award agreement.
Vesting occurs at 50% upon issuance of an option, and the
remaining portion vest in 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. In accordance with the Companys 2002 Incentive
Plan (the 2002 Plan), the Board of Directors may
grant up to 2,000,000 stock options or share awards. Subject to
adjustment as provided in the 2002 Plan, the Board of Directors
may grant: (a) incentive stock options;
(b) non-qualified stock options; (c) stock
appreciation rights; (d) restricted shares;
(e) deferred shares; and (f) performance shares and/or
performance units. Further, the Board may authorize the granting
to non-employee directors of stock options and/or restricted
shares. A total of 41,503 and 29,997 restricted shares were
issued to the Companys Board of Directors under the 2002
Plan in 2003 and 2002, respectively. As of December 31,
2003, an aggregate of forty-six employees, officers and
directors held options under the three plans.

59



---



##### Table of Contents



A summary of the status of the Companys
stock options at December 31, 2003, 2002 and 2001, is as
follows:

|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|-------------------------------------- |  | ------ | --------- | -------------- |  | ------ | ---- | -------------- |  | ------ | --------- | -------------- |  | - | ---- |  |  |  | --------- | - |  | - | ---- | 
|                                       |  |        |           |                |  |       
|                                       |  | 2003   |           | 2002           |  | 2001  
|                                       |  |        |           |                |  |       
|                                       |  |        |           | Weighted       |  |        |      | Weighted       |  |        |           | Weighted      
|                                       |  |        |           | Average        |  |        |      | Average        |  |        |           | Average       
|                                       |  | Shares |           | Exercise Price |  | Shares |      | Exercise Price |  | Shares |           | Exercise Price
|                                       |  |        |           |                |  |        |      |                |  |        |           |               
|Options outstanding, beginning of year |  |        | 1,008,000 |                |  | $      | 2.31 |                |  |        | 1,275,000 |                |  | $ | 2.63 |  |  |  | 1,024,000 |   |  | $ | 3.43 | 
|Options granted                        |  |        | 227,000   |                |  |        | 1.59 |                |  |        | 58,000    |                |  |   | 2.09 |  |  |  | 572,000   |   |  |   | 1.26 | 
|Options exercised                      |  |        | (20,000   | )              |  |        | 1.25 |                |  |        | (10,000   | )              |  |   | 1.25 |  |  |  |          |   |  |   |     | 
|Options canceled or expired            |  |        | (304,500  | )              |  |        | 3.54 |                |  |        | (315,000  | )              |  |   | 3.58 |  |  |  | (321,000  | ) |  |   | 2.75 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options outstanding, end of year       |  |        | 910,500   |                |  |        | 1.74 |                |  |        | 1,008,000 |                |  |   | 2.31 |  |  |  | 1,275,000 |   |  |   | 2.63 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options exercisable                    |  |        | 784,500   |                |  |        | 1.76 |                |  |        | 847,375   |                |  |   | 2.49 |  |  |  | 991,250   |   |  |   | 3.02 | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 
|Options available for future grant     |  |        | 2,452,150 |                |  |        |      |                |  |        | 2,416,153 |                |  |   |      |  |  |  | 194,150   |   |  |   |      | 
|                                       |  |        |           |                |  |        |      |                |  |        |           |                |  |   |      |  |  |  |           |   |  |   |      | 

Data on options outstanding and exercisable at
December 31, 2003 is as follows:

|               |  |           |         |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|-------------- |  | --------- | ------- | ---------------- |  | ---------------- | ----- | --------- |  | ---------------- | ---- |  |  |  | ------- |  |  | - | ---- | 
|               |  |           |         |                  |  |                 
|               |  |           |         | Outstanding      |  | Exercisable     
|               |  |           |         |                  |  |                 
|Range of       |  | Number of |         | Weighted Average |  | Weighted Average |       | Number of |  | Weighted Average
|Exercise Price |  | Options   |         | Remaining Life   |  | Exercise Price   |       | Options   |  | Exercise Price  
|               |  |           |         |                  |  |                  |       |           |  |                 
|$1.00 to $1.50 |  |           | 492,500 |                  |  |                  | 7.79  |           |  | $                | 1.25 |  |  |  | 492,500 |  |  | $ | 1.25 | 
|$1.51 to $2.00 |  |           | 286,500 |                  |  |                  | 8.96  |           |  | $                | 1.67 |  |  |  | 160,500 |  |  | $ | 1.70 | 
|$2.51 to $3.00 |  |           | 15,000  |                  |  |                  | 2.41  |           |  | $                | 2.68 |  |  |  | 15,000  |  |  | $ | 2.68 | 
|$3.51 to $4.00 |  |           | 111,500 |                  |  |                  | <1.00 |           |  | $                | 3.88 |  |  |  | 111,500 |  |  | $ | 3.88 | 
|$4.01 to $4.50 |  |           | 5,000   |                  |  |                  | <1.00 |           |  | $                | 4.06 |  |  |  | 5,000   |  |  | $ | 4.06 | 
|               |  |           |         |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 
|               |  |           | 910,500 |                  |  |                  |       |           |  |                  |      |  |  |  | 784,500 |  |  |   |      | 
|               |  |           |         |                  |  |                  |       |           |  |                  |      |  |  |  |         |  |  |   |      | 

The weighted average fair value of options
granted is estimated on the date of grant using the
Black-Scholes option pricing model and was $1.15, $1.62, and
$.95 for grants in 2003, 2002, and 2001, respectively. Fair
value determinations were based on expected dividend yields of
zero, expected lives of 5 or 10 years, risk free interest
rates of 4.21%, 3.92%, and 4.49%, and expected volatility of
60.08%, 69.11%, and 64.99%, for the years ended
December 31, 2003, 2002, and 2001, respectively.



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

The Company initiated an employees savings
plan under Section 401(k) of the Internal Revenue Code in
May 1995. The plan covers substantially all of the
Companys employees, except employees of American Southern.
Under the plan, employees generally may elect to contribute up
to 16% of their compensation to the plan. The Company makes a
matching contribution on behalf of each employee in an amount
equal to 50% of the first 6% of such contributions. The
Companys matching contribution is in Company stock and had
a value of approximately $256, $219, and $159 in 2003, 2002, and
2001, respectively.



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

The Company has both a funded and unfunded
noncontributory defined benefit pension plan covering the
employees of American Southern. The plans provide defined
benefits based on years of service and average salary. The
Companys general funding policy is to contribute annually
the maximum amount that can be deducted for income tax purposes.

60



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##### Table of Contents



Obligation and Funded Status

|                             |                                                                 |      |   |        |   |  |   |        |  
|---------------------------- | --------------------------------------------------------------- | ---- | - | ------ | - |  | - | ------ | -
|                             |                                                                 | 2003 |   | 2002  
|                             |                                                                 |      |   |       
|Change in Benefit Obligation |                                                                 |      |   |        |   |  |   |       
|                             | Net benefit obligation at beginning of year                     |      | $ | 4,195  |   |  | $ | 3,810  |  
|                             | Service cost                                                    |      |   | 144    |   |  |   | 123    |  
|                             | Interest cost                                                   |      |   | 266    |   |  |   | 250    |  
|                             | Actuarial loss                                                  |      |   | 286    |   |  |   | 118    |  
|                             | Gross benefits paid                                             |      |   | (90    | ) |  |   | (106   | )
|                             |                                                                 |      |   |        |   |  |   |       
|                             | Net benefit obligation at end of year                           |      |   | 4,801  |   |  |   | 4,195  |  
|                             |                                                                 |      |   |        |   |  |   |       
|Change in Plan Assets        |                                                                 |      |   |        |   |  |   |       
|                             | Fair value of plan assets at beginning of year                  |      |   | 1,999  |   |  |   | 2,183  |  
|                             | Employer contributions                                          |      |   | 250    |   |  |   | 191    |  
|                             | Actual return on plan assets                                    |      |   | 299    |   |  |   | (269   | )
|                             | Gross benefits paid                                             |      |   | (90    | ) |  |   | (106   | )
|                             |                                                                 |      |   |        |   |  |   |       
|                             | Fair value of plan assets at end of year                        |      |   | 2,458  |   |  |   | 1,999  |  
|                             |                                                                 |      |   |        |   |  |   |       
|Funded Status of Plan        |                                                                 |      |   |        |   |  |   |       
|                             | Funded status at end of year                                    |      |   | (2,343 | ) |  |   | (2,196 | )
|                             | Unrecognized net actuarial loss                                 |      |   | 1,531  |   |  |   | 1,492  |  
|                             | Unrecognized prior service cost                                 |      |   | (5     | ) |  |   | (5     | )
|                             | Unrecognized net transition obligation                          |      |   |       |   |  |   | 2      |  
|                             | Additional minimum liability                                    |      |   | (105   | ) |  |   | (96    | )
|                             |                                                                 |      |   |        |   |  |   |       
|                             | Net amount recognized in accrued liabilities at
    end of year |      | $ | (922   | ) |  | $ | (803   | )
|                             |                                                                 |      |   |        |   |  |   |       

The accumulated benefit obligation for all
defined benefit plans at December 31, 2003 and 2002 was
$3,797 and $3,301, respectively.

The weighted-average assumptions used to
determine the benefit obligation at December 31, were as
follows:

|                                                                |  |      |      |      |  |  |      |  
|--------------------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                                                                |  | 2003 |      | 2002
|                                                                |  |      |      |     
|Discount rate to determine the projected benefit
    obligation |  |      | 6.00 | %    |  |  | 6.50 | %
|Projected annual salary increases                               |  |      | 4.50 | %    |  |  | 4.50 | %

Included in the above is one plan which is
unfunded. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for this plan were
$1,086, $891, and $0, respectively, as of December 31, 2003
and $1,005, $794, and $0, respectively, as of December 31,
2002.

Components of Net Periodic Benefit
Cost

Net periodic pension cost for the Companys
qualified and non-qualified defined benefit plans for the years
ended December 31, 2003, 2002 and 2001 included the
following components:

|                               |  |      |      |      |  |      |      |   |  |   |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                               |  | 2003 |      | 2002 |  | 2001
|                               |  |      |      |      |  |     
|Service cost                   |  | $    | 144  |      |  | $    | 123  |   |  | $ | 136  |  
|Interest cost                  |  |      | 266  |      |  |      | 250  |   |  |   | 263  |  
|Expected return on plan assets |  |      | (137 | )    |  |      | (170 | ) |  |   | (192 | )
|Net amortization               |  |      | 88   |      |  |      | 41   |   |  |   | 35   |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  
|                               |  | $    | 361  |      |  | $    | 244  |   |  | $ | 242  |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  

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The weighted-average assumptions used to
determine the net periodic benefit cost at December 31,
were as follows:

|                                                                                                 |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                                 |  | 2003 |      | 2002 |  | 2001
|                                                                                                 |  |      |      |      |  |     
|Discount rate to determine the net periodic
    benefit cost                                     |  |      | 6.50 | %    |  |      | 7.00 | % |  |  | 7.00 | %
|Expected long-term rate of return on plan assets
    used to determine net periodic pension cost |  |      | 7.00 | %    |  |      | 8.00 | % |  |  | 8.00 | %
|Projected annual salary increases                                                                |  |      | 4.50 | %    |  |      | 4.50 | % |  |  | 4.50 | %

The qualified defined benefit plan assets were
invested in the INVESCO Total Return Fund (the
Fund), the prospectus for which indicates a
10 year average annual return of approximately 7%;
accordingly, a 7.00% rate of return was used to calculate the
periodic benefit cost for 2003. The Fund normally invests at
least 65% of its assets in common stocks and at least 30% of its
assets in debt securities that are investment grade at the time
of purchase. The remaining assets of the Fund are allocated to
other investments at the Fund managers discretion, based
upon current business, economic and market conditions.

The Companys investment strategy with
respect to pension assets is to invest the assets in accordance
with ERISA and fiduciary standards. The long-term primary
investment objectives are to: 1) provide for a reasonable
amount of long-term growth of capital, without undue exposure to
risk; and protect the assets from erosion of purchasing power,
and 2) provide investment results that meet or exceed the
actuarially assumed long-term rate of return. The Fund has not
included any equity securities of the Company at any time.

Expected Cash Flows

The Company expects to contribute $236 for all
defined benefit plans in 2004.



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

The Company had 134,000 shares of
Series B Preferred Stock (Series B Preferred
Stock) outstanding at December 31, 2003 and 2002,
having a stated value of $100 per share. Annual dividends
on the Series B Preferred Stock are $9.00 per share
and are cumulative. Dividends accrue whether or not declared by
the Board of Directors. The Series B Preferred Stock is not
currently convertible, but may become convertible into shares of
the Companys common stock under certain circumstances. In
such event, the Series B Preferred Stock would be
convertible into an aggregate of approximately
3,358,000 shares of the Companys 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, 2003 and 2002, the Company had accrued but
unpaid dividends on the Series B Preferred Stock of $9,648
and $8,442, respectively. For all periods in which the Company
had an accumulated deficit, dividends on the Series B
Preferred Stock were accrued from additional paid in capital.

The Company had 5,000 shares of
Series C Preferred Stock (Series C Preferred
Stock) outstanding at December 31, 2003, 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 125,000 shares of the Companys common
stock at a conversion price of $3.99 per share. The
Series C Preferred Stock is redeemable at the option of the
Company. During 2003, in accordance with the terms of the
Series C Preferred Stock, the Company exercised its right
to redeem 20,000 of the outstanding shares of the Series C
Preferred Stock. These shares were redeemed at the redemption
price specified in the terms of the Series C Preferred
Stock, $100 per share, or $2,000. The Company paid $143 and
$225 in dividends to the holders of the Series C Preferred
Stock during 2003 and 2002, respectively. For all periods in
which the Company had an accumulated deficit, dividends on the
Series C Preferred Stock were

62



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##### Table of Contents



accrued from additional paid in capital.
Subsequent to December 31, 2003, the remaining
5,000 shares of Series C Preferred Stock were redeemed
at the redemption price of $100 per share, or $500.




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

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

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

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

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

Average outstanding options of 335,000 were
excluded from the earnings per common share calculation in 2003
and outstanding stock options of 408,500 and 712,500 were
excluded from the earnings per common share calculation in 2002
and 2001, respectively, since their impact was antidilutive. The
assumed conversions of the Series B and Series C
Preferred Stock were also excluded from the earnings per common
share calculation for 2003, 2002, and 2001 since their impact
was antidilutive.



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

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

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

|                                  |                      |      |        |         |  |      |        |        |  |   |        |        | 
|--------------------------------- | -------------------- | ---- | ------ | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                  |                      | 2003 |        | 2002    |  | 2001
|                                  |                      |      |        |         |  |     
|Life and Health, net income       |                      | $    | 3,102  |         |  | $    | 4,002  |        |  | $ | 2,948  |       
|Property and Casualty, net income |                      |      | 5,224  |         |  |      | 1,270  |        |  |   | 3,539  |       
|                                  |                      |      |        |         |  |      |        |        |  |   |        |       
|                                  | Statutory net income |      | $      | 8,326   |  |      | $      | 5,272  |  |   | $      | 6,487  | 
|                                  |                      |      |        |         |  |      |        |        |  |   |        |       
|Life and Health, surplus          |                      | $    | 31,197 |         |  | $    | 25,850 |        |  | $ | 22,739 |       
|Property and Casualty, surplus    |                      |      | 74,937 |         |  |      | 68,869 |        |  |   | 61,922 |       
|                                  |                      |      |        |         |  |      |        |        |  |   |        |       
|                                  | Statutory surplus    |      | $      | 106,134 |  |      | $      | 94,719 |  |   | $      | 84,661 | 
|                                  |                      |      |        |         |  |      |        |        |  |   |        |       

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
$5,728, $7,076 and $7,099 in 2003, 2002, and 2001, respectively,
from its subsidiaries. In 2004, dividend payments by insurance
subsidiaries in excess of $12,536 would require prior approval.



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

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

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The Company leases approximately
65,489 square feet of office and covered garage space from
an affiliated company. During the years ended December 31,
2003, 2002, and 2001, the Company paid $1,000, $987 and $961,
respectively, under the leases.

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

The Company has made mortgage loans to finance
properties owned by Leath Furniture, LLC (Leath),
which is owned by an affiliate of the Chairman. At
December 31, 2003 and 2002, the balance of mortgage loans
owed by Leath to the Companys insurance subsidiary was
$3,152 and $3,292, respectively. For 2003, 2002, and 2001,
interest paid by Leath on the mortgage loans totaled $299, $311,
and $323, respectively.

Certain members of management are on the Boards
of Directors of Bull Run Corporation (Bull Run) and
Gray Television, Inc. (Gray). At
December 31, 2003, the Company owned 184,337 common shares
of Bull Run and 376,060 shares of Gray Common Stock
Class A and 106,000 shares of Gray Common Stock
Class B. The Company also owned 350 shares of
Grays Series C Preferred Stock and 2,000 shares
of Bull Runs Series D Preferred Stock as of
December 31, 2003. At December 31, 2002, the Company
owned 131,137 common shares of Bull Run and 376,060 shares
of Grays Common Stock Class A and 106,000 shares
of Grays Common Stock Class B. In addition, the
Company owned 350 shares of Grays Series C
Preferred Stock and 2,000 shares of Bull Runs
Series B Preferred Stock. The aggregate carrying value of
the investments in Bull Run and Gray at December 31, 2003
were $2,225 and $10,808, respectively and at December 31,
2002 were $3,219 and $8,990, 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 2003 were $1,817 and $168, respectively, $1,090 and $128 in
2002, respectively and $1,554 and $212 in 2001, respectively.

In 1998, American Southern formed the American
Auto Insurance Agency (the Agency) in a joint
venture with Carolina Motor Club, Inc. to market personal
automobile insurance to the members of the automobile club.
American Southern holds a 50% interest in the joint venture and
underwrites the majority of the standard automobile business
written by the Agency. This program, which began writing
business in 1999, had gross written premiums of approximately
$8,311, $7,083 and $6,084 in 2003, 2002, and 2001, respectively.

Note 14.     Segment
Information

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

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as from investment income. Substantially all
revenue other than that in the corporate and other segment is
from external sources.


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

|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |         | 
|--------------------------------------------------------------------------------------------- | -------------- | -------- | ------- | -------- |  | -------- | ------- | ----------- |  | --------- | ------- | -------------- |  | ------------ | ------- | ------ |  | - | ------- | ------ |  | - | -------- | ------ | - | - | ------- | ------- | 
|                                                                                              |                | American |         | Georgia  |  | Bankers  |         | Association |  | Corporate |         | Adjustments    |  |             
|                                                                                              |                | Southern |         | Casualty |  | Fidelity |         | Casualty    |  | & Other   |         | & Eliminations |  | Consolidated
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |             
|December 31, 2002                                                                             |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance premiums                                                                            |                | $        | 39,914  |          |  | $        | 29,744  |             |  | $         | 60,597  |                |  | $            | 24,244  |        |  | $ |        |        |  | $ |         |        |   | $ | 154,499 |        
|Investment income, including net realized gains                                               |                |          | 4,251   |          |  |          | 3,302   |             |  |           | 4,679   |                |  |              | 2,287   |        |  |   | 200     |        |  |   | (121     | )      |   |   | 14,598  |        
|Other income                                                                                  |                |          | 188     |          |  |          | 47      |             |  |           |        |                |  |              | 88      |        |  |   | 7,529   |        |  |   | (6,704   | )      |   |   | 1,148   |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                                                              | Total revenue  |          |         | 44,353   |  |          |         | 33,093      |  |           |         | 65,276         |  |              |         | 26,619 |  |   |         | 7,729  |  |   |          | (6,825 | ) |   |         | 170,245 | 
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Insurance benefits and losses incurred                                                        |                |          | 26,353  |          |  |          | 19,950  |             |  |           | 42,404  |                |  |              | 20,402  |        |  |   |        |        |  |   |         |        |   |   | 109,109 |        
|Expenses deferred                                                                             |                |          | (5,898  | )        |  |          | (6,591  | )           |  |           | (2,533  | )              |  |              | (3,829  | )      |  |   |        |        |  |   |         |        |   |   | (18,851 | )      
|Amortization and depreciation expense                                                         |                |          | 5,826   |          |  |          | 5,935   |             |  |           | 2,383   |                |  |              | 4,390   |        |  |   |        |        |  |   |         |        |   |   | 18,534  |        
|Other expenses                                                                                |                |          | 11,451  |          |  |          | 13,977  |             |  |           | 18,957  |                |  |              | 7,637   |        |  |   | 13,153  |        |  |   | (6,825   | )      |   |   | 58,350  |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|                                                                                              | Total expenses |          |         | 37,732   |  |          |         | 33,271      |  |           |         | 61,211         |  |              |         | 28,600 |  |   |         | 13,153 |  |   |          | (6,825 | ) |   |         | 167,142 | 
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes and cumulative
    effect of change in accounting principle |                |          | 6,621   |          |  |          | (178    | )           |  |           | 4,065   |                |  |              | (1,981  | )      |  |   | (5,424  | )      |  |   |         |        |   |   | 3,103   |        
|Cumulative effect of change in accounting
    principle                                       |                |          |        |          |  |          |        |             |  |           |        |                |  |              | (15,816 | )      |  |   |        |        |  |   |         |        |   |   | (15,816 | )      
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Income (loss) before income taxes                                                             |                | $        | 6,621   |          |  | $        | (178    | )           |  | $         | 4,065   |                |  | $            | (17,797 | )      |  | $ | (5,424  | )      |  | $ |         |        |   | $ | (12,713 | )      
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        
|Total assets                                                                                  |                | $        | 112,337 |          |  | $        | 114,308 |             |  | $         | 115,275 |                |  | $            | 84,773  |        |  | $ | 140,340 |        |  | $ | (145,509 | )      |   | $ | 421,524 |        
|                                                                                              |                |          |         |          |  |          |         |             |  |           |         |                |  |              |         |        |  |   |         |        |  |   |          |        |   |   |         |        

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



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

|             |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|------------ | --------------------------------------------------------------- | -------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|             |                                                                 |          |   |           
|             |                                                                 | 2003     |   | 2002      
|             |                                                                 |          |   |           
|             |                                                                 | Carrying |   | Estimated  |  | Carrying |   | Estimated 
|             |                                                                 | Amount   |   | Fair Value |  | Amount   |   | Fair Value
|             |                                                                 |          |   |            |  |          |   |           
|Assets:      |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Cash and cash equivalents, including short-term
    investments |          | $ | 34,238     |  |          | $ | 34,238     |  |  | $ | 41,638  |  |  | $ | 41,638  | 
|             | Fixed maturities                                                |          |   | 229,449    |  |          |   | 229,449    |  |  |   | 207,010 |  |  |   | 207,010 | 
|             | Common and non-redeemable preferred stocks                      |          |   | 44,000     |  |          |   | 44,000     |  |  |   | 32,062  |  |  |   | 32,062  | 
|             | Mortgage loans                                                  |          |   | 3,189      |  |          |   | 3,919      |  |  |   | 3,330   |  |  |   | 4,127   | 
|             | Policy and student loans                                        |          |   | 2,375      |  |          |   | 2,375      |  |  |   | 2,409   |  |  |   | 2,409   | 
|             | Other invested assets                                           |          |   | 4,639      |  |          |   | 4,639      |  |  |   | 5,031   |  |  |   | 5,031   | 
|             | Investment in unconsolidated trusts                             |          |   | 1,238      |  |          |   | 1,238      |  |  |   | 542     |  |  |   | 542     | 
|Liabilities: |                                                                 |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Debt payable to bank                                            |          |   | 15,000     |  |          |   | 15,000     |  |  |   | 32,000  |  |  |   | 32,000  | 
|             | Junior subordinated debentures                                  |          |   | 41,238     |  |          |   | 41,238     |  |  |   | 18,042  |  |  |   | 18,042  | 

The fair value estimates as of December 31,
2003 and 2002 were 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.

67



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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.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Fixed Maturities, Common and Non-Redeemable
    Preferred Stocks and Publicly Traded Other Invested
    Assets



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

Non-publicly
Traded Invested Assets



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

Mortgage
Loans



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

Debt Payable
and Junior Subordinated Debentures



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



|         |                                                 
|-------- | ------------------------------------------------
|Note 16. | Reconciliation of Other Comprehensive
    Income

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

Other than net income, the other components of
comprehensive income (loss) for the years ended
December 31, 2003, 2002 and 2001 were as follows:

|                                                          |                                                                            |              |     |        |   |      |     |        |   |   |       |        |  
|--------------------------------------------------------- | -------------------------------------------------------------------------- | ------------ | --- | ------ | - | ---- | --- | ------ | - | - | ----- | ------ | -
|                                                          |                                                                            |             
|                                                          |                                                                            | December 31,
|                                                          |                                                                            |             
|                                                          |                                                                            | 2003         |     | 2002   |   | 2001
|                                                          |                                                                            |              |     |        |   |     
|Gain on the sale of securities included in net
    income |                                                                            | $            | 360 |        |   | $    | 587 |        |   | $ | 1,708 |       
|                                                          |                                                                            |              |     |        |   |      |     |        |   |   |       |       
|Other comprehensive income:                               |                                                                            |              |     |        |   |      |     |        |   |   |       |       
|                                                          | Net pre-tax unrealized gains arising during year                           |              | $   | 7,813  |   |      | $   | 7,731  |   |   | $     | 5,206  |  
|                                                          | Reclassification adjustment                                                |              |     | (360   | ) |      |     | (587   | ) |   |       | (1,708 | )
|                                                          |                                                                            |              |     |        |   |      |     |        |   |   |       |       
|                                                          | Net pre-tax unrealized gains recognized in other
    comprehensive income  |              |     | 7,453  |   |      |     | 7,144  |   |   |       | 3,498  |  
|                                                          | Fair value adjustments to interest rate swap                               |              |     | 470    |   |      |     | (382   | ) |   |       | (532   | )
|                                                          | Deferred income tax expense attributable to other
    comprehensive income |              |     | (2,773 | ) |      |     | (2,367 | ) |   |       | (1,038 | )
|                                                          |                                                                            |              |     |        |   |      |     |        |   |   |       |       
|                                                          | Net other comprehensive income                                             |              | $   | 5,150  |   |      | $   | 4,395  |   |   | $     | 1,928  |  
|                                                          |                                                                            |              |     |        |   |      |     |        |   |   |       |       

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

The following table sets forth a summary of the
quarterly unaudited results of operations for the two years in
the period ended December 31, 2003:

|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |     | 
|--------------------------------------------------------------------------------------------- | ----------------- | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------- | ------- | - | - | ------ | --- |  | - | ------ | --- |  | - | ------ | --- | 
|                                                                                              |                   |         |        |        
|                                                                                              |                   | 2003    |        | 2002   
|                                                                                              |                   |         |        |        
|                                                                                              |                   | First   |        | Second  |  | Third   |        | Fourth  |  | First   |        | Second  |  | Third   |        | Fourth 
|                                                                                              |                   | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |        
|Revenue                                                                                       |                   | $       | 44,018 |         |  | $       | 43,464 |         |  | $       | 41,534 |         |  | $       | 42,584 |         |  | $ | 40,069  |         |   | $ | 43,079 |     |  | $ | 43,151 |     |  | $ | 43,946 |    
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    
|Income (loss) before income taxes and cumulative
    effect of change in accounting principle |                   | $       | 864    |         |  | $       | 1,712  |         |  | $       | 1,717  |         |  | $       | 2,232  |         |  | $ | 2,264   |         |   | $ | 1,421  |     |  | $ | (525   | )   |  | $ | (57    | )  
|Income tax expense (benefit)                                                                  |                   |         | 168    |         |  |         | 501    |         |  |         | (1,549 | )       |  |         | 561    |         |  |   | 759     |         |   |   | 479    |     |  |   | (1,481 | )   |  |   | (255   | )  
|Cumulative effect of change in accounting
    principle                                       |                   |         |       |         |  |         |       |         |  |         |       |         |  |         |       |         |  |   | (15,816 | )       |   |   |       |     |  |   |       |     |  |   |       |    
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    
|                                                                                              | Net income (loss) |         | $      | 696     |  |         | $      | 1,211   |  |         | $      | 3,266   |  |         | $      | 1,671   |  |   | $       | (14,311 | ) |   | $      | 942 |  |   | $      | 956 |  |   | $      | 198 | 
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    
|Per common share data:                                                                        |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    
|Basic net income (loss) per share                                                             |                   | $       | .02    |         |  | $       | .04    |         |  | $       | .14    |         |  | $       | .06    |         |  | $ | (.69    | )       |   | $ | .03    |     |  | $ | .03    |     |  | $ | (.01   | )  
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    
|Diluted net income (loss) per share                                                           |                   | $       | .02    |         |  | $       | .04    |         |  | $       | .13    |         |  | $       | .06    |         |  | $ | (.68    | )       |   | $ | .03    |     |  | $ | .03    |     |  | $ | (.01   | )  
|                                                                                              |                   |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |         |         |   |   |        |     |  |   |        |     |  |   |        |    

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

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

Andersens report on the Companys
consolidated financial statements for the fiscal year ended
December 31, 2001 did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.

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

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

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






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

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




PART III

With the exception of information relating to the
Executive Officers of the Company, which is provided in
Part I hereof, the information relating to securities
authorized for issuance under equity compensation plans, which
is included in Part II, Item 5 hereof, and the
information relating to the Companys Code of Ethics, which
is included below, all information required by Part III
(Items 10, 11, 12, 13 and 14) is incorporated by
reference to the sections entitled Election of
Directors, Security Ownership of Certain Beneficial
Owners and Management, Section 16(a) Beneficial
Ownership Compliance, Executive Compensation,
Certain Relationships and Related Transactions and
Ratification of Independent Public Accountants
contained in the Companys definitive proxy statement to be
delivered in connection with the Companys Annual Meeting
of Shareholders to be held on May 4, 2004.

The Company has adopted a Code of Ethics that
applies to its principal executive officer, principal financial
officer, principal accounting officer or controller, or any
persons performing similar functions, as well as its directors
and other employees. A copy of this Code of Ethics is attached
as Exhibit 14.1 to this annual report.

70



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##### Table of Contents






PART IV






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

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

Financial Statement Schedules

|    |  |   |  |                                                                                                                               
|--- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------
|II  |  |  |  | Condensed financial information of Registrant for
    the three years ended December 31, 2003                                 
|III |  |  |  | Supplementary insurance information for the three
    years ended December 31, 2003                                           
|IV  |  |  |  | Reinsurance for the three years ended
    December 31, 2003                                                                   
|VI  |  |  |  | Supplemental information concerning
    property-casualty insurance operations for the three years ended
    December 31, 2003

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

(b) Reports on Form 8-K:

None.

(c) Exhibits*:

| |    |       |  |   |  |                                                                                                                                                                                                                                                                                                           
| | -- | ----- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1    |  |  |  | Restated Articles of Incorporation of the
    registrant, as amended [incorporated by reference to
    Exhibit 3.1 to the registrants Form 10-K for the
    year ended December 31, 2002].                                                                                                               
| | 3  | .2    |  |  |  | Bylaws of the registrant [incorporated by
    reference to Exhibit 3.2 to the registrants
    Form 10-K for the year ended December 31, 1993].                                                                                                                                                           
| | 10 | .01   |  |  |  | Lease Contract between registrant and Delta Life
    Insurance Company dated June 1, 1992 [incorporated by
    reference to Exhibit 10.11 to the registrants
    Form 10-K for the year ended December 31, 1992].                                                                                        
| | 10 | .02   |  |  |  | First Amendment to Lease Contract between
    registrant and Delta Life Insurance Company dated June 1,
    1993 [incorporated by reference to Exhibit 10.11.1 to the
    registrants Form 10-Q for the quarter ended
    June 30, 1993].                                                                
| | 10 | .03   |  |  |  | Second Amendment to Lease Contract between
    registrant and Delta Life Insurance Company dated August 1,
    1994 [incorporated by reference to Exhibit 10.11.2 to the
    registrants Form 10-Q for the quarter ended
    September 30, 1994].                                                        
| | 10 | .04   |  |  |  | Lease Agreement between Georgia
    Casualty & Surety Company and Delta Life Insurance
    Company dated September 1, 1991 [incorporated by reference
    to Exhibit 10.12 to the registrants Form 10-K
    for the year ended December 31, 1992].                                                       
| | 10 | .05   |  |  |  | First Amendment to Lease Agreement between
    Georgia Casualty & Surety Company and Delta Life
    Insurance Company dated June 1,1992 [incorporated by reference
    to Exhibit 10.12.1 to the registrants Form 10-K
    for the year ended December 31, 1992].                                        
| | 10 | .06   |  |  |  | Management Agreement between registrant and
    Georgia Casualty & Surety Company dated April 1,
    1983 [incorporated by reference to Exhibit 10.16 to the
    registrants Form 10-K for the year ended
    December 31, 1986].                                                                        
| | 10 | .07** |  |  |  | Minutes of Meeting of Board of Directors of
    registrant held February 25, 1992 adopting
    registrants 1992 Incentive Plan together with a copy of
    that plan, as adopted [incorporated by reference to
    Exhibit 10.21 to the registrants Form 10-K for
    the year ended December 31, 1991].
| | 10 | .08   |  |  |  | Loan and Security Agreement dated August 26,
    1991, between registrants three insurance subsidiaries
    named therein and Leath Furniture, Inc. [incorporated by
    reference to Exhibit 10.38 to the registrants
    Form 10-K for the year ended December 31, 1992].                             
| | 10 | .09   |  |  |  | First amendment to the amended and reissued
    mortgage note dated January 1, 1992, [incorporated by
    reference to Exhibit 10.38.1 to the registrants
    Form 10-K for the year ended December 31, 1992].                                                                                           

71



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| |    |       |  |   |  |                                                                                                                                                                                                                                                                                                  
| | -- | ----- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .10   |  |  |  | Intercreditor Agreement dated August 26,
    1991, between Leath Furniture, Inc., the registrant and the
    registrants three insurance subsidiaries named therein
    [incorporated by reference to Exhibit 10.39 to the
    registrants Form 10-K for the year ended
    December 31, 1992].
| | 10 | .11   |  |  |  | Management Agreement between the registrant and
    Atlantic American Life Insurance Company and Bankers Fidelity
    Life Insurance Company dated July 1, 1993 [incorporated by
    reference to Exhibit 10.41 to the registrants
    Form 10-Q for the quarter ended September 30, 1993].     
| | 10 | .12   |  |  |  | Tax allocation agreement dated January 28,
    1994, between registrant and registrants subsidiaries
    [incorporated by reference to Exhibit 10.44 to the
    registrants Form 10-K for the year ended
    December 31, 1993].                                                               
| | 10 | .13   |  |  |  | Indenture of Trust, dated as of June 24,
    1999, by and between Atlantic American Corporation and The Bank
    of New York, as Trustee [incorporated by reference to
    Exhibit 10.1 to the registrants Form 8-K dated
    July 16, 1999].                                                   
| | 10 | .14   |  |  |  | Reimbursement and Security Agreement, dated as of
    June 24, 1999, between Atlantic American Corporation and
    Wachovia Bank of Georgia, N.A. [incorporated by reference to
    Exhibit 10.3 to the registrants Form 8-K dated
    July 16, 1999].                                          
| | 10 | .15   |  |  |  | Revolving Credit Facility, dated as of
    July 1, 1999 between Atlantic American Corporation and
    Wachovia Bank, N.A. [incorporated by reference to
    Exhibit 10.3 to the registrants Form 8-K dated
    July 16, 1999].                                                                  
| | 10 | .16   |  |  |  | First Amendment, dated as of March 24, 2000,
    to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.1 to the
    registrants Form 10-Q for the quarter ended
    June 30, 2000].     
| | 10 | .17   |  |  |  | Second Amendment, dated February 9, 2001, to
    Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.18 to the
    registrants Form 10-K for the year ended
    December 31, 2000].      
| | 10 | .18   |  |  |  | Third Amendment, dated as of December 31,
    2001 to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.19 to the
    registrants Form 10-K for the year ended
    December 31, 2001]. 
| | 10 | .19   |  |  |  | Fourth Amendment, dated November 21, 2002,
    to Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.19 to the
    registrants Form 10-K for the year ended
    December 31, 2002].     
| | 10 | .20   |  |  |  | Fifth Amendment, dated April 23, 2003, to
    Credit Agreement, dated as of July 1, 1999, between
    Atlantic American Corporation and Wachovia Bank, N.A.
    [incorporated by reference to Exhibit 10.1 to the
    registrants Form 10-Q for the quarter ended
    June 30, 2003].           
| | 10 | .21   |  |  |  | Amended and Restated Credit Agreement, dated as
    of June 30, 2003, between Atlantic American Corporation and
    Wachovia Bank, N.A. [incorporated by reference to
    Exhibit 10.2 to the registrants Form 10-Q for
    the quarter ended June 30, 2003].                                   
| | 10 | .22** |  |  |  | Atlantic American Corporation 1992 Incentive Plan
    [ incorporated by reference to Exhibit 4 to the
    registrants Form S-8 filed on November 1, 1999].                                                                                                                                      
| | 10 | .23** |  |  |  | Atlantic American Corporation 1996 Director
    Stock Option Plan [incorporated by reference to Exhibit 4
    to the registrants Form S-8 filed on November 1,
    1999].                                                                                                                       
| | 10 | .24** |  |  |  | Atlantic American Corporation 2002 Stock
    Incentive Plan [incorporated by reference to Exhibit 4.1 to
    the registrants Form S-8 filed on August 2,
    2002].                                                                                                                             
| | 10 | .25   |  |  |  | Summary Terms of Consulting Arrangement between
    Atlantic American Corporation and Samuel E. Hudgins, entered
    into in June 2002 [incorporated by reference to
    Exhibit 10.23 to the registrants Form 10-K for the
    year ended December 31, 2002].                                  
| | 14 | .1    |  |  |  | Code of Ethics.                                                                                                                                                                                                                                                                                  
| | 21 | .1    |  |  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                  
| | 23 | .1    |  |  |  | Consent of Deloitte & Touche
    LLP, Independent Auditors.                                                                                                                                                                                                                                      

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| |    |    |  |   |  |                                                                                                                
| | -- | -- |  | - |  | ---------------------------------------------------------------------------------------------------------------
| | 31 | .1 |  |  |  | Certification of the Principal Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | 31 | .2 |  |  |  | Certification of the Principal Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | 32 | .1 |  |  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                   



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | The registrant agrees to furnish to the
    Commission upon request a copy of any instruments defining the
    rights of securityholders of the registrant that may be omitted
    from filing in accordance with the Commissions rules and
    regulations.
|  
|** | Management contract, compensatory plan or
    arrangement required to be filed pursuant to,
    Part IV, Item 15(c) of Form 10-K and
    Item 601 of Regulation S-K.                                                                                         

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SIGNATURES

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



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



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

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

Date: March 29, 2004

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

|                                                   |  |                                                                                                    |  |                |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                   |  |                                                                                                    |  |               
|Signature                                          |  | Title                                                                                              |  | Date          
|                                                   |  |                                                                                                    |  |               
|                                                  
|/s/ J. MACK ROBINSONJ. Mack Robinson               |  | Chairman of the Board                                                                              |  | March 29, 2004
|                                                  
|/s/ HILTON H. HOWELL, JR.Hilton H. Howell, Jr.     |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                  |  | March 29, 2004
|                                                  
|/s/ JOHN G. SAMPLE, JR.John G. Sample, Jr.         |  | Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | March 29, 2004
|                                                  
|/s/ EDWARD E. ELSONEdward E. Elson                 |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ SAMUEL E. HUDGINSSamuel E. Hudgins             |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ D. RAYMOND RIDDLED. Raymond Riddle             |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ HARRIETT J. ROBINSONHarriett J. Robinson       |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ SCOTT G. THOMPSONScott G. Thompson             |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ MARK C. WESTMark C. West                       |  | Director                                                                                           |  | March 29, 2004
|                                                  
|/s/ WILLIAM H. WHALEY, M.D.William H. Whaley, M.D. |  | Director                                                                                           |  | March 29, 2004

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|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|                                       |  |          |  |               
|Signature                              |  | Title    |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ DOM H. WYANTDom H. Wyant           |  | Director |  | March 29, 2004
|                                      
|/s/ HAROLD K. FISCHERHarold K. Fischer |  | Director |  | March 29, 2004

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SCHEDULE II

Page 1 of 3


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


BALANCE SHEETS

|                                          |                                            |                |         |         |  |   |         |         | 
|----------------------------------------- | ------------------------------------------ | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |                                            |               
|                                          |                                            | December 31,  
|                                          |                                            |               
|                                          |                                            | 2003           |         | 2002   
|                                          |                                            |                |         |        
|                                          |                                            |               
|                                          |                                            | (In thousands)
|ASSETS                                   
|Cash and short-term investments           |                                            | $              | 1,751   |         |  | $ | 1,742   |        
|Investment in subsidiaries                |                                            |                | 147,978 |         |  |   | 134,511 |        
|Investment in unconsolidated trusts       |                                            |                | 1,238   |         |  |   | 542     |        
|Income taxes receivable from subsidiaries |                                            |                | 3,986   |         |  |   | 1,359   |        
|Other assets                              |                                            |                | 3,210   |         |  |   | 2,712   |        
|                                          |                                            |                |         |         |  |   |         |        
|                                          | Total assets                               |                | $       | 158,163 |  |   | $       | 140,866 | 
|                                          |                                            |                |         |         |  |   |         |        
|                                         
|LIABILITIES AND SHAREHOLDERS
    EQUITY 
|Deferred tax liability, net               |                                            | $              | 2,463   |         |  | $ | 854     |        
|Other payables                            |                                            |                | 12,569  |         |  |   | 11,430  |        
|Debt payable to bank                      |                                            |                | 15,000  |         |  |   | 32,000  |        
|Junior subordinated debentures            |                                            |                | 41,238  |         |  |   | 18,042  |        
|                                          |                                            |                |         |         |  |   |         |        
|Total liabilities                         |                                            |                | 71,270  |         |  |   | 62,326  |        
|Shareholders equity                      |                                            |                | 86,893  |         |  |   | 78,540  |        
|                                          |                                            |                |         |         |  |   |         |        
|                                          | Total liabilities and shareholders equity |                | $       | 158,163 |  |   | $       | 140,866 | 
|                                          |                                            |                |         |         |  |   |         |        

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SCHEDULE II

Page 2 of 3


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


STATEMENTS OF OPERATIONS

|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |       |        | 
|------------------------------------------------------------------ | ------------------------------------------------------- | ----------------------- | ------ | ----- | ------ | ---- | ------- | ----- | ------- | - | ----- | ----- | ------ | 
|                                                                   |                                                         |                        
|                                                                   |                                                         | Year Ended December 31,
|                                                                   |                                                         |                        
|                                                                   |                                                         | 2003                    |        | 2002  |        | 2001
|                                                                   |                                                         |                         |        |       |        |     
|                                                                   |                                                         |                        
|                                                                   |                                                         | (In thousands)         
|Revenue                                                            |                                                         |                         |        |       |        |      |         |       |         |   |       |      
|                                                                   | Fees, rentals and interest income from
    subsidiaries |                         | $      | 7,599 |        |      | $       | 6,705 |         |   | $     | 5,933 |       
|                                                                   | Distributed earnings from subsidiaries                  |                         |        | 5,728 |        |      |         | 7,076 |         |   |       | 7,099 |       
|                                                                   | Other                                                   |                         |        | 120   |        |      |         | 217   |         |   |       | 1,299 |       
|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |      
|                                                                   |                                                         | Total revenue           |        |       | 13,447 |      |         |       | 13,998  |   |       |       | 14,331 | 
|General and administrative expenses                                |                                                         |                         | 12,005 |       |        |      | 10,162  |       |         |   | 9,318 |      
|Interest expense                                                   |                                                         |                         | 3,120  |       |        |      | 2,564   |       |         |   | 3,234 |      
|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |      
|                                                                   |                                                         |                         | (1,678 | )     |        |      | 1,272   |       |         |   | 1,779 |      
|Income tax benefit(1)                                              |                                                         |                         | 4,747  |       |        |      | 2,690   |       |         |   | 1,606 |      
|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |      
|                                                                   |                                                         |                         | 3,069  |       |        |      | 3,962   |       |         |   | 3,385 |      
|Equity in undistributed earnings (losses) of
    subsidiaries, net |                                                         |                         | 3,775  |       |        |      | (361    | )     |         |   | 212   |      
|Equity in cumulative effect of change in
    accounting principle  |                                                         |                         |       |       |        |      | (15,816 | )     |         |   |      |      
|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |      
|                                                                   |                                                         | Net income (loss)       |        | $     | 6,844  |      |         | $     | (12,215 | ) |       | $     | 3,597  | 
|                                                                   |                                                         |                         |        |       |        |      |         |       |         |   |       |      



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

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SCHEDULE II

Page 3 of 3


CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

ATLANTIC AMERICAN CORPORATION

(Parent Company Only)


STATEMENTS OF CASH FLOWS

|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |        |      |        |  
|------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------- | ------ | ------ | ----- | ------- | ------ | ------ | --- | ------ | ---- | ------ | -
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | Year Ended December 31,                                                                                                             
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | 2003                                                                                                                                 |                                                         | 2002    |        | 2001  
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |       
|                                      |                                                                                              |                                                                                                                                     
|                                      |                                                                                              | (In thousands)                                                                                                                      
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      | Net income (loss)                                                                            |                                                                                                                                      | $                                                       | 6,844   |        |        | $     | (12,215 | )      |        | $   | 3,597  |     
|                                      | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |        |     
|                                      |                                                                                              | Realized investment gains                                                                                                            |                                                         |         |       |        |       |         | (125   | )      |     |        | (118 | )     
|                                      |                                                                                              | Depreciation and amortization                                                                                                        |                                                         |         | 798    |        |       |         | 659    |        |     |        | 631  |       
|                                      |                                                                                              | Compensation expense related to share awards                                                                                         |                                                         |         | 126    |        |       |         | 77     |        |     |        | 45   |       
|                                      |                                                                                              | Equity in undistributed (earnings) loss and
    cumulative effect of change in accounting principle of
    consolidated subsidiaries |                                                         |         | (3,775 | )      |       |         | 16,177 |        |     |        | (212 | )     
|                                      |                                                                                              | (Increase) decrease in intercompany taxes                                                                                            |                                                         |         | (2,627 | )      |       |         | 682    |        |     |        | (832 | )     
|                                      |                                                                                              | Deferred income tax (benefit) expense                                                                                                |                                                         |         | (1,163 | )      |       |         | (621   | )      |     |        | 507  |       
|                                      |                                                                                              | Increase (decrease) in other liabilities                                                                                             |                                                         |         | 90     |        |       |         | 549    |        |     |        | (296 | )     
|                                      |                                                                                              | Other, net                                                                                                                           |                                                         |         | (7     | )      |       |         | 149    |        |     |        | (46  | )     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      |                                                                                              |                                                                                                                                      | Net cash provided by operating activities               |         |        | 286    |       |         |        | 5,332  |     |        |      | 3,276  |  
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      | Proceeds from investments sold                                                               |                                                                                                                                      |                                                         |        |        |        |       | 31      |        |        |     |       |     
|                                      | Capitalization of trusts                                                                     |                                                                                                                                      |                                                         | (696    | )      |        |       | (542    | )      |        |     |       |     
|                                      | Acquisition of Association Casualty                                                          |                                                                                                                                      |                                                         |        |        |        |       |        |        |        |     | (128   | )   
|                                      | Capital contribution to subsidiaries                                                         |                                                                                                                                      |                                                         | (2,250  | )      |        |       | (8,521  | )      |        |     |       |     
|                                      | Additions to property and equipment                                                          |                                                                                                                                      |                                                         | (337    | )      |        |       | (335    | )      |        |     | (803   | )   
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      |                                                                                              |                                                                                                                                      | Net cash used in investing activities                   |         |        | (3,283 | )     |         |        | (9,367 | )   |        |      | (931   | )
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      | Proceeds from junior subordinated debentures                                                 |                                                                                                                                      |                                                         | 22,520  |        |        |       | 17,516  |        |        |     |       |     
|                                      | Preferred stock redemption                                                                   |                                                                                                                                      |                                                         | (2,000  | )      |        |       |        |        |        |     |       |     
|                                      | Preferred stock dividends to affiliated
    shareholders                                     |                                                                                                                                      |                                                         | (143    | )      |        |       | (225    | )      |        |     | (225   | )   
|                                      | Purchase of treasury shares                                                                  |                                                                                                                                      |                                                         | (396    | )      |        |       | (44     | )      |        |     | (11    | )   
|                                      | Repayments of debt                                                                           |                                                                                                                                      |                                                         | (17,000 | )      |        |       | (12,000 | )      |        |     | (2,500 | )   
|                                      | Issuance of preferred stocks                                                                 |                                                                                                                                      |                                                         |        |        |        |       |        |        |        |     | 750    |     
|                                      | Proceeds from exercise of stock options                                                      |                                                                                                                                      |                                                         | 25      |        |        |       | 13      |        |        |     | 158    |     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      |                                                                                              |                                                                                                                                      | Net cash provided by (used in) financing
    activities |         |        | 3,006  |       |         |        | 5,260  |     |        |      | (1,828 | )
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|Net increase in cash                  |                                                                                              |                                                                                                                                      | 9                                                       |         |        |        | 1,225 |         |        |        | 517 |       
|Cash at beginning of year             |                                                                                              |                                                                                                                                      | 1,742                                                   |         |        |        | 517   |         |        |        |    |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|Cash at end of year                   |                                                                                              | $                                                                                                                                    | 1,751                                                   |         |        | $      | 1,742 |         |        | $      | 517 |       
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|Supplemental disclosure:              |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      | Cash paid for interest                                                                       |                                                                                                                                      | $                                                       | 3,285   |        |        | $     | 2,282   |        |        | $   | 3,394  |     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       
|                                      | Cash paid for income taxes                                                                   |                                                                                                                                      | $                                                       | 514     |        |        | $     | 113     |        |        | $   | 100    |     
|                                      |                                                                                              |                                                                                                                                      |                                                         |         |        |        |       |         |        |        |     |       

78



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SCHEDULE III


Page 1 of 2


ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |       | 
|------------------ | -------------------- | ----------------- | ------ | ----------------- |  | -------- | ------- | ---------------- |  | - | ------ | ------ |  | - | ----- | ----- | 
|                   |                      |                   |        | Future Policy     |  |          |         |                 
|                   |                      |                   |        | Benefits, Losses, |  |          |         | Other Policy    
|                   |                      | Deferred          |        | Claims and Loss   |  | Unearned |         | Claims and      
|Segment            |                      | Acquisition Costs |        | Reserves          |  | Premiums |         | Benefits Payable
|                   |                      |                   |        |                   |  |          |         |                 
|                   |                      |                  
|                   |                      | (In thousands)   
|December 31, 2003: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,647            |  |          | $       | 57,758           |  |   | $      | 3,986  |  |   | $     | 2,414 | 
|                   | American Southern    |                   |        | 3,578             |  |          |         | 39,042           |  |   |        | 21,118 |  |   |       | 2,863 | 
|                   | Association Casualty |                   |        | 1,847             |  |          |         | 44,497           |  |   |        | 12,485 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 3,924             |  |          |         | 56,021           |  |   |        | 23,561 |  |   |       |      | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 27,996 |                   |  | $        | 197,318 | (1)              |  | $ | 61,150 |        |  | $ | 5,277 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 2002: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,934            |  |          | $       | 53,656           |  |   | $      | 3,566  |  |   | $     | 2,395 | 
|                   | American Southern    |                   |        | 2,327             |  |          |         | 44,428           |  |   |        | 20,519 |  |   |       | 2,382 | 
|                   | Association Casualty |                   |        | 1,470             |  |          |         | 41,669           |  |   |        | 10,147 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 3,191             |  |          |         | 53,705           |  |   |        | 21,668 |  |   |       |      | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 25,922 |                   |  | $        | 193,458 | (2)              |  | $ | 55,900 |        |  | $ | 4,777 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|December 31, 2001: |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   | Bankers Fidelity     |                   | $      | 18,554            |  |          | $       | 51,932           |  |   | $      | 3,219  |  |   | $     | 2,153 | 
|                   | American Southern    |                   |        | 2,024             |  |          |         | 46,235           |  |   |        | 18,598 |  |   |       | 2,151 | 
|                   | Association Casualty |                   |        | 1,799             |  |          |         | 38,489           |  |   |        | 11,590 |  |   |       |      | 
|                   | Georgia Casualty     |                   |        | 2,304             |  |          |         | 51,214           |  |   |        | 17,618 |  |   |       |      | 
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      
|                   |                      | $                 | 24,681 |                   |  | $        | 187,870 | (3)              |  | $ | 51,025 |        |  | $ | 4,304 |      
|                   |                      |                   |        |                   |  |          |         |                  |  |   |        |        |  |   |       |      



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | Includes future policy benefits of $47,226 and
    losses and claims of $150,092.
|   
|(2) | Includes future policy benefits of $44,767 and
    losses and claims of $148,691.
|   
|(3) | Includes future policy benefits of $44,355 and
    losses and claims of $143,515.

79



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SCHEDULE III


Page 2 of 2


ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |        | 
|------------------ | -------------------- | -------------- | ------- | ---------- |  | -------------- | ------ | ------------ |  | --------- | ------- | -------- |  | - | ------ | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                   |                      |                |         |            |  | Benefits,      |        | Amortization |  |           |         |         
|                   |                      |                |         | Net        |  | Claims, Losses |        | of Deferred  |  | Other     |         | Casualty
|                   |                      | Premium        |         | Investment |  | and Settlement |        | Acquisition  |  | Operating |         | Premiums
|Segment            |                      | Revenue        |         | Income     |  | Expenses       |        | Costs        |  | Expenses  |         | Written 
|                   |                      |                |         |            |  |                |        |              |  |           |         |         
|                   |                      |               
|                   |                      | (In thousands)
|December 31, 2003: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 62,683     |  |                | $      | 5,292        |  |           | $       | 43,863   |  |   | $      | 1,714 |  |   | $      | 17,487 |  |   | $      |       | 
|                   | American Southern    |                |         | 37,358     |  |                |        | 4,357        |  |           |         | 20,977   |  |   |        | 6,557 |  |   |        | 6,821  |  |   |        | 37,958 | 
|                   | Association Casualty |                |         | 20,352     |  |                |        | 2,178        |  |           |         | 15,245   |  |   |        | 3,503 |  |   |        | 4,640  |  |   |        | 22,269 | 
|                   | Georgia Casualty     |                |         | 34,319     |  |                |        | 3,505        |  |           |         | 22,258   |  |   |        | 6,704 |  |   |        | 7,446  |  |   |        | 37,272 | 
|                   | Other                |                |         |           |  |                |        | 27           |  |           |         |         |  |   |        |      |  |   |        | 7,860  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 154,712 |            |  | $              | 15,359 |              |  | $         | 102,343 |          |  | $ | 18,478 |       |  | $ | 44,254 |        |  | $ | 97,499 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 2002: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 60,597     |  |                | $      | 4,664        |  |           | $       | 42,404   |  |   | $      | 2,152 |  |   | $      | 16,655 |  |   | $      |       | 
|                   | American Southern    |                |         | 39,914     |  |                |        | 4,125        |  |           |         | 26,353   |  |   |        | 5,595 |  |   |        | 5,784  |  |   |        | 41,835 | 
|                   | Association Casualty |                |         | 24,244     |  |                |        | 2,183        |  |           |         | 20,402   |  |   |        | 4,159 |  |   |        | 4,039  |  |   |        | 22,620 | 
|                   | Georgia Casualty     |                |         | 29,744     |  |                |        | 2,819        |  |           |         | 19,950   |  |   |        | 5,704 |  |   |        | 7,617  |  |   |        | 34,517 | 
|                   | Other                |                |         |           |  |                |        | 2            |  |           |         |         |  |   |        |      |  |   |        | 6,328  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 154,499 |            |  | $              | 13,793 |              |  | $         | 109,109 |          |  | $ | 17,610 |       |  | $ | 40,423 |        |  | $ | 98,972 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|December 31, 2001: |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   | Bankers Fidelity     |                | $       | 55,276     |  |                | $      | 4,318        |  |           | $       | 39,570   |  |   | $      | 2,173 |  |   | $      | 15,131 |  |   | $      |       | 
|                   | American Southern    |                |         | 39,023     |  |                |        | 4,590        |  |           |         | 26,069   |  |   |        | 4,282 |  |   |        | 6,632  |  |   |        | 39,558 | 
|                   | Association Casualty |                |         | 25,711     |  |                |        | 2,591        |  |           |         | 23,613   |  |   |        | 5,534 |  |   |        | 3,446  |  |   |        | 30,956 | 
|                   | Georgia Casualty     |                |         | 25,579     |  |                |        | 2,639        |  |           |         | 17,644   |  |   |        | 4,903 |  |   |        | 3,862  |  |   |        | 25,264 | 
|                   | Other                |                |         |           |  |                |        | 3            |  |           |         |         |  |   |        |      |  |   |        | 6,196  |  |   |        |       | 
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       
|                   |                      | $              | 145,589 |            |  | $              | 14,141 |              |  | $         | 106,896 |          |  | $ | 16,892 |       |  | $ | 35,267 |        |  | $ | 95,778 |       
|                   |                      |                |         |            |  |                |        |              |  |           |         |          |  |   |        |       |  |   |        |        |  |   |        |       

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##### Table of Contents



SCHEDULE IV

ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

REINSURANCE

|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|----------------------------- |  | -------------- | ------- | --------- |  | ---------- | ------- | ------- |  | -------------- | ------ |  |  | - | ------- |  |  |  | ---- | -
|                              |  |                |         | Ceded To  |  | Assumed    |         |         |  | Percentage of 
|                              |  | Direct         |         | Other     |  | From Other |         | Net     |  | Amount Assumed
|                              |  | Amount         |         | Companies |  | Companies  |         | Amounts |  | To Net        
|                              |  |                |         |           |  |            |         |         |  |               
|                              |  |               
|                              |  | (In thousands)
|Year ended December 31, 2003: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 305,793 |           |  | $          | (25,048 | )       |  | $              |       |  |  | $ | 280,745 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 62,255  |           |  | $          | (62     | )       |  | $              | 490    |  |  | $ | 62,683  |  |  |  | 0.8  | %
|American Southern             |  |                | 35,438  |           |  |            | (6,436  | )       |  |                | 8,356  |  |  |   | 37,358  |  |  |  | 22.4 | %
|Association Casualty          |  |                | 24,515  |           |  |            | (4,163  | )       |  |                |       |  |  |   | 20,352  |  |  |  |     |  
|Georgia Casualty              |  |                | 36,807  |           |  |            | (17,358 | )       |  |                | 14,870 |  |  |   | 34,319  |  |  |  | 43.3 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 159,015 |           |  | $          | (28,019 | )       |  | $              | 23,716 |  |  | $ | 154,712 |  |  |  | 15.3 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 2002: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 310,874 |           |  | $          | (32,218 | )       |  | $              |       |  |  | $ | 278,656 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 60,056  |           |  | $          | (59     | )       |  | $              | 600    |  |  | $ | 60,597  |  |  |  | 1.0  | %
|American Southern             |  |                | 27,501  |           |  |            | (6,877  | )       |  |                | 19,290 |  |  |   | 39,914  |  |  |  | 48.3 | %
|Association Casualty          |  |                | 28,230  |           |  |            | (3,986  | )       |  |                |       |  |  |   | 24,244  |  |  |  |     |  
|Georgia Casualty              |  |                | 37,851  |           |  |            | (18,612 | )       |  |                | 10,505 |  |  |   | 29,744  |  |  |  | 35.3 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 153,638 |           |  | $          | (29,534 | )       |  | $              | 30,395 |  |  | $ | 154,499 |  |  |  | 19.7 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Year ended December 31, 2001: |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Life insurance in force       |  | $              | 305,952 |           |  | $          | (29,915 | )       |  | $              |       |  |  | $ | 276,037 |  |  |  |      |  
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Premiums                     |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Bankers Fidelity              |  | $              | 54,591  |           |  | $          | (72     | )       |  | $              | 757    |  |  | $ | 55,276  |  |  |  | 1.4  | %
|American Southern             |  |                | 24,101  |           |  |            | (5,929  | )       |  |                | 20,851 |  |  |   | 39,023  |  |  |  | 53.4 | %
|Association Casualty          |  |                | 28,626  |           |  |            | (2,915  | )       |  |                |       |  |  |   | 25,711  |  |  |  |     |  
|Georgia Casualty              |  |                | 29,746  |           |  |            | (10,053 | )       |  |                | 5,886  |  |  |   | 25,579  |  |  |  | 23.0 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  
|Total premiums                |  | $              | 137,064 |           |  | $          | (18,969 | )       |  | $              | 27,494 |  |  | $ | 145,589 |  |  |  | 18.9 | %
|                              |  |                |         |           |  |            |         |         |  |                |        |  |  |   |         |  |  |  |      |  

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##### Table of Contents



SCHEDULE VI

ATLANTIC AMERICAN CORPORATION AND
SUBSIDIARIES

SUPPLEMENTAL INFORMATION CONCERNING

PROPERTY-CASUALTY INSURANCE
OPERATIONS


|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|----------------- |  | -------------- | ----- | -------- |  | -------- | ------- | ------- |  | ---------- | ------ | ------------------- |  | ------------ | ------ | ----------- |  | ---------- | ------ | -------- |  | - | ------ |  |  | - | ------ | - |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Claims and Claim    |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Adjustment          |  |              |        |             |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Expenses            |  |              |        | Paid        |  |           
|                  |  |                |       |          |  |          |         |         |  |            |        | Incurred Related to |  | Amortization |        | Claims      |  |           
|                  |  | Deferred       |       |          |  |          |         |         |  | Net        |        |                     |  | of Deferred  |        | and Claim   |  |           
|                  |  | Policy         |       |          |  | Unearned |         | Earned  |  | Investment |        | Current             |  | Prior        |        | Acquisition |  | Adjustment |        | Premiums
|Year Ended        |  | Acquisition    |       | Reserves |  | Premium  |         | Premium |  | Income     |        | Year                |  | Years        |        | Costs       |  | Expenses   |        | Written 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |         
|                  |  |               
|                  |  | (In thousands)
|December 31, 2003 |  | $              | 9,349 |          |  | $        | 139,560 |         |  | $          | 57,164 |                     |  | $            | 92,029 |             |  | $          | 10,040 |          |  | $ | 57,038 |  |  | $ | 1,516  |   |  | $ | 16,764 |  |  | $ | 61,168 |  |  | $ | 97,499 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 2002 |  | $              | 6,988 |          |  | $        | 139,802 |         |  | $          | 52,334 |                     |  | $            | 93,902 |             |  | $          | 9,127  |          |  | $ | 67,053 |  |  | $ | (377   | ) |  | $ | 15,458 |  |  | $ | 54,463 |  |  | $ | 98,972 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 
|December 31, 2001 |  | $              | 6,127 |          |  | $        | 135,938 |         |  | $          | 47,806 |                     |  | $            | 90,313 |             |  | $          | 9,757  |          |  | $ | 70,250 |  |  | $ | (2,774 | ) |  | $ | 14,719 |  |  | $ | 66,665 |  |  | $ | 95,778 | 
|                  |  |                |       |          |  |          |         |         |  |            |        |                     |  |              |        |             |  |            |        |          |  |   |        |  |  |   |        |   |  |   |        |  |  |   |        |  |  |   |        | 

82