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<SEC-DOCUMENT>0000008177-06-000036.txt : 20061114
<SEC-HEADER>0000008177-06-000036.hdr.sgml : 20061114
<ACCEPTANCE-DATETIME>20061114140954
ACCESSION NUMBER:		0000008177-06-000036
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20060930
FILED AS OF DATE:		20061114
DATE AS OF CHANGE:		20061114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ATLANTIC AMERICAN CORP
		CENTRAL INDEX KEY:			0000008177
		STANDARD INDUSTRIAL CLASSIFICATION:	LIFE INSURANCE [6311]
		IRS NUMBER:				581027114
		STATE OF INCORPORATION:			GA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-03722
		FILM NUMBER:		061213724

	BUSINESS ADDRESS:	
		STREET 1:		4370 PEACHTREE RD NE
		CITY:			ATLANTA
		STATE:			GA
		ZIP:			30319
		BUSINESS PHONE:		4042665500

	MAIL ADDRESS:	
		STREET 1:		4370 PEACHTREE ROAD
		CITY:			ATLANTA
		STATE:			GA
		ZIP:			30319
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q3rd06.htm
<DESCRIPTION>CURRENT REPORT
<TEXT>

<html>
<head>
<title>
Form 10-Q 3rd Quarter 2006
</title>
</head>
<body>
<BR><BR>
<HR width=80% SIZE=2 NOSHADE>
<p align=center><font face="Times New Roman, Serif" size=2>SECURITIES AND EXCHANGE COMMISSION<BR>
                                                        Washington, D.C. 20549</font></p>
<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=CENTER>

<p align=center><font face="Times New Roman, Serif" size=2><b>FORM 10-Q</b></font></p>

<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=CENTER>
<p align=center><font size=2 face="times new roman, serif">|X| Quarterly report pursuant to Section 13 or 15(d) of<BR>
                                     the Securities Exchange Act of 1934</font></p>

<p align=center><font size=2 face="times new roman, serif"><b>For the quarterly period ended September 30, 2006</b></font></p>

<p align=center><font size=2 face="times new roman, serif">OR</font></p>

<p align=center><font size=2 face="times new roman, serif">|_| Transition report pursuant to Section 13 or 15(d) of<BR>
                                     the Securities Exchange Act of 1934</font></p>

<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=CENTER>

<p align=center><font size=2 face="times new roman, serif">Commission File Number 0-3722</font></p>


<p align=center><font size=2 face="times new roman, serif"><b>ATLANTIC AMERICAN CORPORATION<BR></b>
                          Incorporated pursuant to the laws of the State of Georgia</font></p>

<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=CENTER>

<p align=center><font size=2 face="times new roman, serif">Internal Revenue Service-- Employer Identification No.<BR>
                                                 58-1027114</font></P>


<p align=center><font size=2 face="times new roman, serif">Address of Principal Executive Offices:<BR>
                              4370 Peachtree Road, N.E., Atlanta, Georgia 30319<BR>
                                               (404) 266-5500</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 |X|
No |_|</FONT></P>



<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of &#147;accelerated filer and large
accelerated filer&#148; in Rule 12b-2 of the Exchange Act. (Check one): Large
Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X| </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes |_| No |X| </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The total number of shares
of the registrant&#146;s Common Stock, $1 par value, outstanding on November 6,
2006, was 21,484,440. </FONT></P>

<HR width=80% SIZE=2 NOSHADE>
<BR><BR>



<PAGE>



<HR SIZE=2       COLOR=GRAY NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>

<a name="table_of_contents"></a>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ATLANTIC
AMERICAN CORPORATION</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TABLE OF CONTENTS</FONT></H1>

<table width=680 align=center cellspacing=0 cellpadding=8 border=0>
<tr>
<td><font size=2 face="times new roman, serif"><u>Part I.</u></font></td>
<td><font size=2 face="times new roman, serif"><u> Financial Information</u></font></td>
<td align=center><font size=2 face="times new roman, serif"><u> Page No.</u></font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 1. </font></td>
<td><font size=2 face="times new roman, serif">Financial Statements:</font></td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_balance_sheets">Consolidated Balance Sheets</A>-<BR>
September 30, 2006 and December 31, 2005</font></td>
<td align=center><font size=2 face="times new roman, serif">2</font></td>
</tr>
<tr bgcolor="#eeeeee">

<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_statements_operations">Consolidated Statements of Operations</A>-<BR>
         Three months and nine months ended September 30, 2006 and 2005</font>  </td>
<td align=center> <font size=2 face="times new roman, serif">3</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_statements_shareholders_equity">Consolidated Statements of Shareholders' Equity</A> -<BR>
         Nine months ended September 30, 2006 and 2005 </font></td>
<td align=center><font size=2 face="times new roman, serif">4</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidates_statement_cash_flows">Consolidated Statements of Cash Flows</A> -<BR>
Nine months ended September 30, 2006 and 2005</font></td>
<td align=center><font size=2 face="times new roman, serif">5</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td> <font size=2 face="times new roman, serif"><A HREF="#notes_to_consolidated_statements">Notes to Consolidated Financial Statements</A></font></td>
<td align=center><font size=2 face="times new roman, serif">6</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif">Item 2.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#managements_discussion">Management's Discussion and Analysis of Financial Condition</A><BR>
and Results of Operations</font></td>
<td align=center><font size=2 face="times new roman, serif">14</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Item 3.</font></td>
<td> <font size=2 face="times new roman, serif"><A HREF="#quantitative_and_qualitative_disclosures">Quantitative and Qualitative Disclosures About Market Risk</A></font></td>
<td align=center><font size=2 face="times new roman, serif">26</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 4.</font></td>
<td> <font size=2 face="times new roman, serif"><A HREF="#controls_and_procedures">Controls and Procedures</A></font></td>
<td align=center><font size=2 face="times new roman, serif">26</font></td>
</tr>



<tr>
<td><font size=2 face="times new roman, serif"><u>Part II.</u></font> </td>
<td><font size=2 face="times new roman, serif"><u>Other Information</u></font></td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 2.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#legal_proceedings">Unregistered Sales of Equity Securities and Use of Proceeds</A></font></td>
<td align=center><font size=2 face="times new roman, serif">27</font></td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">Item 6.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#exhibits_and_reports">Exhibits</A></font></td>
<td align=center><font size=2 face="times new roman, serif">27</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><A HREF="#signature">Signatures</A></font></td>
<td>&nbsp;</td>
<td align=center> <font size=2 face="times new roman, serif">28</font></td>
</tr>
</table>







<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>



<a name="consolidated_balance_sheets"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>


<p align=center><font size=2 face="times new roman, serif"><b>PART I.&nbsp;&nbsp;FINANCIAL INFORMATION</B></font></P>

<p><font size=2 face="times new roman, serif"><u>Item 1.&nbsp;  Financial Statements</u></font></p>
<p align=center><font size=2 face="times new roman, serif"><b> ATLANTIC AMERICAN CORPORATION<BR>
                                                      CONSOLIDATED BALANCE SHEETS</b><BR><i>
(Dollars in thousands, except share data)</i></font></p>
<TABLE WIDTH=630 ALIGN=CENTER CELLSPACING=0 CELLPADDING=0 BORDER=0>
<tr>
<td width=71%></td>
<td width=14%></td>
<td width=1%></td>
<td width=14%></td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif"><b>ASSETS</b></font></td>

</tr>
<tr valign=bottom>
<td>&nbsp;</td>
<td align=center colspan=2> <font size=2 face="times new roman, serif"><i>Unaudited</i><BR>September 30,<BR> 2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">December 31,<BR>2005</font><hr noshade size=1></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td align=left> <font size=2 face="times new roman, serif">Cash and cash equivalents, including short-term investments of $10,125 and <BR>$27,726</font></td>
<td align=right><font size=2 face="times new roman, serif"> <BR>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,541</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif"><BR>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41,776</font><hr noshade size=1></td>
</tr>
<tr>
<td align=left> <font size=2 face="times new roman, serif">Investments:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td align=left><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;Fixed maturities (cost: $252,477 and $232,564)</font></td>
<td align=right><font size=2 face="times new roman, serif">254,277</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">231,907</font></td>
</tr>
<tr>
<td align=left><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;Common and non-redeemable preferred stocks
(cost: $14,240 and $15,398)</font></td>
<td align=right><font size=2 face="times new roman, serif">31,876</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">36,108</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=left> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other invested assets (cost: $3,326 and $3,659)</font></td>
<td align=right> <font size=2 face="times new roman, serif">3,293</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 3,660</font></td>
</tr>
<tr>
<td align=left><font size=2 face="times new roman, serif">&nbsp;&nbsp; Mortgage loans</font></td>
<td align=right><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;1,406</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;1,941</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Policy and student loans</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,945</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">2,076</font></td>
</tr>
<tr>
<td valign=top> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Real estate</font></td>
<td align=right> <font size=2 face="times new roman, serif">38</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">38</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Investment in unconsolidated trusts</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,238</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">1,238</font><hr noshade size=1></td>
</tr>


<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total investments</font></td>
<td align=right><font size=2 face="times new roman, serif"> 294,073</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 276,968</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> Receivables:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Reinsurance</font></td>
<td align=right> <font size=2 face="times new roman, serif">47,664</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">57,406</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;Other (net of allowance for doubtful accounts: $1,693 and $1,501)</font></td>
<td align=right> <font size=2 face="times new roman, serif">33,622</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">37,643</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> Deferred income taxes, net</font></td>
<td align=right><font size=2 face="times new roman, serif">5,818</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,099</font></TD>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> Deferred acquisition costs</font></td>
<td align=right><font size=2 face="times new roman, serif"> 24,884</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 27,835</font></TD>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> Other assets</font></td>
<td align=right> <font size=2 face="times new roman, serif">7,855</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,682</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif"> Goodwill</font></td>
<td align=right><font size=2 face="times new roman, serif">3,008</font><hr noshade size=1> </td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">3,008</font><hr noshade size=1> </td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets</font></td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;439,465</font><hr noshade size=3> </td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;460,417</font><hr noshade size=3></td>
</tr>
</table>


<p align=center><font size=2 face="times new roman, serif"><b>LIABILITIES AND SHAREHOLDERS' EQUITY</b></font></p>
<TABLE ALIGN=CENTER WIDTH=630 CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR>
<td width=71%></td>
<td width=14%></td>
<td width=1%></td>
<td width=14%></td>
</tr>
<TR>
<TD><font size=2 face="times new roman, serif">Insurance reserves and policy funds:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future policy benefits</font></td>
<td align=right width=15%><font size=2 face="times new roman, serif">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51,752</font></td>
<td>&nbsp;</td>
<td align=right width=15%><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51,356</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unearned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">48,718</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">60,879</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Losses and claims</font></td>
<td align=right><font size=2 face="times new roman, serif">156,581</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">168,617</font></td>
</tr>
<tr valign=top>
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other policy liabilities</font></td>
<td align=right> <font size=2 face="times new roman, serif">5,547</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,499</font><HR NOSHADE SIZE=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total policy liabilities</font></td>
<td align=right><font size=2 face="times new roman, serif">262,598</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">286,351</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Accounts payable and accrued expenses</font></td>
<td align=right><font size=2 face="times new roman, serif"> 30,619</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif"> 35,125</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Payable for securities</font></td>
<td align=right><font size=2 face="times new roman, serif"> -</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif"> 7,000</font></td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">Bank debt payable</font></td>
<td align=right><font size=2 face="times new roman, serif">12,750</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">10,250</font></td>
</tr>



<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Junior subordinated debenture obligations</font></td>
<td align=right><font size=2 face="times new roman, serif">41,238</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">41,238</font><HR NOSHADE SIZE=1></td>
</tr>



<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities</font></td>
<td align=right><font size=2 face="times new roman, serif"> 347,205</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">379,964</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td colspan=4>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Commitments and contingencies (Note 11)</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Shareholders' equity:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr valign=bottom>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $1 par, 4,000,000 shares authorized:<BR>
       &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series B preferred, 134,000 shares issued and outstanding;<BR>
       &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$13,400 redemption value </font></td>
<td align=right><font size=2 face="times new roman, serif"> 134</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">134</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series D preferred, 70,000 and 0 shares issued and outstanding;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$7,000 and $0 redemption value </font></td>
<td align=right><font size=2 face="times new roman, serif">70</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">-</font></td>
</tr>


<tr valign=bottom>
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock, $1 par; shares authorized: 50,000,000;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares issued: 21,477,141 and 21,412,138;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares outstanding: 21,477,044 and 21,383,255</font></td>
<td align=right><font size=2 face="times new roman, serif"> 21,477</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 21,412</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital</font></td>
<td align=right><font size=2 face="times new roman, serif">55,802</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 48,925</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retained earnings (accumulated deficit)</font></td>
<td align=right><font size=2 face="times new roman, serif">2,435</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(2,780)</font></td>
</tr>




<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income</font></td>
<td align=right> <font size=2 face="times new roman, serif">12,342</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">12,846</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Treasury stock, at cost: 97
and 28,883 shares<BR></font></td>
<td align=right> <font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">(84)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total shareholders' equity</font></td>
<td align=right><font size=2 face="times new roman, serif">92,260</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">80,453</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Total liabilities and shareholders' equity</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;439,465</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;460,417</font><HR NOSHADE SIZE=2></td>
</tr>
</table>


<p align=center><font size=2  face="times new roman, serif">The accompanying notes are an integral part of these consolidated financial statements.</font></p>


<p align=center><font size=2 face="times new roman, serif">-2-</font></p>




<PAGE>

<HR SIZE=2 COLOR=GRAY NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>




<a name="consolidated_statements_operations"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>

<p align=center><font size=2 face="times new roman, serif"><B>ATLANTIC
AMERICAN CORPORATION<BR>
CONSOLIDATED
STATEMENTS OF OPERATIONS</b><BR>
<i>(Unaudited; Dollars in thousands, except per share data)</i></font></p>

<table align=center width=640 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=43%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font><HR NOSHADE SIZE=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td colspan=2 align=center><font size=2 face="times new roman, serif">2006</font><HR NOSHADE SIZE=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td colspan=2 align=center><font size=2 face="times new roman, serif">2006</font><HR NOSHADE SIZE=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Revenue:</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Insurance premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;37,498</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;43,422</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;116,492</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;135,028</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Investment income</font></td>
<td align=right><font size=2 face="times new roman, serif">4,481</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,932</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">13,739</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">12,240</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Realized investment gains, net</font></td>
<td align=right><font size=2 face="times new roman, serif">1,400</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">185</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,370</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">219</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Other income</font></td>
<td align=right><font size=2 face="times new roman, serif">196</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">248</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">637</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">761</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">43,575</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">47,787</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">136,238</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">148,248</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Benefits and expenses:</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Insurance benefits and losses incurred</font></td>
<td align=right><font size=2 face="times new roman, serif">22,371</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">28,602</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">69,806</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">91,110</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Commissions and underwriting expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">13,297</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">14,069</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">43,809</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">43,202</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</font></td>
<td align=right><font size=2 face="times new roman, serif">1,202</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">935</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,393</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,608</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
<td align=right><font size=2 face="times new roman, serif">3,756</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">4,070</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">11,481</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">11,431</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total benefits and expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">40,626</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">47,676</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">128,489</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">148,351</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Income (loss) before income tax expense (benefit)</font></td>
<td align=right><font size=2 face="times new roman, serif">2,949</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">111</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,749</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(103)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Income tax expense (benefit)</font></td>
<td align=right><font size=2 face="times new roman, serif">212</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(451)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,777</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,075)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net income</font></td>
<td align=right><font size=2 face="times new roman, serif">2,737</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">562</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,972</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">972</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Preferred stock dividends</font></td>
<td align=right><font size=2 face="times new roman, serif">(302)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(302)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(905)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(905)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income applicable to common stock</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,435</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;260</font><HR NOSHADE SIZE=2>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,067</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;67</font><HR NOSHADE SIZE=2>
</td>
</tr>


<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net income per common share (basic)
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.11</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.24</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<HR NOSHADE SIZE=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income per common share (diluted)
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.10</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.22</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<HR NOSHADE SIZE=2></td>
</tr>
</table>

<p align=center><font size=2 face="times new roman, serif"> The accompanying notes are an
integral part of these consolidated financial statements.</font></p>
<p align=center><font size=2 face="times new roman, serif">-3-</font></p>


<HR SIZE=2 COLOR=GRAY NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>


<a name="consolidated_statements_shareholders_equity"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>


<table align="center" width="100%" cellspacing="0" cellpadding="2" border="0">
<tr>
<td width=28%></td>
<td width=10%></td>
<td width=10%></td>
<td width=10%></td>
<td width=10%></td>

<td width=12%></td>
<td width=10%></td>
<td width=10%></td>
</tr>
<tr>
<td align=center colspan=9><font size=2 face="times new roman, serif"><b>ATLANTIC AMERICAN CORPORATION<BR>
                                               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY<BR></b>
                                                      <i>(Unaudited; Dollars in thousands)</i></font></td></tr>
<tr valign=top bgcolor="#eeeeee">
<td align=left><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Nine Months Ended September 30, 2006</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>Preferred<BR>Stock</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>Common<BR>Stock</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>Additional<BR>Paid-in<BR>Capital</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">Retained<BR>Earnings<BR>(Accumulated<BR>Deficit)</font><hr noshade size=1></td>

<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>Accumulated Other<BR>Comprehensive<BR>Income</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>Treasury<BR>Stock</font><hr noshade size=1></td>
<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Total</font><hr noshade size=1></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Balance, December 31, 2005</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;134</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,412</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;48,925</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,780)</font></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,846</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(84)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;80,453</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Comprehensive income:</font></td>
<td colspan=7>&nbsp;</td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net income</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">5,972</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">5,972</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Decrease in unrealized investment gains</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(651)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(651)</font></td>
</tr>
<tr valign=top>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Fair value adjustment to derivative<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
financial instrument</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(125)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(125)</font></td>
</tr>



<tr valign=top bgcolor="#eeeeee" >
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income tax attributable to other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
comprehensive income<BR>&nbsp;</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>272</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>272</font><hr noshade size=1></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Total comprehensive income<BR>&nbsp;</font></td>
<td colspan=6>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">5,468</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee" >
<td><font size=1 face="times new roman, serif">Issuance of 70,000 shares of preferred stock</font></td>
<td align=right><font size=1 face="times new roman, serif">70</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">6,930</font></td>

<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">7,000</font></td>
</tr>




<tr>
<td><font size=1 face="times new roman, serif">Dividends accrued on preferred stock</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(155)</font></td>
<td align=right><font size=1 face="times new roman, serif">(750)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(905)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Deferred share compensation expense</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">3</font></td>


<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">3</font></td>

</tr>
<tr>
<td><font size=1 face="times new roman, serif">Restricted stock grants</font></td>
<td>&nbsp;</td>

<td align=right><font size=1 face="times new roman, serif">22</font></td>

<td align=right><font size=1 face="times new roman, serif">(22)</font></td>
<td colspan=3>&nbsp;</td>

<td align=right><font size=1 face="times new roman, serif">-</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Amortization of unearned compensation</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">50</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">50</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Purchase of shares for treasury</font></td>
<td colspan=5>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(21)</font></td>
<td align=right><font size=1 face="times new roman, serif">(21)</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Issuance of shares for employee benefit plans<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and stock options<BR>&nbsp;</font></td>
<td>&nbsp;<hr noshade size=1></td>

<td align=right><font face="times new roman, serif" size=1>43</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">71</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">(7)</font><hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>

<td align=right><font size=1 face="times new roman, serif">105</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">212</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=1 face="times new roman, serif">Balance, September 30, 2006</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,477</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;55,802</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,435</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,342</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;92,260</font><hr noshade size=2></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Nine Months Ended September 30, 2005</font><hr noshade size=1></td>
<td colspan=8>&nbsp;</td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Balance, December 31, 2004</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;134</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,412</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;50,347</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;462</font></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17,207</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(602)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;88,960</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Comprehensive income (loss):</font></td>
<td colspan=8>&nbsp;</td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net income</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">972</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">972</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Decrease in unrealized investment gains</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(15,568)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(15,568)</font></td>
</tr>

<tr valign=top>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income tax attributable to other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
comprehensive income (loss)<BR>&nbsp;</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>5,449</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>5,449</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee" >
<td><font size=1 face="times new roman, serif">Total comprehensive loss<BR>&nbsp;</font></td>
<td colspan=6>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">(9,147)</font><hr noshade size=1></td>
</tr>

<tr>
<td><font size=1 face="times new roman, serif">Dividends accrued on preferred stock</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(905)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(905)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Deferred share compensation expense</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(202)</font></td>
<td align=right><font size=1 face="times new roman, serif">(40)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">240</font></td>
<td align=right><font size=1 face="times new roman, serif">(2)</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Restricted stock grants</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(66)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">66</font></td>

<td align=right><font size=1 face="times new roman, serif">-</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Amortization of unearned compensation</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">49</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">49</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Purchase of shares for treasury</font></td>
<td colspan=5>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(79)</font></td>
<td align=right><font size=1 face="times new roman, serif">(79)</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Issuance of shares for employee benefit plans<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and stock options<BR>&nbsp;</font></td>
<td>&nbsp;<hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>
<td align=right><font face="times new roman, serif" size=1>(2)</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">(27)</font><hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>

<td align=right><font size=1 face="times new roman, serif">273</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">244</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=1 face="times new roman, serif">Balance, September 30, 2005</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;134</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,412</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;50,126</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;462</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,088</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(102)</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;79,120</font><hr noshade size=2></td>
</tr>
<tr>
<td colspan=9>&nbsp;</td>
</tr>
<tr>
<td align=center colspan=9><font size=2 face="times new roman, serif">
The accompanying notes are an integral part of these consolidated financial statements</font></td></tr>
<tr>
<td align=center colspan=9><font size=2 face="times new roman, serif">-4-</font></td></tr>
</table>





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<H5 align="left" style="page-break-before:always"></H5>




<a name="consolidates_statement_cash_flows"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>

<p align=center></p>

<table align=center width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=69%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif"><b>ATLANTIC AMERICAN CORPORATION<BR>

                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS</b><BR>
<i>(Unaudited; Dollars in thousands)</i></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>
September 30,</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td colspan=2 align=center><font size=2 face="times new roman, serif"> 2006</font><HR NOSHADE SIZE=1></td>
<td align=center><font size=2 face="times new roman, serif"> 2005</font><HR NOSHADE SIZE=1></td>
</tr>

<tr bgcolor="#eeeeee" >
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM OPERATING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Net income</font></td>
<td align=right><font size=2 face="times new roman, serif"> $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,972</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;972</font></TD>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;used in operating activities:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of deferred acquisition costs</font></td>
<td align=right><font size=2 face="times new roman, serif">17,977</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">19,674</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition costs deferred</font></td>
<td align=right><font size=2 face="times new roman, serif">(15,026)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(17,832)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realized investment gains</font></td>
<td align=right><font size=2 face="times new roman, serif">(5,370)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(219)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<Td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Decrease) increase in insurance reserves</font></td>
<td align=right><font size=2 face="times new roman, serif">(23,753)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,980</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation expense related to share awards</font></td>
<td align=right><font size=2 face="times new roman, serif">53</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">47</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</font></td>
<td align=right><font size=2 face="times new roman, serif">751</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">787</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax expense (benefit)</font></td>
<td align=right><font size=2 face="times new roman, serif">1,553</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(739)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Decrease in receivables, net </font></td>
<td align=right><font size=2 face="times new roman, serif">15,170</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,383</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Decrease in other liabilities</font></td>
<td align=right><font size=2 face="times new roman, serif">(5,536)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,830)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other, net</font></td>
<td align=right><font size=2 face="times new roman, serif">278</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(2,236)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;Net cash used in operating activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(7,931)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,013)</font><HR NOSHADE SIZE=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM INVESTING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from investments sold, called, or matured</font></TD>
<td align=right><font size=2 face="times new roman, serif">39,868</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">76,279</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Investments purchased</font></td>
<td align=right><font size=2 face="times new roman, serif">(60,456)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(72,658)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Additions to property and equipment</font></td>
<td align=right><font size=2 face="times new roman, serif">(210)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(547)</font><HR NOSHADE SIZE=1></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash (used in) provided by investing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(20,798)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,074</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td colspan=5>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM FINANCING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>


<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from bank financing</font></td>
<td align=right><font size="-1" face="times new roman, serif">3,000</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the issuance of Series D Preferred Stock</font></td>
<td align=right><font size="-1" face="times new roman, serif">7,000</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Repayment of debt</font></td>
<td align=right><font size=2 face="times new roman, serif">(500)</font></td>
<td>&nbsp;</td>
<td align=right><font size="-1" face="times new roman, serif">(500)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the exercise of stock options</font></td>
<td align=right><font size="-1" face="times new roman, serif">15</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">34</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Purchase of treasury shares</font></td>
<td align=right><font size="-1" face="times new roman, serif">(21)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(79)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in)
financing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">9,494</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(545)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net (decrease) increase in cash and cash equivalents</font></td>
<td align=right><font size=2 face="times new roman, serif">(19,235)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,516</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents at beginning of period</font></td>
<td align=right><font size=2 face="times new roman, serif">41,776</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">40,958</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents at end of period </font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;22,541</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42,474</font>
<HR NOSHADE SIZE=2></td>
</tr>
<tr bgcolor="#eeeeee" >
<td><font size=2 face="times new roman, serif"><b>SUPPLEMENTAL CASH FLOW INFORMATION:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash paid for interest</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;3,528</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2,509</font><HR NOSHADE SIZE=2></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash (received) paid for income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
(267)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size="-1" face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
317</font><HR NOSHADE SIZE=2></td>
</tr>
<tr>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif">The accompanying notes are an integral part of these
 consolidated financial statements.</font></td>
</tr>
<tr>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif">-5-</font></td>
</tr>
</table>













<HR SIZE=2 COLOR=GRAY NOSHADE>
<PAGE>
<H5 align="left" style="page-break-before:always"></H5>



<a name="notes_to_consolidated_statements"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>

<p align=center><font face="times new roman, serif" size=2><b>ATLANTIC AMERICAN CORPORATION<BR>
                                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
                                                             September 30, 2006</b><BR>
                                      <i>(Unaudited; Dollars in thousands, except per share amounts)</i></font></p>


<p><font face="times new roman, serif" size=2><b><u>Note 1.</u></b>&nbsp;&nbsp;Basis of Presentation</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited
condensed consolidated financial statements include the accounts of Atlantic
American Corporation (the &#147;Parent&#148;) and its subsidiaries
(collectively, the &#147;Company&#148;). All significant intercompany accounts
and transactions have been eliminated in consolidation. The accompanying
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The unaudited condensed consolidated financial
statements and the related notes thereto included herein should be read in
conjunction with the Company&#146;s consolidated financial statements, and the
notes thereto, that are included in the Company&#146;s Annual Report on Form
10-K for the year ended December 31, 2005. Operating results for the three and
nine month periods ended September 30, 2006, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2006.</FONT></P>

<p><font face="times new roman, serif" size=2><b><u>Note 2.</u></b>&nbsp;&nbsp;Impact of Recently Issued Accounting Standards</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September 2006, the
Financial Accounting Standards Board (&#147;FASB&#148;)&#160;issued Statement of
Financial Accounting Standards (&#147;SFAS&#148;) No. 158, &#147;Employers&#146;
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of SFAS No. 87, 88, 106, and 132(R)&quot;. SFAS No. 158 requires the
full recognition of the overfunded or underfunded status of a defined benefit
pension plan as an asset or liability along with a corresponding after-tax
adjustment to accumulated other comprehensive income (loss)&#160;included in
stockholders&#146; equity.&#160; Under previous accounting standards,
information about the current funded status of such plan&#160;was reported in
the notes to the financial statements. The recognition and the disclosure
requirements of SFAS No. 158 are effective&#160;for&#160;fiscal years ending
after December&#160;15, 2006. The requirement to measure plan assets and benefit
obligations as of the year-end balance sheet is effective for fiscal years
ending after December&#160;15, 2008&#160;and shall not be applied
retrospectively. Adoption of this statement is not expected to have a material
impact on the Company&#146;s financial position or results of operations.&#160;</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&#160;2006, the
Securities and Exchange Commission (&#147;SEC&#148;) issued Staff Accounting
Bulletin (&#147;SAB&#148;) No.&#160;108, &#147;Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements&#148; (&#147;SAB No. 108&#148;). SAB No. 108 provides guidance for
how errors should be evaluated to assess materiality from a quantitative
perspective. SAB No. 108 permits companies to initially apply its provisions by
either restating prior financial statements or recording the cumulative effect
of initially applying the approach as adjustments to the carrying values of
assets and liabilities as of January&#160;1, 2006 with an offsetting adjustment
to retained earnings. SAB No. 108 is required to be adopted by December&#160;31,
2006 and is not expected to have an effect on the Company&#146;s financial
position or results of operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&#160;2006, the
FASB issued SFAS No.&#160;157, &#147;Fair Value Measurements&#148;. SFAS No. 157
defines fair value, establishes a framework for measuring fair value under
accounting principles generally accepted in the United States, and enhances
disclosures about fair value measurements. SFAS No. 157 provides guidance on
measuring fair value when required under existing accounting standards and
establishes a hierarchy that prioritizes the inputs to valuation techniques.
SFAS No. 157 is effective for fiscal years beginning after November&#160;15,
2007. Adoption of this statement is not expected to have a material impact on
the Company&#146;s financial position or results of operations.&#160; </FONT></P>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2006, the FASB
issued Interpretation (&#147;FIN&#148;) No.&#160;48, &#147;Accounting for
Uncertainty in Income Taxes&#160;- an interpretation of FASB Statement
No.&#160;109&quot;. FIN&#160;No. 48 clarifies the accounting for uncertainty in
income taxes recognized in an entity&#146;s financial statements in accordance
with SFAS&#160;No.&#160;109, &#147;Accounting for Income Taxes&#148; and
prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken, or expected to be taken, in a tax
return. Additionally, FIN&#160;No. 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN&#160;No. 48 is effective for fiscal years
beginning after December&#160;15, 2006, with early adoption permitted. The
Company is currently evaluating FIN No. 48 and has not yet determined the
impact, if any, the adoption of this Interpretation will have on our
consolidated financial position or results of operations.</FONT></P>






<BR><BR>

<p align=center><font face="times new roman, serif" size=2>-6-</font></p>



<HR SIZE=2 NOSHADE>
<PAGE>
<H5 align="left" style="page-break-before:always"></H5>


<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>





<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2005, the SEC
issued SAB No. 107,<I> </I>&#147;Share-Based Payment&#148;, providing guidance
on stock option valuation methods, the accounting for income tax effects of
share-based payment arrangements upon adoption of SFAS No. 123 (revised 2004),
&#147;Share-Based Payment&#148; (&#147;SFAS No. 123R&#148;), and the disclosures
in the management&#146;s discussion and analysis of financial condition and
results of operations section of reports or registration statements subsequent
to such adoption. The Company adopted SAB No. 107 on January 1, 2006. Adoption
of this statement did not have a material impact on the Company&#146;s financial
condition or results of operations.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2004, the FASB
issued SFAS No. 123R, which replaces SFAS No. 123, &#147;Accounting for
Stock-Based Compensation&#148; (&#147;SFAS No. 123&#148;) and supersedes
Accounting Principles Board (&#147;APB&#148;) Opinion No. 25, &#147;Accounting
for Stock Issued to Employees&#148;. SFAS No. 123R requires all companies to
recognize compensation costs for share-based payments to employees based on the
grant-date fair value of the award for financial statements. The pro forma
disclosures previously permitted under SFAS No. 123 are no longer an alternative
to financial statement recognition. The transition method included a prospective
or retrospective adoption option. The Company adopted SFAS No. 123R during the
first quarter of 2006 using the prospective method. Adoption of this statement
did not have a material impact on the Company&#146;s financial condition or
results of operations (See Note 9). </FONT></P>





<p><font face="times new roman, serif" size=2><b><u>Note 3.</u></b>&nbsp;&nbsp;  Segment Information</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has four
principal insurance subsidiaries, each focusing on a specific geographic region
and/or specific products. Each operating company is managed independently and is
evaluated on its individual performance. The following summary sets forth each
principal operating company&#146;s revenue and pre-tax income (loss) for the
three and nine month periods ended September 30, 2006 and 2005.</FONT></P>








<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif"><b>Revenues</b></font></td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,141</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,001</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;43,021</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42,035</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Association Casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">7,199</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,831</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">18,558</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">18,535</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Georgia Casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">5,928</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">9,983</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">23,506</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">32,728</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">16,011</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">17,824</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">50,159</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">54,306</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Corporate and Other</font></td>
<td align=right><font size=2 face="times new roman, serif">4,875</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,426</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">15,714</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">10,067</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Adjustments and Eliminations</font></td>
<td align=right><font size=2 face="times new roman, serif">(4,579)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3,278)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(14,720)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(9,423)</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total Revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;43,575</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;47,787</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;136,238</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;148,248</font>
<hr size=2 noshade></td>
</tr>
</table>
<BR>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"><b>Income (loss) before income taxes
</b></font></td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,794</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,038</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,110</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,020</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Association Casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">1,115</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">54</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,528</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,033</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Georgia Casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">(499)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,509)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,469)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,968)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">1,462</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,425</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,879</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,184</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Corporate and Other</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,923)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,897)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,299)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,372)</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Consolidated Results</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,949</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,749</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td valign=top align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(103)</font>
<hr noshade size=2></td>
</tr>
</table>
<BR>

<p><font face="times new roman, serif" size=2><b><u>Note 4.</u></b>&nbsp;&nbsp; Credit Arrangements</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bank Debt</i></b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September 30, 2006, the
Company&#146;s $12,750 of bank debt with Wachovia Bank, N.A.
(&#147;Wachovia&#148;) consisted of a $9,750 term loan (the &#147;Term
Loan&#148;) as well as a second $3,000 term loan (the &#147;Second Term
Loan&#148;). The Term Loan requires the Company to repay $500 in principal on
June 30, and $1,250 in principal on December 31, in each of 2006 and 2007, with
one final payment of $6,750 at maturity on June 30, 2008. The Second Term Loan
requires the Company to repay $3,000 in principal at maturity on April 1, 2007.
Both term loans have the same interest rate, covenants, and collateral. The
interest rate is the London Interbank Offered Rate (&#147;LIBOR&#148;) plus a
margin ranging between 1.75% and 2.50%. As of September 30, 2006 the contractual
interest rate on the term loans was LIBOR plus 2.00%, or 7.39%. The applicable
margin is determined based on the ratio of funded debt to consolidated total
capitalization, each as defined. The term loans require 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 risk-based capital levels.</FONT></P>






<p align=center><font face="times new roman, serif" size=2>-7-</font></p>
<HR SIZE=2 NOSHADE>




<PAGE>
<H5 align="left" style="page-break-before:always"></H5>

<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>










<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Junior Subordinated Debentures</i></b></font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has two
unconsolidated Connecticut statutory business trusts, which exist for the
exclusive purposes of: (i) issuing trust preferred securities (&#147;Trust
Preferred Securities&#148;) 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 (&#147;Junior
Subordinated Debentures&#148;) of Atlantic American; and (iii) engaging in only
those activities necessary or incidental thereto.</FONT></P>




<p><font size=2 face="times new roman, serif">At September 30, 2006, the financial structure of each of Atlantic American Statutory Trust I and II were as follows:</font></p>



<table width=85% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%></td>
<td width=20%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<TD align=center><font face="times new roman, serif" size=2>Atlantic American<BR>Statutory Trust I</font><hr noshade size=1></td>

<TD align=center><font face="times new roman, serif" size=2>Atlantic American<BR>Statutory Trust II</font><hr noshade size=1></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
JUNIOR SUBORDINATED DEBENTURES<SUP> (1) (2)</sup></font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Principal amount owed</font></TD>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
23,196</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Balance September 30, 2006</font></TD>
<td align=right><font face="times new roman, serif" size=2>
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>
23,196</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Balance December 31, 2005</font></TD>
<td align=right><font face="times new roman, serif" size=2>
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>
23,196</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Coupon rate</font></TD>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.00%</font></td>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.10%</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Interest payable</font></TD>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Maturity date</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2032</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2033</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Redeemable by issuer on or after</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2007</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2008</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
TRUST PREFERRED SECURITIES</font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Issuance date</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2002</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2003</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Securities issued</font></TD>
<td align=right><font face="times new roman, serif" size=2>17,500</font></td>
<td align=right><font face="times new roman, serif" size=2>22,500</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Liquidation preference per security</font></TD>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;1</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;1</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Liquidation value</font></TD>
<td align=right><font face="times new roman, serif" size=2>17,500</font></td>
<td align=right><font face="times new roman, serif" size=2>22,500</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Coupon rate</font></TD>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.00%</font></td>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.10%</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Distribution payable</font></TD>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Distribution guaranteed by<sup>(3)</sup></font></TD>
<td align=right><font face="times new roman, serif" size=2>Atlantic American Corporation</font></td>
<td align=right><font face="times new roman, serif" size=2>Atlantic American Corporation</font></td>
</tr>

</table>
<BR>

<table width=100% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=4%></td>
<td width=96%></td>

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



<p><font face="times new roman, serif" size=2><b><u>Note 5.</u></b>&nbsp;&nbsp;Derivative Financial Instruments</font></p>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 21, 2006, the
Company entered into a zero cost rate collar with Wachovia to hedge future
interest payments on a portion of the Junior Subordinated Debentures. The
notional amount of the collar was $18,042 with an effective date of March 6,
2006. The collar has a LIBOR floor rate of 4.77% and a LIBOR cap rate of 5.85%
and adjusts quarterly on the 4<SUP>th</SUP> of each March, June, September and
December through termination on March 4, 2013.</font></p>







<p align=center><font face="times new roman, serif" size=2>-8-</font></p>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>













<p><font face="times new roman, serif" size=2><b><u>Note 6.</u></b>&nbsp;&nbsp;Reconciliation of Other Comprehensive Income</font></p>





<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended,<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended,<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Gain on sale of investments included in net income<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1,400</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
185</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
5,370</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;219</font><hr noshade size=2></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Other components of comprehensive income (loss):</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;
Net pre-tax unrealized gain (loss) arising during<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;period</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,503</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6,338)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,719</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(15,349)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,400)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(185)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,370)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(219)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net pre-tax unrealized gain (loss) recognized in <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;other comprehensive income (loss)</font></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">6,103</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(6,523)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(651)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(15,568)</font></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value adjustment to derivative financial<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; instrument</font></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(400)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">-</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(125)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">-</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax attributable to other<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive
income (loss)<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,995)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,283</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">272</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,449</font><hr noshade size=1></td>
</tr>
<tr valign=bottom>
<td><font size=2 face="times new roman, serif">Change in accumulated other comprehensive income</font></td>
<td align=right><font size=2 face="times new roman, serif">3,708</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,240)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(504)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(10,119)</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Accumulated other comprehensive income<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;beginning of period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">8,634</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">11,328</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">12,846</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">17,207</font><hr noshade size=1></td>
</tr>
<tr valign=bottom>
<td><font size=2 face="times new roman, serif">Accumulated other comprehensive income<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;end of period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,342</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,088</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,342</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,088</font><hr noshade size=2></td>
</tr>
</table>















<p><font face="times new roman, serif" size=2><u><b>Note 7.</b></u>&nbsp;&nbsp;Earnings Per Common Share</font></p>

<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reconciliation of the numerator and denominator of
the earnings per common share calculations are as follows:</font><p>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%></td>
<td width=18.3%></td>

<td width=18.3%></td>

<td width=18.3%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30, 2006</font>
<hr size=1 noshade></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">&nbsp;<BR>Income</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Shares<BR>(In thousands)</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Per Share<BR>Amount</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Basic Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net income</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2,737</font></td>

<td align=right><font size=2 face="times new roman, serif">21,440</font></td>

</tr>

<tr bgcolor="#eeeeee">

<td><font size=2 face="times new roman, serif">Less preferred stock dividends<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">(302)</font><hr noshade size=1></td>


<td align=right>&nbsp;<hr noshade size=1></td>
<td>&nbsp;</td>
</tr>


<tr>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">2,435<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">21,440<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.11</font><hr noshade size=2></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Diluted Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Effect of dilutive stock options</font></td>
<td>&nbsp;</td>

<td align=right><font size=2 face="times new roman, serif">314</font></td>

</tr>
<tr bgcolor="#eeeeee">

<td><font size=2 face="times new roman, serif">Effect of Series B and D Preferred Stock<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">302</font><hr noshade size=1></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">5,112</font><hr noshade size=1></td>

<td>&nbsp;</td>
</tr>

<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,737</font>
<hr noshade size=2></td>

<td align=right valign=bottom><font size=2 face="times new roman, serif">26,866</font><hr noshade size=2></td>

<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.10</font>
<hr noshade size=2></td>
</tr>
</table>

<BR><BR><BR>







<p align=center><font face="times new roman, serif" size=2>-9-</font></p>

<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>








<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30, 2005</font>
<hr size=1 noshade></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">&nbsp;<BR>Income</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Shares<BR>(In thousands)</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Per Share<BR>Amount</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Basic Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net Income</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
562</font></td>
<td align=right><font size=2 face="times new roman, serif">21,344</font></td>
<td>&nbsp;</td>
</tr>

<tr bgcolor="#eeeeee">

<td><font size=2 face="times new roman, serif">Less preferred stock dividends<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">(302)</font><hr noshade size=1></td>
<td align=right>&nbsp;<hr noshade size=1></td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">260<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">21,344<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font>
<hr noshade size=2></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Diluted Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Effect of dilutive stock options </font></td>

<td colspan=2 align=right><font size=2 face="times new roman, serif">347</font><hr noshade size=1></td>
<td>&nbsp;</td>
</tr>


<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;260</font>
<hr noshade size=2></td>

<td align=right valign=bottom><font size=2 face="times new roman, serif">21,691</font><hr noshade size=2></td>

<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font>
<hr noshade size=2></td>
</tr>
</table>
<BR>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30, 2006</font>
<hr size=1 noshade></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">&nbsp;<BR>Income</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Shares<BR>(In thousands)</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Per Share<BR>Amount</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Basic Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net Income</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
5,972</font></td>
<td align=right><font size=2 face="times new roman, serif">21,406</font></td>
<td>&nbsp;</td>
</tr>

<tr bgcolor="#eeeeee">

<td><font size=2 face="times new roman, serif">Less preferred stock dividends<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">(905)</font><hr noshade size=1></td>
<td align=right>&nbsp;<hr noshade size=1></td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">5,067<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">21,406<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.24</font>
<hr noshade size=2></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Diluted Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Effect of dilutive stock options </font></td>
<td align=right>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">329</font></td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Effect of Series B and D Preferred Stock</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>905</font><hr noshade size=1></Td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>5,112</font><hr noshade size=1></Td>
<td align=right>&nbsp;</td>
</tr>

<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,972</font>
<hr noshade size=2></td>

<td align=right valign=bottom><font size=2 face="times new roman, serif">26,847</font><hr noshade size=2></td>

<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.22</font>
<hr noshade size=2></td>
</tr>
</table>
 <BR>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
<td width=18.3%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30, 2005</font>
<hr size=1 noshade></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">&nbsp;<BR>Income</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Shares<BR>(In thousands)</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">Per Share<BR>Amount</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Basic Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net Income</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;972</font></td>
<td align=right><font size=2 face="times new roman, serif">21,285</font></td>
<td>&nbsp;</td>
</tr>

<tr bgcolor="#eeeeee">

<td><font size=2 face="times new roman, serif">Less preferred stock dividends<BR>&nbsp;</font></td>
<td valign=bottom align=right><font size=2 face="times new roman, serif">(905)</font><hr noshade size=1></td>
<td align=right>&nbsp;<hr noshade size=1></td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">67<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">21,285<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<hr noshade size=2></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><i>Diluted Earnings Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Effect of dilutive stock options </font></td>

<td align=right colspan=2><font size=2 face="times new roman, serif">359</font><hr noshade size=1></td>
<td>&nbsp;</td>
</tr>


<tr valign=top>
<td><font size=2 face="times new roman, serif">Net income applicable to common shareholders<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;67</font>
<hr noshade size=2></td>

<td align=right valign=bottom><font size=2 face="times new roman, serif">21,644</font><hr noshade size=2></td>

<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<hr noshade size=2></td>
</tr>
</table>
 <BR><BR>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outstanding stock options of 8,000
for the three month and nine month periods ended September 30, 2006 were excluded from the earnings per common share calculation since their impact
was antidilutive.  All outstanding stock
options for the three and nine month periods ended September 30, 2005 were
included in the earnings per common share calculation since their impact was
dilutive. The assumed conversion of the Series B Preferred Stock was excluded
from the earnings per common share calculation for the three month and nine month
periods ended September 30, 2005 since its impact was antidilutive.</FONT></P>





<p align=center><font face="times new roman, serif" size=2>-10-</font></p>










<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>


<p><font face="times new roman, serif" size=2><u><b>Note 8.</b></u>&nbsp;&nbsp;Income Taxes</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A reconciliation of the
differences between income taxes computed at the federal statutory income tax
rate and the expense (benefit) for income taxes was as follows:</FONT></P>



<table width=80% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=49%></td>
<td width=12%></td>
<td width=1%></td>
<td width=12%></td>
<td width=1%></td>
<td width=12%></td>
<td width=1%></td>
<td width=12%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Federal income tax provision at statutory rate of 35%</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,032</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,712</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(36)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Tax exempt interest and dividends received deductions</font></td>
<td align=right><font size=2 face="times new roman, serif">(342)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(192)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(422)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(522)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Small life deduction</font></td>
<td align=right><font size=2 face="times new roman, serif">(292)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(250)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(292)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(511)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Other permanent differences</font></td>
<td align=right><font size=2 face="times new roman, serif">11</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">31</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">26</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Change in asset valuation allowance due to<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
change in judgement relating to realizability<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of deferred tax assets</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>(255)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>325</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>(321)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>325</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Adjustment for prior years' estimates to actual</font></td>
<td align=right><font size=2 face="times new roman, serif">54</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(373)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">54</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(373)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">State income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">4</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">15</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">16</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Total expense (benefit) for income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;212</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(451)</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,777</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,075)</font>
<hr size=2 noshade></td>
</tr>
</table>
<BR>

<p><font size=2 face="times new roman, serif">The components of the expense (benefit) for income taxes were:</font></p>

<table width=80% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Current - Federal</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;185</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;155</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;209</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;324</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Current - Federal Receivable</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(676)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(676)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Current - State</font></td>
<td align=right><font size=2 face="times new roman, serif">4</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">15</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">16</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Deferred - Federal</font></td>
<td align=right><font size=2 face="times new roman, serif">23</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">67</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,553</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(739)</font><hr noshade size=1></td>
</tr>


<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;212</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(451)</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,777</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,075)</font>
<hr size=2 noshade></td>
</tr>
</table>


<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary differences
between the effective tax rate and the federal statutory income tax rate for the
three month and nine month periods ended September 30, 2006 and 2005 were a
result of the dividends-received deduction (&#147;DRD&#148;), the small life
insurance company deduction (&#147;SLD&#148;) and the change in asset valuation
allowance. Also during the three month period ended September 30, 2005, the
Company amended certain prior years&#146; tax returns to recognize permanent
items that generated an income tax refund of $676 which did not reoccur in the
comparable period of 2006.</font></p>

<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current estimated DRD
is adjusted as underlying factors change, including known actual 2006
distributions earned on invested assets. The actual current year DRD can vary
from the estimates based on, but not limited to, amounts of distributions from
these investments as well as appropriate levels of taxable income. The SLD
varies in amount and is determined at a rate of 60 percent of the tentative life
insurance company taxable income (&#147;LICTI&#148;). The amount of the SLD for
any taxable year is reduced (but not below zero) by 15 percent of the tentative
LICTI for such taxable year as it exceeds $3,000 and is phased out at $15,000.
The change in the asset valuation allowance results from reassessment of the
realization of certain net operating loss carry forwards. </font></p>

<p><font face="times new roman, serif" size=2><u><b>Note 9.</b></u>&nbsp;&nbsp;Stock Options</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&#160;1, 2006,
the Company adopted SFAS 123R using the modified prospective transition method.
Under this transition method, compensation cost to be recognized beginning in
the first quarter of 2006 includes: (a)&#160;compensation cost for all
share-based payments granted prior to, but not yet vested as of January&#160;1,
2006 and (b)&#160;compensation cost for all share-based payments granted
subsequent to January&#160;1, 2006. The adoption of SFAS 123R did not have a
material impact on the Company&#146;s consolidated statements of income or net
income per share as there were no outstanding unvested options at January 1,
2006. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January 1, 2006,
stock options were reported under the recognition and measurement principles of
APB Opinion No. 25, &#147;Accounting for Stock Issued to Employees&#148; instead
of the fair value approach recommended in SFAS No. 123 &#147;Accounting for
Stock-Based Compensation,&#148; as amended by SFAS 148, &#147;Accounting for
Stock-Based Compensation-Transition and Disclosure.&#148; Accordingly, no
stock-based employee compensation cost attributable to stock options was
reflected in net income, as all stock options granted had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following pro forma net income and net income per common share were
determined as if SFAS 123R had been in effect for the three month and nine month
periods ended September 30, 2005. The fair value of these options was estimated
using an options pricing model, which requires the input of subjective
assumptions, including the volatility of the stock price. If the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation during the three month and nine month periods ended
September 30, 2005, the Company&#146;s net income and net income per share would
have been as follows: </FONT></P>


<p align=center><font face="times new roman, serif" size=2>-11-</font></p>










<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>




<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>















<table width=550 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=55%>&nbsp;</td>
<td width=22.5%>&nbsp;</td>

<td width=22.5%>&nbsp;</td>


</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Three Months Ended<BR>September 30,</font><hr noshade size=1></td>

<td align=center><font face="times new roman, serif" size=2>Nine Months Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">2005</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">2005</font><hr noshade size=1></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Net income, as reported<BR>&nbsp;</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;562<BR>&nbsp;</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;972<BR>&nbsp;</font></td>
</tr>

<tr valign=top>
<td><font size=2  face="times new roman, serif">Stock-based employee compensation
expense<BR>determined under fair value basis, net of tax<BR>&nbsp;</font></td>
<td align=right><font size=2  face="times new roman, serif">&nbsp;<BR>(19)</font><hr noshade size=1></td>

<td align=right><font size=2  face="times new roman, serif">&nbsp;<BR>(57)</font><hr noshade size=1></td>

</tr>


<tr valign=top bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif"> Pro forma net income</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;543</font><hr noshade size=2></td>

<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;915</font><hr noshade size=2></td>


</tr>
<tr>
<td><font size=2  face="times new roman, serif">Net income per common share:<BR>&nbsp;</font></td>
<td colspan=3>&nbsp;<BR>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Basic - as reported</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font></td>

<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>

</tr>
<tr>
<td><font size=2  face="times new roman, serif">Basic - pro forma </font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font></td>


<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Diluted - as reported</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font></td>

<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>

</tr>
<tr>
<td><font size=2  face="times new roman, serif">Diluted - pro forma</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.01</font></td>


<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>


</tr>
</table>


<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to a variety of
factors, including the timing and number of awards, the above pro forma results
may not be indicative of the future effect of stock option expensing on the
Company&#146;s results of operations.</font></p>





<p><font face="times new roman, serif" size=2><u><b>Note 10.</b></u>&nbsp;&nbsp;Employee Retirement Plans</font></p>
<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides the components for the net periodic benefit cost for all defined benefit pension plans:</font></p>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%>&nbsp;</td>
<td width=15%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15%>&nbsp;</td>

</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=3 align=center><font face="times new roman, serif" size=2>Three Months Ended<BR>September 30,</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td colspan=3 align=center><font face="times new roman, serif" size=2>Nine Months Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2  face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2  face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">2005</font><hr noshade size=1></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Service cost</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;150</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;133</font></td>

</tr>
<tr>
<td><font size=2  face="times new roman, serif">Interest cost</font></td>
<td align=right><font size=2  face="times new roman, serif">78</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">75</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">233</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">225</font></td>

</tr>

<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Expected return on plan assets</font></td>
<td align=right><font size=2  face="times new roman, serif">(48)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">(46)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">(144)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">(139)</font></td>
</tr>
<tr valign=top>
<td><font size=2  face="times new roman, serif">Net amortization</font></td>
<td align=right><font size=2  face="times new roman, serif">35</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">36</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">104</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">107</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2  face="times new roman, serif">Net periodic benefit cost</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;115</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;109</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;343</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;326</font><hr noshade size=1></td>
</tr>
</table>













<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted-average assumptions used to
determine the net periodic benefit cost were as follows:</font></p>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=46%>&nbsp;</td>
<td width=27%>&nbsp;</td>
<td width=27%>&nbsp;</td>


</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=3 align=center><font face="times new roman, serif" size=2>Nine Months Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2006</font><hr noshade size=1></td>
<td align=center><font face="times new roman, serif" size=2>2005</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Discount rate</font></td>
<td align=center><font face="times new roman, serif" size=2>5.50%</font></td>
<td align=center><font face="times new roman, serif" size=2>5.75%</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Expected return on plan assets</font></td>
<td align=center><font face="times new roman, serif" size=2>7.00%</font></td>

<td align=center><font face="times new roman, serif" size=2>7.00%</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Projected annual salary increases</font></td>
<td align=center><font face="times new roman, serif" size=2>4.50%</font></td>

<td align=center><font face="times new roman, serif" size=2>4.50%</font></td>
</tr>
</table>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company expects to
contribute $184 for all defined benefit pension plans in 2006. During the three
month and nine month periods ended September 30, 2006, the Company made payments of $32 and
$95, respectively, to the pension plans.</font></p>





<p><font face="times new roman, serif" size=2><u><b>Note 11.</b></u>&nbsp;&nbsp;Commitments and Contingencies</font></p>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, the
Company is involved in various claims and lawsuits incidental to and in the
ordinary course of its businesses. In the opinion of management, any such known claims
are not expected to have a material effect on the business or financial
condition of the Company. </FONT></P>






<p align=center><font face="times new roman, serif" size=2>-12-</font></p>










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<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>








<p><font face="times new roman, serif" size=2><u><b>Note 12.</b></u>&nbsp;&nbsp;Related Party Transactions</font></p>
<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has, from time
to time, purchased shares in Gray Television, Inc. (&#147;Gray Television&#148;)
in the ordinary course of investing. Mr. Robinson, the Company&#146;s chairman
of the board of directors, is an executive officer and a member of the board of
directors of Gray Television. Mr. Howell, the Company&#146;s president and chief
executive officer, and Mrs. Robinson, a member of the Company&#146;s board of
directors, are members of the board of directors of Gray Television. On
September 28, 2006, the Company sold 175 shares of its investment in Gray
Television Series C preferred stock to Gray Television at a price of $10,000 per
share, and the transaction was settled on September 29, 2006.  There was no gain or loss on the transaction.</font></p>

<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September 30, 2006, the
Company issued and sold 70,000 shares of its newly created Series D preferred
stock, par value $1.00 per share (the &#147;Series D Preferred Stock&#148;) to
Gulf Capital Services, Ltd., an affiliate of Mr. Robinson, for an aggregate
purchase price of $7,000. The outstanding shares of Series D Preferred Stock
have a stated value of $100 per share; accrue annual dividends at a rate of
$7.25 per share (payable in cash or shares of the Company&#146;s common stock at
the option of the board of directors of the Company) and are cumulative; in
certain circumstances may be convertible into an aggregate of approximately
1,754,000 shares of common stock, subject to certain adjustments and provided
that such adjustments do not result in the Company issuing more than
approximately 2,703,000 shares of common stock without obtaining prior
shareholder approval; and are redeemable solely at the Company&#146;s option.
The Series D Preferred Stock is not currently convertible.</font></p>






<p align=center><font face="times new roman, serif" size=2>-13-</font></p>







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<a name="managements_discussion"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>




















<p><font face="times new roman, serif" size=2><u>Item 2.</u></font></p>
<p align=center>
<font face="times new roman, serif" size=2><b>MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION<BR>
                                                       AND RESULTS OF OPERATIONS</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is
management&#146;s discussion and analysis of the financial condition and results
of operations of Atlantic American Corporation (&#147;Atlantic American&#148; or
the &#147;Parent&#148;) and its subsidiaries (collectively, the
&#147;Company&#148;) for the three month and nine month periods ended September
30, 2006. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere herein, as well as
with the consolidated financial statements and notes included in the
Company&#146;s Annual Report on Form 10-K for the year ended December 31, 2005.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;American Southern&#148;);
Association Casualty Insurance Company and Association Risk Management General
Agency, Inc. (together known as &#147;Association Casualty&#148;); Georgia
Casualty &amp; Surety Company (&#147;Georgia Casualty&#148;); and Bankers
Fidelity Life Insurance Company (&#147;Bankers Fidelity&#148;). Each operating
company is managed separately based upon the geographic location or the type of
products offered and is evaluated on its individual performance. Management is
in the process of conforming information systems, policies and procedures,
products, marketing and other managerial functions between Association Casualty
and Georgia Casualty to create a southern &#147;regional&#148; property and
casualty operation and increase efficiencies.</FONT></P>

<p><font face="times new roman, serif" size=2><b>Critical Accounting Policies</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounting and
reporting policies of Atlantic American and its subsidiaries are in accordance
with accounting principles generally accepted in the United States of America
and, in management&#146;s belief, conform to general practices within the
insurance industry. The following is an explanation of the Company&#146;s
accounting policies and the resultant estimates considered most significant by
management. These accounting policies inherently require significant judgment
and assumptions and actual operating results could differ from management&#146;s
initial estimates determined using these policies. Atlantic American does not
expect that changes in the estimates determined using these policies will have a
material effect on the Company&#146;s financial condition or liquidity, although
changes could have a material effect on its consolidated results of operations.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unpaid loss and loss
adjustment expenses</i> comprised 45% of the Company&#146;s liabilities at
September 30, 2006. This obligation includes estimates for: 1) unpaid losses on
claims reported prior to September 30, 2006, 2) development on those reported
claims, 3) unpaid ultimate losses on claims incurred prior to September 30, 2006
but not yet reported and 4) unpaid loss adjustment expenses for reported and
unreported claims incurred prior to September 30, 2006. 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. Development on reported claims, estimates of
unpaid ultimate losses on claims incurred prior to September 30, 2006 but not
yet reported, and estimates of unpaid loss adjustment expenses, are developed
based on the Company&#146;s historical experience, using actuarial methods to
assist in the analysis. The Company&#146;s actuarial staff develops ranges of
estimated 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&#146;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 expenses. The
Company&#146;s approach is to select 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
reviewed periodically for significant lines of business, and when current
results differ from the original assumptions used to develop such estimates, the
amount of the Company&#146;s recorded liability for unpaid loss and loss
adjustment expenses is adjusted. In the event the Company&#146;s actual reported
losses in any period are materially in excess of the previous estimated amounts,
such losses, to the extent reinsurance coverage does not exist, would have a
material adverse effect on the Company&#146;s results of operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future policy benefits</i>
comprised 15% of the Company&#146;s total liabilities at September
30, 2006. These liabilities relate primarily to life insurance products and are
based upon assumed future investment yields, mortality rates, and withdrawal
rates after giving effect to possible risks of adverse deviation. The assumed
mortality and withdrawal rates are based upon the Company&#146;s experience. If
actual results differ from the initial assumptions, the amount of the
Company&#146;s recorded liability could require adjustment. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred acquisition costs</i>
comprised 6% of the Company&#146;s total assets at September 30, 2006.
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 expense 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&#146;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 previous calendar year. </FONT></P>





<p align=center><font face="times new roman, serif" size=2>-14-</font></p>







<PAGE>
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<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>



<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Receivables</i> are
amounts due from reinsurers, insureds and agents and comprised 18% of the
Company&#146;s total assets at September 30, 2006. Insured and agent balances
are evaluated periodically for collectibility. Annually, the Company performs an
analysis of the credit worthiness of the Company&#146;s reinsurers using various
data sources. Failure of reinsurers to meet their obligations due to
insolvencies or disputes could result in uncollectible amounts and losses to the
Company. Allowances for uncollectible amounts are established, as and when a
loss has been determined probable, against the related receivable. Losses are
recognized when determined on a specific account basis and a general provision
for loss is made based on the Company&#146;s historical experience. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash and investments</i>
comprised 72% of the Company&#146;s total assets at September 30, 2006.
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 fair
values. The Company owns certain non-redeemable preferred stocks that do not
have quoted values and are carried at estimated fair values as determined by
management. Such values inherently have a greater degree of judgment and
uncertainty and therefore ultimately greater price volatility. 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&#146;s indicated fair value has declined below its cost basis for a
period of time, primarily due to changes in credit risk, 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 its estimated fair value. While such write down
does not impact the reported value of the investment in the Company&#146;s
balance sheet, it is reflected as a realized investment loss in the
Company&#146;s consolidated statements of operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income taxes</i>
comprised approximately 1% of the Company&#146;s total assets at
September 30, 2006. 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.</FONT></P>

<p><font face="times new roman, serif" size=2><u><b>OVERALL CORPORATE RESULTS</b></u></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On a consolidated basis,
the Company had net income of $2.7 million, or $0.10 per diluted share, for the
three month period ended September 30, 2006, compared to net income of $0.6
million, or $0.01 per diluted share, for the three month period ended September
30, 2005. The Company had net income of $6.0 million, or $0.22 per diluted
share, for the nine month period ended September 30, 2006, compared to net
income of $1.0 million, or $0.00 per diluted share after considering preferred
stock dividends, for the nine month period ended September 30, 2005. Premium
revenue for the three month period ended September 30, 2006, decreased $5.9
million, or 13.6%, to $37.5 million. For the nine month period ended September
30, 2006, premium revenue decreased $18.5 million, or 13.7%, to $116.5 million.
The decrease in premiums for the three month and nine month periods ended
September 30, 2006 was primarily attributable to increased competition on
certain casualty lines, the non-renewal of targeted classes of property business
as well as the reassessment of coastal property exposures in the Company&#146;s
property and casualty operations, the latter two of which began in late 2005.
The Company&#146;s life and health operations have also experienced a premium
decline resulting from lower new sales activity and an increased level of
product competition, specifically in the Medicare supplement market. The
increase in net income for the three month and nine month periods ended
September 30, 2006 as compared to the three month and nine month periods ended
September 30, 2005 was primarily due to an increase in realized investment
gains. During the three month period ended September 30, 2006, the Company had
net realized investment gains of $1.4 million compared to net realized
investment gains of $0.2 million for the three month period ended September 30,
2005. For the nine month period ended September 30, 2006, the Company had net
realized investment gains of $5.4 million compared to net realized investment
gains of $0.2 million in the same period of 2005. In addition, during the three
month and nine month periods ended September 30, 2005, the Company experienced a
significant increase in both the frequency and severity of claims in its
property and casualty operations, primarily from fires, fatalities, tornados and hurricanes, which did not
reoccur in the same periods of 2006. During the three month period ended September 30, 2005, the company was directly impacted
by three hurricanes, Dennis, Katrina, and Rita, all of which resulted in hurricane related expenses of $1.7 million.
Further, during the three month period ended
September 30, 2006, net income increased by a $0.3 million deferred tax benefit,
compared to a $0.3 million deferred income tax expense in the three month period
ended September 30, 2005, both related to adjustments to the Company&#146;s
income tax valuation allowance. The 2006 decrease in the valuation allowance was
the result of a reassessment of the realization of certain net operating loss
carry forwards. During the three month period ended September 30, 2005, the
Company amended certain prior years&#146; tax returns to recognize permanent
items that generated an income tax refund of $0.7 million which partially offset
the 2005 increase in the valuation allowance. Net income for the nine
month period ended September 30, 2006, as compared to the nine month period
ended September 30, 2005 was negatively impacted by a significant windstorm
assessment related to hurricane Katrina. In April 2006, the Company received an
assessment from the Mississippi Windstorm Underwriting Association of
approximately $2.2 million in addition to a $1.3 million assessment
which had been previously received and paid. The April 2006 assessment exhausted
the Company&#146;s remaining $0.4 million of reinsurance related to hurricane
Katrina, and the Company expensed the $1.8 million excess amount.</FONT></P>





<p align=center><font face="times new roman, serif" size=2>-15-</font></p>






<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>



<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>












<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s property
and casualty operations are comprised of American Southern, Association
Casualty, and Georgia Casualty. The Company&#146;s life and health operations
are comprised of the operations of Bankers Fidelity.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A more detailed analysis of
the individual operating entities and other corporate activities follows.</FONT></P>


<p><font face="times new roman, serif" size=2><u>UNDERWRITING RESULTS</u></font></p>

<p><font face="times new roman, serif" size=2><b>American Southern</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of American Southern&#146;s premiums for the three month and nine month periods
ended September 30, 2006 and the comparable periods in 2005 (in thousands):</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Gross written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,293</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,007</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39,509</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44,296</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Ceded premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,506)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(2,230)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(7,195)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(6,720)</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,787</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,777</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32,314</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;37,576</font><hr noshade size=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net earned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,727</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,769</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;38,518</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;38,577</font><hr noshade size=2></td>
</tr>
</table>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross written premiums at
American Southern decreased $1.7 million, or 10.7%, during the three month
period ended September 30, 2006, and $4.8 million, or 10.8%, during the nine
month period ended September 30, 2006, from the comparable periods in 2005. The
decrease in gross written premiums during the three month and nine month periods
ended September 30, 2006 was primarily due to the cancellation of several
commercial programs, including the low-value dwelling property business in the
second half of 2005, as well as a reduction in business writings from a
previously existing joint venture with the Carolina Motor Club which was
terminated on October 1, 2005. Also contributing to the decrease in gross
written premiums was the termination of the relationship with one of the
company&#146;s agents who had previously produced approximately $1.5 million in
annualized general liability business. Partially offsetting this decrease in
gross written premiums were increased business writings in the surety line of
business.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ceded premiums increased
$0.3 million, or 12.4%, during the three month period ended September 30, 2006,
and $0.5 million, or 7.1%, during the nine month period ended September 30,
2006, over the comparable periods in 2005. The increase in ceded premiums was
due to changes in certain provisions in the company&#146;s reinsurance treaty
agreements relating to certain accounts. </FONT></P>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following presents
American Southern&#146;s net earned premiums by line of business for the three
month and nine month periods ended September 30, 2006 and the comparable periods in
2005 (in thousands): </FONT></P>

 <table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Commercial automobile</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,020</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,043</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;17,900</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;18,300</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Private passenger auto</font></td>
<td align=right><font size=2 face="times new roman, serif">362</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">890</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,838</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,658</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">General liability</font></td>
<td align=right><font size=2 face="times new roman, serif">2,969</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,930</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,665</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,880</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Property</font></td>
<td align=right><font size=2 face="times new roman, serif">775</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">920</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,391</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,766</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Surety</font></td>
<td align=right><font size=2 face="times new roman, serif">2,601</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,986</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,724</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,973</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,727</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;12,769</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;38,518</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;38,577</font><hr noshade size=2></td>
</tr>
</table>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earned premiums
decreased slightly during the three month and nine month periods ended September
30, 2006, from the comparable periods in 2005 due primarily to the decline in
written premiums discussed above.</FONT></P>




<p align=center><font face="times new roman, serif" size=2>-16-</font></p>





<HR SIZE=2 NOSHADE>
<PAGE>
<H5 align="left" style="page-break-before:always"></H5>




<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>














<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
American Southern&#146;s loss and expense ratios for the three month and nine
month periods ended September 30, 2006 and for the comparable periods in 2005: </FONT></P>



<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">45.0%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">51.4%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">44.1%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">48.8%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">44.2%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">42.3%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">46.5%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">44.5%</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Combined ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">89.2%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">93.7%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">90.6%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">93.3%</font><hr noshade size=2></td>
</tr>
</table>










<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The loss ratio for the
three month period ended September 30, 2006 decreased to 45.0% from 51.4% in the
three month period ended September 30, 2005 and to 44.1% in the nine month
period ended September 30, 2006 from 48.8% in the comparable period of 2005. The
decrease in the loss ratio in the three month and nine month periods ended
September 30, 2006 was primarily attributable to the cancellation of several
commercial programs, including the low-value dwelling property business
discussed above and favorable loss experience in the general liability line of
business. The expense ratio for the three month period ended September 30, 2006
increased to 44.2% compared to 42.3% in the three month period ended September
30, 2005 and to 46.5% for the nine month period ended September 30, 2006
compared to 44.5% in the comparable period of 2005. The increase in the expense
ratio in the 2006 periods was a function of American Southern&#146;s contractual
arrangements, which compensate the company&#146;s agents in relation to the loss
ratios of the business they write. As a percentage of gross written premiums,
total commissions (fixed plus variable) increased to 29.9% for the nine month
period ended September 30, 2006 from 27.6% in the comparable period of 2005.</FONT></P>

<p><font face="times new roman, serif" size=2><b>Association Casualty</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of Association Casualty&#146;s premiums for the three month and nine month
periods ended September 30, 2006 and the comparable periods in 2005 (in thousands):</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Direct written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,582&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,812<SUP>(1)</sup></font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24,628&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15,947<SUP>(2)</sup>&nbsp;</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Assumed written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">-<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,939)<SUP>(3)</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">710<SUP>(3)</sup>&nbsp;</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Gross written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">8,582&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,873&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">24,628&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">16,657&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Ceded premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,730)<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,307)<SUP>(1)</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(7,448)<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3,519)<SUP>(2)</sup></font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,852&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;2,566&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17,180&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,138&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net earned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,448&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,107&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,273&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,600&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
</tr>
</table>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(1)</sup>&nbsp;
Excludes $3.6 million in written premiums ceded to Georgia Casualty.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(2)</sup>&nbsp;
Excludes $15.8 million in written premiums ceded to Georgia Casualty.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(3)</sup>&nbsp;
Written premiums  assumed from Georgia Casualty under a quota share  reinsurance  agreement and eliminated in  consolidation.  This
agreement was terminated effective August 31, 2005.</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross written premiums at
Association Casualty increased $4.7 million, or 121.6%, during the three month
period ended September 30, 2006, and $8.0 million, or 47.9%, during the nine
month period ended September 30, 2006, over the comparable periods in 2005. The
increase in gross written premiums during the three month and nine month periods
ended September 30, 2006 was attributable to the termination, as of August 31,
2005, of a quota share reinsurance agreement with Georgia Casualty. As a result
of the termination of this agreement, there was a reversal of $2.6 million in
unearned premiums previously assumed by Association Casualty under this contract
during the nine month period ended September 30, 2005 which had decreased
assumed written premiums for the three month and nine month periods ended
September 30, 2005. Prior to the termination of the quota share reinsurance
agreement, approximately $3.3 million in premiums had been assumed by
Association Casualty from Georgia Casualty during the nine months ended
September 30, 2005. Also contributing to the increase were additional premiums
retained as a result of a mutual agreement not to enforce the rights and
obligations under a separate reinsurance agreement between Association Casualty
and Georgia Casualty. During the three month and nine month periods ended
September 30, 2005, Association Casualty had ceded $3.6 million and $15.8
million, respectively, in direct written premiums to Georgia
Casualty under this agreement. Effective September 1, 2005, Association Casualty
no longer ceded any portion of this business to Georgia Casualty.</FONT></P>






<p align=center>
<font face="times new roman, serif" size=2>-17-</font></p>






<HR SIZE=2 NOSHADE>
<PAGE>
<H5 align="left" style="page-break-before:always"></H5>




<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>








<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ceded premiums at
Association Casualty increased $1.4 million, or 108.9%, during the three month
period ended September 30, 2006, and $3.9 million, or 111.7%, during the nine
month period ended September 30, 2006, over the comparable periods in 2005. In
addition to an overall increase in reinsurance rates, the increase in ceded
premiums during the three month and nine month periods ended September 30, 2006
was due to the increase in retained business and the risk characteristics
related thereto. Prior to September 1, 2005, this business, which was
underwritten by Georgia Casualty on behalf of Association Casualty, was ceded
100% to Georgia Casualty rather than to a third party reinsurer. As a result of
the third party cessions, ceded premiums increased during the three month and
nine month periods ended September 30, 2006.</font></p>







<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following presents
Association Casualty&#146;s net earned premiums by line of business for the
three month and nine month periods ended September 30, 2006 and the comparable periods
in 2005 (in thousands):</FONT></P>

 <table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Workers' compensation</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,306</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,351</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;6,023</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;7,821</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">General liability</font></td>
<td align=right><font size=2 face="times new roman, serif">323</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">95</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">606</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">247</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Commercial multi-peril</font></td>
<td align=right><font size=2 face="times new roman, serif">2,439</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,630</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,095</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,006</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Commercial automobile</font></td>
<td align=right><font size=2 face="times new roman, serif">1,378</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,026</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,541</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,504</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Other</font></td>
<td align=right><font size=2 face="times new roman, serif">2</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">22</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Total</font></td>

<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,448</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,107</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;16,273</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;16,600</font><hr noshade size=2></td>
</tr>
</table>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earned premiums
increased $1.3 million, or 26.3%, during the three month period ended September
30, 2006, over the three month period ended September 30, 2005 and decreased
$0.3 million, or 2.0%, during the nine month period ended September 30, 2006,
from the comparable period in 2005. The increase in net earned premiums during
the three month period ended September 30, 2006 was due to the termination of
the quota share reinsurance agreement with Georgia Casualty discussed above. The
decrease in the net earned premiums during the nine month period ended September
30, 2006 was primarily due to a lower level of premium volume written and
retained during 2005 which is reflected as earned in the three month and nine
month periods ended September 30, 2006. Insurance premiums are earned ratably
over the policy term, and therefore premiums earned in 2006 are related to
premiums written during both 2005 and 2006.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
Association Casualty&#146;s loss and expense ratios for the three month and nine
month periods ended September 30, 2006 and the comparable periods in 2005:</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">41.0%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">74.7%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">42.5%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">65.8%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">53.3%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">38.4%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">56.0%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">39.6%</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Combined ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">94.3%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">113.1%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">98.5%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">105.4%</font><hr noshade size=2></td>
</tr>
</table>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The loss ratio for the
three month period ended September 30, 2006 decreased to 41.0% from 74.7% in the
three month period ended September 30, 2005 and to 42.5% in the nine month
period ended September 30, 2006 from 65.8% in the comparable period of 2005. The
decrease in the loss ratio during the three month and nine month periods ended
September 30, 2006 was due to several factors. During the nine month period
ended September 30, 2005, Association Casualty incurred losses and loss
adjustment expenses of $0.7 million in connection with the quota share
reinsurance agreement with Georgia Casualty. This quota share reinsurance
agreement was terminated in 2005 and, accordingly, no such losses were incurred
during the three month and nine month periods ended September 30, 2006. Also,
during the nine month period ended September 30, 2005, Association
Casualty&#146;s loss ratio was impacted by an increasing number of construction
defect claims on liability policies, which did not reoccur during the comparable
period in 2006. In addition, Association Casualty experienced favorable loss
development during the three month and nine month periods ended September 30,
2006, which also contributed to the decrease in the loss ratio. The expense
ratio for the three month period ended September 30, 2006 increased to 53.3%
compared to 38.4% in the comparable period in 2005 and to 56.0% for the nine
month period ended September 30, 2006 compared to 39.6% for the comparable
period in 2005. The increase in the expense ratio for the three month and nine
month periods ended September 30, 2006 was primarily due to an increased share
of allocated expenses that resulted from the additional retained business that
had previously been ceded to Georgia Casualty.</FONT></P>






<p align=center><font face="times new roman, serif" size=2>-18-</font></p>


<HR SIZE=2 NOSHADE>






<PAGE>
<H5 align="left" style="page-break-before:always"></H5>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>
<p><font face="times new roman, serif" size=2><b>Georgia Casualty</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of Georgia Casualty&#146;s premiums for the three month and nine month periods ended
September 30, 2006 and the comparable periods in 2005 (in thousands):</FONT></P>
<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Gross written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,522&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,457<SUP>(1)</sup></font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,007</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;40,856<SUP>(2)</sup>&nbsp;</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Ceded premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,398)&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,737)&nbsp;&nbsp;&nbsp;</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,677)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(16,408)&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Ceded premiums</font></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">-<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,939<SUP>(3)</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-<SUP>&nbsp;</sup></font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(710)<SUP>(3)</sup>&nbsp;</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,124&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;6,659&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,330</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23,738&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net earned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,963&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,173&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17,288</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,847&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font><hr noshade size=2></td>
</tr>
</table>
<p align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(1)</sup>
&nbsp;Includes $3.6 million in written premiums assumed from Association Casualty.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(2)</sup>
&nbsp;Includes $15.8 million in written premiums assumed from Association Casualty.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<SUP>(3)</sup>
&nbsp;Written premiums ceded to Association  Casualty under a quota share  reinsurance  agreement and eliminated in  consolidation.  This
agreement was terminated effective August 31, 2005.</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross written premiums at
Georgia Casualty decreased $4.9 million, or 52.2%, during the three month period
ended September 30, 2006, and $24.9 million, or 60.8%, during the nine month
period ended September 30, 2006, from the comparable periods in 2005. The
decrease in gross written premiums for the three month and nine month periods
ended September 30, 2006 was attributable to several factors. As described
above, effective September 1, 2005, Georgia Casualty no longer assumed new
business writings from Association Casualty and, as a result, written premiums
decreased $3.5 million and $15.0 million, respectively, in the three month and
nine month periods ended September 30, 2006. Also contributing to the decrease
in gross written premiums was the non-renewal of targeted classes of property
business as well as the reassessment of coastal property exposures, both of
which began in 2005. Georgia Casualty has ceased writing accounts with
significant heavy automobile exposures and has significantly increased its
required buffer zone away from wind prone coastal exposures. These initiatives,
coupled with an increased level of price competition in the marketplace,
resulted in a significant decrease in gross written premiums during the three
month and nine month periods ended September 30, 2006.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ceded premiums at Georgia
Casualty decreased $1.4 million, or 50.0%, during the three month period ended
September 30, 2006, and $11.4 million, or 66.8%, during the nine month period
ended September 30, 2006, from the comparable periods in 2005. The decrease in
ceded premiums for the three month and nine month periods ended September 30,
2006 was primarily attributable to the significant decline in gross written
premiums. Also contributing to the decrease in ceded premiums during the three
month and nine month periods ended September 30, 2006 were significant
adjustments for umbrella ceded premiums and hurricane related expenses that
increased ceded premiums in 2005, but did not reoccur during the comparable
periods of 2006. Partially offsetting the decrease in ceded premiums during the
three month and nine month periods ended September 30, 2006 was the termination
of the quota share reinsurance agreement discussed above. As a result of the
termination of this agreement, there was a reversal of $2.6 million in unearned
premiums previously ceded to Association Casualty under this contract during the
nine month period ended September 30, 2005 which had decreased ceded written
premiums for the three month and nine month periods ended September 30, 2005. Prior
to the termination of the quota share reinsurance agreement, approximately $3.3
million in premiums had been ceded by Georgia Casualty to Association Casualty
during the nine months ended September 30, 2005.</FONT></P>






<p align=center>
<font face="times new roman, serif" size=2>-19-</font></p>




<HR SIZE=2 NOSHADE>
















<PAGE>
<H5 align="left" style="page-break-before:always"></H5>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>













<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following presents
Georgia Casualty&#146;s net earned premiums by line of business for the three
month and nine month periods ended September 30, 2006 and the comparable periods in
2005 (in thousands):</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Workers' compensation</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,673</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,951</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,532</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,662</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">General liability</font></td>
<td align=right><font size=2 face="times new roman, serif">328</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,634</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">148</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Commercial multi-peril</font></td>
<td align=right><font size=2 face="times new roman, serif">1,174</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,475</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,587</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">11,434</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Commercial automobile</font></td>
<td align=right><font size=2 face="times new roman, serif">788</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,744</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,535</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,603</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,963</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,173</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;17,288</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;29,847</font><hr noshade size=2></td>
</tr>
</table>



<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earned premiums
decreased $5.2 million, or 56.8%, during the three month period ended September
30, 2006, and $12.6 million, or 42.1%, during the nine month period ended
September 30, 2006, from the comparable periods in 2005. The decrease in net earned
premiums for the three month and nine month periods ended September 30, 2006 was
due to the same reasons discussed above.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
Georgia Casualty&#146;s loss and expense ratios for the three month and nine
month periods ended September 30, 2006 and the comparable periods in 2005:</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">101.5%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">73.0%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">79.1%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">83.6%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">60.7%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">52.3%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">65.4%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">42.7%</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Combined ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">162.2%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">125.3%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">144.5%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">126.3%</font><hr noshade size=2></td>
</tr>
</table>



<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss ratio increased to
101.5% in the three month period ended September 30, 2006 from 73.0% in the
three month period ended September 30, 2005 and decreased to 79.1% in the nine
month period ended September 30, 2006 from 83.6% in the nine month period ended
September 30, 2005. The increase in the loss ratio for the three month period
ended September 30, 2006 was due to the significant decrease in net earned
premiums coupled with an increase in loss adjustment expenses that resulted from
the settlement of several large claims. The decrease in the loss ratio for the
nine month period ended September 30, 2006 was due to numerous large losses from
fires, fatalities, and tornados incurred by Georgia Casualty during the three
month period ended March 31, 2005.  Also, during the three month period ended September 30, 2005, Georgia Casualty incurred $0.6 million in hurricane related losses.  The magnitude and frequency of these losses
had a significant impact on the loss ratio in the nine month period ended
September 30, 2005, and did not reoccur in the comparable period of 2006. In
addition, Georgia Casualty benefited from the extensive re-underwriting of its
book of business that began in the three month period ended September 30, 2005.
The expense ratio increased to 60.7% in the three month period ended September
30, 2006 from 52.3% in the three month period ended September 30, 2005 and to
65.4% in the nine month period ended September 30, 2006 from 42.7% in the nine
month period ended September 30, 2005. The increase in the expense ratio for the
three month period ended September 30, 2006 was primarily due to the significant
decrease in net earned premiums. The increase in the expense ratio for the nine
month period ended September 30, 2006 was primarily attributable to a $1.8
million charge related to an assessment from the Mississippi Windstorm
Underwriting Association and a $1.0 million increase in the second injury trust
fund assessment accrual, both of which were expensed in the 2006 second quarter.
Also contributing to the increase in the expense ratio for the year to date period was the significant
decrease in net earned premiums.</FONT></P>






<p align=center>
<font face="times new roman, serif" size=2>-20-</font></p>

<HR SIZE=2 NOSHADE>











<PAGE>
<H5 align="left" style="page-break-before:always"></H5>


<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>










<p><font face="times new roman, serif" size=2><b>Bankers Fidelity</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s earned premiums for the three month and nine month
periods ended September 30, 2006 and the comparable periods in 2005 (in thousands):</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Medicare supplement</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;10,783</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,699</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;33,814</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;38,955</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Other health</font></td>
<td align=right><font size=2 face="times new roman, serif">750</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">726</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,188</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,178</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Life</font></td>
<td align=right><font size=2 face="times new roman, serif">2,827</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,949</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,411</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,871</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,360</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,374</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44,413</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50,004</font><hr noshade size=2></td>
</tr>
</table>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premium revenue at Bankers
Fidelity decreased $2.0 million, or 12.3%, during the three month period ended
September 30, 2006, and $5.6 million, or 11.2%, during the nine month period
ended September 30, 2006, from the comparable periods in 2005. Premiums from the
Medicare supplement and other health lines of business decreased $1.9 million,
or 14.1%, during the three month period ended September 30, 2006 and $5.1
million, or 12.5%, during the nine month period ended September 30, 2006, due to
a decline in new business levels and non-renewal of certain existing policies
that resulted from increased competition. Premiums from the life insurance line
of business decreased $0.1 million, or 4.1%, during the three month period ended
September 30, 2006, and $0.5 million, or 5.2%, during the nine month period
ended September 30, 2006, from the comparable periods of 2005 due to the
continued decline in sales related activities. </FONT></P>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s operating expenses for the three month and nine month
periods ended September 30, 2006 and the comparable periods in 2005 (in thousands):</FONT></P>

  <table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2005</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Benefits and losses</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,984</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,525</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32,215</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;36,389</font></td>
</tr>
<tr valign=bottom>
<td><font size=2 face="times new roman, serif">Commission and other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;expenses<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">4,565</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">4,874</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">14,066</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">14,733</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;14,549</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,399</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46,281</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51,122</font><hr noshade size=2></td>
</tr>
</table>







<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Benefits and losses
decreased $1.5 million, or 13.4%, during the three month period ended September
30, 2006, and $4.2 million, or 11.5%, during the nine month period ended
September 30, 2006, from the comparable periods in 2005. As a percentage of
earned premiums, benefits and losses were 69.5% for the three month period ended
September 30, 2006 and 72.5% for the nine month period ended September 30, 2006
compared to 70.4% for the three month period ended September 30, 2005 and 72.8%
for the nine month period ended September 30, 2005. The decrease in the three
month and nine month periods ended September 30, 2006 loss ratio was primarily
due to a $0.3 million incurred but not reported (&#147;IBNR&#148;) reserve
adjustment on the Medicare supplement line of business. The decrease in IBNR
reserves was deemed necessary to give recognition to the decrease in in-force
premiums for that line of business. Also, the 2005 loss ratios were inflated by
a block of Medicare supplement business that was purchased by Bankers Fidelity
during the fourth quarter of 2004. Although Bankers Fidelity had received
approval for the necessary rates for this block of business, the impact of these
rate increases was not fully realized until the fourth quarter of 2005.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commissions and other
expenses decreased $0.3 million, or 6.3%, during the three month period ended
September 30, 2006, and $0.7 million, or 4.5%, during the nine month period
ended September 30, 2006, from the comparable periods in 2005. The decrease in
commissions and other expenses during the three month and nine month periods
ended September 30, 2006, was directly related to the decline in premium
revenues. As a percentage of earned premiums, these expenses were 31.8% for the
three month period ended September 30, 2006 and 31.7% for the nine month period
ended September 30, 2006 compared to 29.8% for the three month period ended
September 30, 2005 and 29.5% for the nine month period ended September 30, 2005.
The increase in the expense ratio for the three month and nine month periods
ended September 30, 2006 was primarily due to a consistent level of fixed
underwriting and other expenses coupled with a decrease in premium revenues.</FONT></P>






<p align=center>
<font face="times new roman, serif" size=2>-21-</font></p>

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<p><font face="times new roman, serif" size=2><u><b>INVESTMENT INCOME AND REALIZED GAINS</b></U></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment income increased
$0.5 million, or 14.0%, during the three month period ended September 30, 2006,
and $1.5 million, or 12.2%, for the nine month period ended September 30, 2006,
over the comparable periods in 2005. The increase in investment income for the
three month and nine month periods ended September 30, 2006 was primarily due to
a higher level of average invested assets as well as a shift from short-term
investments to higher yielding fixed maturity securities. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had net
realized investment gains of $1.4 million during the three month period ended
September 30, 2006, and $5.4 million during the nine month period ended
September 30, 2006, compared to net realized investment gains of $0.2 million in
the three month and nine month periods ended September 30, 2005. The increase in
net realized gains for the three month period ended September 30, 2006 was due
to the sale of a portion of the Company&#146;s investment in equity securities
of Wachovia Corporation which generated $1.3 million in realized gains. The
increase in net realized gains for the nine month period ended September 30,
2006 was primarily due to the sale of a portion of the Company&#146;s
investments in the automotive sector (bonds of General Motors Corporation and
Ford Motor Credit Company), a portion of the Company&#146;s investment in equity
securities of Wachovia Corporation, and the sale of a real estate partnership
interest, all of which resulted in realized investment gains totaling $5.4
million. Management continually evaluates the Company&#146;s investment
portfolio and, as needed, makes adjustments for impairments and/or will divest
investments. (See Item 3 for a discussion about market risks).</FONT></P>

<p><font face="times new roman, serif" size=2><u><b>INTEREST EXPENSE</b></U></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased
$0.3 million, or 28.6%, during the three month period ended September 30, 2006,
and $0.8 million, or 30.1%, during the nine month period ended September 30,
2006, over the comparable periods in 2005. The increase in interest expense for
the three month and nine month periods ended September 30, 2006 was primarily
due to an increase in the London Interbank Offered Rate (&#147;LIBOR&#148;),
which occurred throughout 2005 and into 2006. Also, on February 28, 2006, the
Company entered into a $3.0 million term loan credit agreement with Wachovia
Bank, N.A. (&#147;Wachovia&#148;), which resulted in a higher average debt level
and increased interest expense during the three month and nine month periods
ended September 30, 2006.</FONT></P>







<p><font face="times new roman, serif" size=2><u><b>OTHER EXPENSES</b></U></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other expenses
(commissions, underwriting expenses, and other expenses) decreased $1.1 million,
or 6.0%, during the three month period ended September 30, 2006, from the three
month period ended September 30, 2005, and increased $0.7 million, or 1.2%,
during the nine month period ended September 30, 2006, over the comparable
period in 2005. The decrease in other expenses for the three month period ended
September 30, 2006 was primarily attributable to a reduction in commission
expenses that resulted from the significant decline in premium revenue. The
decrease in premium revenue that occurred during the three month and nine month
periods ended September 30, 2006 was due to the non-renewal of targeted classes
of property business, the reassessment of coastal property, lower sales
activity, and an increased level of price competition. The increase in other
expenses for the nine month period ended September 30, 2006 was primarily due to
a $1.8 million charge related to a Mississippi windstorm assessment which was
not covered by reinsurance and a $1.0 million second injury trust fund accrual
adjustment, both of which were recorded in the 2006 second quarter and occurred
in the Company&#146;s property and casualty operations. Partially offsetting the
increase in other expenses during the nine month period ended September 30, 2006
was a reduction in commission expenses that resulted from the significant
decline in premium revenue discussed above. On a consolidated basis, as a
percentage of earned premiums, other expenses increased to 45.5% in the three
month period ended September 30, 2006, from 41.8% in the three month period
ended September 30, 2005. For the nine month period ended September 30, 2006,
this ratio increased to 47.5% from 40.5% in the comparable period in 2005. The
increase in the expense ratio for the three month and nine month periods ended
September 30, 2006 was primarily due to a consistent level of fixed expenses
coupled with a decrease in premium revenues.</FONT></P>






<p><font face="times new roman, serif" size=2><u><b>LIQUIDITY AND CAPITAL RESOURCES</b></U></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary 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. Current and expected patterns of claim frequency and severity may
change from period to period but generally are expected to continue within
historical ranges. The Company&#146;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 and that cash inflows from
investment earnings, future premium receipts and reinsurance collections will be
adequate to fund the payment of claims and expenses as needed. Cash flows at the
Parent are derived from dividends, management fees, and tax sharing payments
from the subsidiaries. The cash needs of the Parent are for the payment of
operating expenses, the acquisition of capital assets and debt service
requirements. </FONT></P>


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<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parent&#146;s insurance
subsidiaries reported a combined statutory net income of $4.2 million for the nine
month period ended September 30, 2006, compared to statutory net income of $5.9
million for the nine month period ended September 30, 2005. The decrease in
statutory net income was due to the impairment charge taken on the
Company&#146;s investments in the automotive sector of $10.7 million which was
recorded effective January 1, 2006 for statutory purposes. Statutory results are
further impacted by the recognition of all costs of acquiring business. In a
scenario in which the Company is growing, statutory results are generally lower
than results determined under generally accepted accounting principles
(&#147;GAAP&#148;). The Parent&#146;s insurance subsidiaries reported a combined
GAAP net income of $12.0 million for the nine month period ended September 30,
2006 compared to $3.9 million for the nine month period ended September 30,
2005. The reasons for the increase in GAAP net income in the nine month period
ended September 30, 2006 are discussed above in &#147;Results of Operations.&#148;
Statutory results for the property and casualty operations differ from the
results of operations under GAAP due to the deferral of acquisition costs. The
life and health operations&#146; statutory results differ from GAAP primarily
due to the deferral of acquisition costs for financial reporting purposes, as
well as the use of different reserving methods.</FONT></P>




<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has two series
of preferred stock outstanding, substantially all of which is held by affiliates
of the Company&#146;s chairman and principal shareholders. The outstanding
shares of Series B Preferred Stock (&#147;Series B Stock&#148;) 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&#146;s option. The Series B Stock is not currently convertible.
At September 30, 2006, the Company had accrued, but unpaid, dividends on the
Series B Stock totaling $13.0 million. The outstanding shares of Series D
Preferred Stock (&#147;Series D Stock&#148;) have a stated value of $100 per
share; accrue annual dividends at a rate of $7.25 per share (payable in cash or
shares of the Company&#146;s common stock at the option of the board of
directors of the Company) and are cumulative; in certain circumstances may be
convertible into an aggregate of approximately 1,754,000 shares of common stock,
subject to certain adjustments and provided that such adjustments do not result
in the Company issuing more than approximately 2,703,000 shares of common stock
without obtaining prior shareholder approval; and are redeemable at the
Company&#146;s option. The Series D Stock is not currently convertible.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September 30, 2006, the
Company&#146;s $54.0 million of borrowings consisted of a $9.8 million term loan
(the &#147;Term Loan&#148;) as well as a second $3.0 million term loan (the
&#147;Second Term Loan&#148;), and an aggregate of $41.2 million of outstanding
junior subordinated deferrable interest debentures (&#147;Junior Subordinated
Debentures&#148;). The Term Loan requires the Company to repay $0.5 million in
principal on June 30, and $1.3 million in principal on December 31, in each of
2006 and 2007, with one final payment of $6.8 million at maturity on June 30,
2008. The Second Term Loan requires the Company to repay $3.0 million in
principal at maturity on April 1, 2007. Both of these term loans are with
Wachovia and have the same interest rate, covenants, and collateral. The
interest rate on the term loans is equivalent to three-month LIBOR plus an
applicable margin, and was 7.39% at September 30, 2006. The margin varies based
upon the Company&#146;s leverage ratio (debt to total capitalization, each as
defined) and ranges from 1.75% to 2.50%. The term loans require the Company to
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, as well as the maintenance of minimum levels of
tangible net worth. The Company must also comply with limitations on capital
expenditures, additional debt obligations, equity repurchases and redemptions,
as well as minimum risk-based capital levels. </FONT></P>








<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has two
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. 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 September 30, 2006, the effective interest rate was 9.46%. The
obligations of the Company with respect to the issuances of the trust preferred
securities represent a full and unconditional guarantee by the Parent of each
trust&#146;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 Junior Subordinated Debenture interest payments, which would result in
a deferral of distribution payments on the related trust preferred securities. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company intends to pay
its obligations under the term loans and the Junior Subordinated Debentures
using dividend and tax sharing payments from the operating subsidiaries, or from
potential future financing arrangements. In addition, the Company believes that,
if necessary, at maturity, the term loans can be refinanced with the current
lender, although there can be no assurance of the terms or conditions of such a
refinancing, or its availability. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Parent provides certain
administrative and other services to each of its insurance subsidiaries. The
amounts charged to and paid by the subsidiaries in the three month period ended
September 30, 2006 increased over the three month period ended September 30,
2005. In addition, there is in place a formal tax-sharing agreement between the
Parent and its insurance subsidiaries. It is anticipated that this agreement
will provide the Parent with additional funds from profitable subsidiaries due
to the subsidiaries&#146; use of the Parent&#146;s tax loss carryforwards, which
totaled approximately $13.5 million at September 30, 2006. </FONT></P>




<p align=center><font face="times new roman, serif" size=2>-23-</font></p>









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<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Over 90% of the investment
assets of the Parent&#146;s insurance subsidiaries are in marketable securities
that can be converted into cash, if required; however, the use of such assets by
the Company is limited by state insurance regulations. Dividend payments to the
Parent by its wholly owned 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 September 30, 2006, Georgia Casualty had
$22.6 million of statutory surplus, American Southern had $35.6 million of
statutory surplus, Association Casualty had $21.0 million of statutory surplus,
and Bankers Fidelity had $33.1 million of statutory surplus. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash used in operating
activities was $7.9 million in the nine month period ended September 30, 2006,
compared to $1.0 million in the nine month period ended September 30, 2005; and
cash and short-term investments decreased from $41.8 million at December 31,
2005 to $22.5 million at September 30, 2006. The increase in net cash used in
operating activities was primarily attributable to the significant decrease in
premiums coupled with an increase in loss related payments to settle claims. The
decrease in cash and short-term investments during the nine month period ended
September 30, 2006 was primarily due to a shift from short-term investments to
higher yielding fixed maturity securities partially offset by the proceeds
received from the issuance of Series D Preferred Stock.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company believes that
the dividends, fees, and tax-sharing payments it receives from its subsidiaries
and, if needed, additional borrowings from financial institutions will enable
the Company to meet its liquidity requirements for the foreseeable future.
Management is not aware of any current recommendations by regulatory
authorities, which, if implemented, would have a material adverse effect on the
Company&#146;s liquidity, capital resources or operations. </FONT></P>






<p align=center><font face="times new roman, serif" size=2>-24-</font></p>









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<p><font face="times new roman, serif" size=2><b><u>CONTRACTUAL OBLIGATIONS</u></b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
discloses the amounts of payments due under specified contractual obligations,
aggregated by category of contractual obligation, for specified time periods:</FONT></P>

<table width=100% cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=30%></td>
<td width=14%></td>
<td width=14%></td>
<td width=14%></td>
<td width=14%></td>
<td width=14%></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=5 align=center><font size=2  face="times new roman, serif">Payments Due By Period
</font><hr width=100% size=1></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">Total</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif">Less than<BR>1 year</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif">1 - 3<BR>years</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif">3 - 5<BR>years</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif">More than<BR>5 years</font><hr width=100% size=1></td>
</tr>
<tr valign=top>
<td>&nbsp;</td>
<td colspan=5 align=center><font size=2  face="times new roman, serif">(In thousands)</font></td>

</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Bank debt payable </font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,750</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;4,750</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,000</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
- - </font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">Junior Subordinated Debentures</font></td>
<td align=right><font size=2  face="times new roman, serif">41,238</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
<td align=right><font size=2  face="times new roman, serif">41,238</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Interest payable<SUP>(1)</SUP></font></td>
<td align=right><font size=2  face="times new roman, serif">101,443</font></td>
<td align=right><font size=2  face="times new roman, serif">4,624</font></td>
<td align=right><font size=2  face="times new roman, serif">8,111</font></td>
<td align=right><font size=2  face="times new roman, serif">7,566</font></td>
<td align=right><font size=2  face="times new roman, serif">81,142</font></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">Operating leases</font></td>
<td align=right><font size=2  face="times new roman, serif">4,803</font></td>
<td align=right><font size=2  face="times new roman, serif">1,067</font></td>
<td align=right><font size=2  face="times new roman, serif">2,174</font></td>
<td align=right><font size=2  face="times new roman, serif">1,424</font></td>
<td align=right><font size=2  face="times new roman, serif">138</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Purchase commitments<SUP>(2)</SUP></font></td>
<td align=right><font size=2  face="times new roman, serif">5,212</font></td>
<td align=right><font size=2  face="times new roman, serif">5,111</font></td>
<td align=right><font size=2  face="times new roman, serif">101</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">Losses and claims<SUP>(3)</SUP></font></td>
<td align=right><font size=2  face="times new roman, serif">156,581</font></td>
<td align=right><font size=2  face="times new roman, serif">57,935</font></td>
<td align=right><font size=2  face="times new roman, serif">45,408</font></td>
<td align=right><font size=2  face="times new roman, serif">21,921</font></td>
<td align=right><font size=2  face="times new roman, serif">31,317</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Future policy benefits<SUP>(4)</SUP></font></td>
<td align=right><font size=2  face="times new roman, serif">51,752</font></td>
<td align=right><font size=2  face="times new roman, serif">8,280</font></td>
<td align=right><font size=2  face="times new roman, serif">16,043</font></td>
<td align=right><font size=2  face="times new roman, serif">15,008</font></td>
<td align=right><font size=2  face="times new roman, serif">12,421</font></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">Unearned premiums<SUP>(5)</SUP></font></td>
<td align=right><font size=2  face="times new roman, serif">33,128</font></td>
<td align=right><font size=2  face="times new roman, serif">14,576</font></td>
<td align=right><font size=2  face="times new roman, serif">9,938</font></td>
<td align=right><font size=2  face="times new roman, serif">4,638</font></td>
<td align=right><font size=2  face="times new roman, serif">3,976</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Other policy liabilities</font></td>
<td align=right><font size=2  face="times new roman, serif">5,547</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">5,547</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">-</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">-</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">-</font><hr width=100% size=1></td>
</tr>
<tr valign=top>
<td valign=top><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;412,454</font><hr noshade width=100% size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;101,890</font><hr noshade width=100% size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;89,775</font><hr noshade width=100% size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50,557</font><hr noshade width=100% size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;170,232</font><hr noshade width=100% size=2></td>
</tr>
</table>







<table width=100% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=4%></td>
<td width=96%></td>

</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(1)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Interest payable is based on interest rates as of September 30, 2006 and assumes that all debt remains  outstanding  until its
         stated  contractual  maturity.  The interest rates on outstanding  bank debt and trust preferred  obligations are variable and
         are equal to three-month LIBOR plus an applicable predetermined margin.</font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(2)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Represents  balances due for goods and/or  services which have been  contractually  committed as of September 30, 2006. To the
         extent contracts  provide for early  termination with notice but without penalty,  only the amounts  contractually due through
         the notice period have been included.</font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(3)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Losses and claims  include  case  reserves for reported  claims and  reserves  for claims  IBNR.  While  payments due on claim
         reserves  are  considered  contractual  obligations  because  they relate to insurance  policies  issued by the  Company,  the
         ultimate  amount  to be paid to  settle  both  case  reserves  and  IBNR  reserves  is an  estimate,  subject  to  significant
         uncertainty.  The actual  amount to be paid is not  determined  until the Company  reaches a  settlement  with any  applicable
         claimant.  Final claim settlements may vary  significantly  from the present  estimates,  particularly  since many claims will
         not be settled until well into the future.  In estimating the timing of future payments by year for quarterly  reporting,  the
         Company has assumed that its historical  payment  patterns will continue.  However,  the actual timing of future payments will
         likely vary materially from these  estimates due to, among other things,  changes in claim reporting and payment  patterns and
         large unanticipated  settlements.  Amounts reflected do not include reinsurance amounts which may also be recoverable based on
         the level of ultimate sustained loss.</font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(4)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Future policy  benefits relate to life insurance  policies on which the Company is not currently  making payments and will not
         make future payments unless and until the occurrence of an insurable event,  such as a death or disability,  or the occurrence
         of a payment  triggering event,  such as a surrender of a policy.  Occurrence of any of these events is outside the control of
         the  Company and the  payment  estimates  are based on  significant  uncertainties  such as  mortality,  morbidity,  expenses,
         persistency,  investment returns,  inflation and the timing of payments.  For regulatory  purposes,  the Company performs cash
         flow modeling of such liabilities,  which is the basis for the indicated  disclosure;  however, due to the significance of the
         assumptions used, the amounts presented could materially differ from actual results.</font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(5)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Unearned premiums represent  potential future revenue for the Company;  however,  under certain  circumstances,  such premiums
         may be refundable with  cancellation of the underlying  policy.  Significantly all unearned premiums will be earned within the
         following  twelve month period as the related future insurance  protection is provided.  Significantly  all origination  costs
         related to such  unearned  premiums  have already  been  incurred  and paid and are  included in deferred  acquisition  costs;
         however,  future losses  related to the unearned  premiums have not been  recorded.  The  contractual  obligations  related to
         unearned  premiums  reflected  in the table  represent  the average  loss ratio  applied to the quarter end  unearned  premium
         balances,  with loss  payments  projected  in  comparable  proportions  to the year end loss and claims  reserves.  Projecting
         future losses is subject to significant  uncertainties and the projected  payments will most likely vary materially from these
         estimates as a result of differences in future severity,  frequency and other anticipated and unanticipated  factors.  Amounts
         reflected do not take into account  reinsurance  amounts  which may be  recoverable  based on the level of ultimate  sustained
         loss.</font></td>
</tr>



</table>

<p align=center><font face="times new roman, serif" size=2>-25-</font></p>









<PAGE>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>




<a name="quantitative_and_qualitative_disclosures"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>



<p><font face="times new roman, serif" size=2><u>Item 3. Quantitative and Qualitative Disclosures About Market Risk</u>
</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Due to the nature of the
Company&#146;s business it is exposed to both interest rate and market risk.
Changes in interest rates, which have historically represented the largest
market risk factor affecting the Company, may result in changes in the fair
market value of the Company&#146;s investments, cash flows and interest income
and expense. The Company is also subject to risk from changes in equity prices.
There have been no material changes to the Company&#146;s market risks since
December 31, 2005, as identified in the Company&#146;s Annual Report on Form
10-K for the fiscal year ended December 31, 2005.</FONT></P>



<a name="controls_and_procedures"></a>
<p><font face="times new roman, serif" size=2><u>Item 4. Controls and Procedures</u>
</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 as of the end of the period covered by this report.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There have been no changes
in our internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.</FONT></P>



<p><font face="times new roman, serif" size=2><b>FORWARD-LOOKING STATEMENTS</b>
</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This report contains and references
certain information that constitutes forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Those
statements, to the extent they are not historical facts, should be considered
forward-looking and subject to various risks and uncertainties. Such
forward-looking statements are made based upon management&#146;s current
assessments of various risks and uncertainties, as well as assumptions made in
accordance with the &#147;safe harbor&#148; provisions of the Private Securities
Litigation Reform Act of 1995. The Company&#146;s actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of such risks and uncertainties, including those identified in the
Company&#146;s Annual Report on Form 10-K for the fiscal year ended December 31,
2005 and the other filings made by the Company from time to time with the
Securities and Exchange Commission.</I> </FONT></P>






<p align=center><font face="times new roman, serif" size=2>-26-</font></p>
<HR SIZE=2 NOSHADE>








<PAGE>
<H5 align="left" style="page-break-before:always"></H5>




<a name="legal_proceedings"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>






<p align=center><font face="times new roman, serif" size=2><b>PART II.  OTHER INFORMATION</b>
</font></p>


<p><font face="times new roman, serif" size=2><u>Item 2. Unregistered Sales of Equity Securities and Use of Proceeds</u>
</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May 2, 1995, the Board
of Directors of the Company approved an initial plan that allowed for the
repurchase of shares of the Company&#146;s common stock (the &#147;Repurchase
Plan&#148;). As amended since its original adoption, the Repurchase Plan
currently allows for repurchases of up to an aggregate of 2.0 million shares of
the Company&#146;s common stock on the open market or in privately negotiated
transactions, as determined by an authorized officer of the Company. Such
purchases can be made from time to time in accordance with applicable securities
laws and other requirements.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other than pursuant to the
Repurchase Plan, no purchases of common stock of the Company were made by or on
behalf of the Company during the periods described below. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth
information regarding repurchases by the Company of shares of its common stock
on a monthly basis during the three months ended September 30, 2006.</FONT></P>


<table width=100% cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=30%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td align=center><font size=2  face="times new roman, serif"><b>Period</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Total Number<BR>of Shares<BR>Purchased</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Average<BR>Price Paid<BR>per Share</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Total Number<BR>of Shares<BR>Purchased as<BR>
Part of Publicly<BR>Announced<BR>Plans or<BR>Programs</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Maximum<BR>Number of<BR>Shares That<BR>
May Yet Be<BR>Purchased<BR>Under the<BR>Plans or<BR>Programs</b>
</font><hr width=100% size=1></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">July 1 - July 31, 2006</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;878</font></td>
<td align=center><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.05</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;878</font></td>
<td align=center><font size=2  face="times new roman, serif">577,820</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">August 1 - August 31, 2006</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;560</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.69</font></td>

<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;560</font></td>
<td align=center><font size=2  face="times new roman, serif">577,260</font></td>
</tr>


<tr valign=top>
<td><font size=2  face="times new roman, serif">September 1 - September 30, 2006</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;254</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.71</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;254</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">577,006</font></td>
</tr>






<tr valign=top bgcolor="#eeeeee">
<td align=center><font size=2  face="times new roman, serif"><b>Total</b></font></td>
<td align=center><font size=2  face="times new roman, serif">1,692&nbsp;</font><hr noshade size=2></td>
<td align=center><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.88</font><hr noshade size=2></td>
<td align=center><font size=2  face="times new roman, serif">1,692&nbsp;</font><hr noshade size=2></td>
<td>&nbsp;</td>
</tr>
</table>




<a name="exhibits_and_reports"></a>
<p><font face="times new roman, serif" size=2><u>Item 6.&nbsp; Exhibits</u></font></p>

<table width=100% cellspacing=0 cellpadding=1 border=0>
<tr>
<td width=8%></td>
<td width=92%></td>

</tr>


<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;3.1 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2>
Text of Amendment to Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company&#146;s Current Report
on Form 8-K, filed on October 4, 2006).</font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;3.2 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2>
Statement of Relative Rights and Preferences of the Series D Preferred Stock
(incorporated by reference to Exhibit 3.2 to the Company&#146;s Current Report
on Form 8-K, filed on October 4, 2006).</font></td>
</tr>


<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>31.1 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2>
<A HREF="exhibit_31106.htm">Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes Oxley&#150;Act of 2002.</A></font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>31.2&nbsp;&nbsp;&nbsp; &#150;</font></td>
<td><font face="times new roman, serif" size=2><A HREF="exhibit_31206.htm">
Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes Oxley&#150;Act of 2002.</a></font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>32.1 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2><A HREF="exhibit_32106.htm">
Certifications
pursuant to Section 906 of the Sarbanes Oxley&#150;Act of 2002.</a></font></td>
</tr>
</table>





<BR><BR><BR>
<p align=center><font face="times new roman, serif" size=2>-27-</font></p>

<HR SIZE=2 NOSHADE>







<PAGE>
<H5 align="left" style="page-break-before:always"></H5>



<a name="signature"></a>
<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>

<p align=center><font size=2 face="times new roman, serif"><u><b>SIGNATURES</b></u></font></p>

<p align=justify><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements 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.</font></p>


<p align=center><font size=2 face="times new roman, serif"><u> ATLANTIC AMERICAN CORPORATION<BR></u>
(Registrant)</font></p>
<BR>
<BR>
<BR>


<table width=80% align=left cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=45%><font size=2 face="times new roman, serif">Date:&nbsp;<u> November 14, 2006</u></font></td>
<td width=55%><font size=2 face="times new roman, serif">By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font><font face="times new roman, serif" size=2>
<u>/s/ John G. Sample, Jr.</u></font> <BR>
<font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;John G. Sample, Jr.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior Vice President and Chief Financial Officer
</font></td>
</tr>
</table>


<BR><BR><BR><BR><BR>

<BR><BR><BR><BR><BR>
<BR><BR><BR><BR><BR>

<p align=center>
<font face="times new roman, serif" size=2>-28-</font></p>
<HR SIZE=2 NOSHADE>







<PAGE>
<H5 align="left" style="page-break-before:always"></H5>



<p><font size=2 face="times new roman, serif"><b><A HREF="#table_of_contents">TABLE OF CONTENTS</A></b></font></p>

<p align=center><font face="times new roman, serif" size=2><b><U>EXHIBIT INDEX</U></B></FONT></P>

<table width=630 align=center cellspacing=5 cellpadding=8 border=0>
<tr>
<td><font size=2 face="times new roman, serif"><b>Exhibit<BR><u>Number</u></b></font></td>
<td colspan=2><font size=2 face="times new roman, serif"><b>&nbsp;<BR><u> Title</u></b></font></td>

</tr>

<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;31.1</FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR><A HREF="exhibit_31106.htm">Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>


<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;31.2 </FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR><A HREF="exhibit_31206.htm">Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;32.1</FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="exhibit_32106.htm">Certifications
pursuant to Section 906 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>
</table>
<BR><BR><BR><BR><BR>


</body>
</html>










</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit_31106.htm
<DESCRIPTION>CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
<TEXT>
<html>
<head>
<title>
Exhibit 31.1
</title>
</head>
<body>
<A NAME="certification_executive"></A>
<p align=right><font face="times new roman, serif" size=2><b><u>EXHIBIT 31.1</u></b></font></p>

<p align=center><font size=2 face="times new roman, serif"><b>CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER<BR>PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002</b></font></p>

<p><font size=2  face="times new roman, serif">I, Hilton H. Howell, Jr., certify that:</font></p>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>

<tr>

<td width=5 align=center><font face="times new roman, serif" size=2>1.</font></td>
<td colspan=2 align=justify><font size=2 face="times new roman, serif">
I have reviewed this report on Form 10-Q of Atlantic American Corporation;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">2.</font></td>
<td valign=top><p align=justify><font size=2 face="times new roman, serif">
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
              necessary to make the statements made, in light of the circumstances under which such statements were made, not
              misleading with respect to the period covered by this report;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">3.</font></td>
<td valign=top><p align=justify><font size=2 face="times new roman, serif">
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
              all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
              the periods presented in this report;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">4.</font></td>
<td colspan=2><p align=justify><font size=2  face="times new roman, serif">
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:</font></td>
</tr>

</table>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>a)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
                      supervision, to ensure that material information relating to the registrant, including its consolidated
                      subsidiaries, is made known to us by others within those entities, particularly during the period in which this
                      report is being prepared;</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>b)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
                      conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
                      covered by this report based on such evaluation; and
</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>c)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
                      registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
                      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
                      control over financial reporting; and
</font></td>
</tr>
</table>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>

<tr valign=top>

<td width=5 align=center><font face="times new roman, serif" size=2>5.</font></td>
<td colspan=2 align=justify><font size=2 face="times new roman, serif">
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
              financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons
              performing the equivalent functions):

</font></td>
</tr>
</table>
<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr valign=top>
<td width=10>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>a)</font></td>
<td valign=top><p align=justify><font face="times new roman, serif" size=2>
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
                      which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
                      report financial information; and
</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>b)</font></td>
<td valign=top><p align=justify><font face="times new roman, serif" size=2>
any fraud, whether or not material, that involves management or other employees who have a significant role in the
                      registrant's internal control over financial reporting.
</font></td>
</tr>
</table>
<table align=center width=95% cellspacing=0 cellpadding=8 border=0>





<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 14, 2006&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font>
</td>
<td>
&nbsp;
</td>
<td align=center>
<font size=2  face="times new roman, serif"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
President and Chief Executive Officer</font></td>
</tr>
</table>
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<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>exhibit_31206.htm
<DESCRIPTION>CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
<TEXT>
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<head>
<title>
Exhibit 31.2
</title>
</head>
<body>
<A NAME="certification_financial"></A>
<p align=right><font face="times new roman, serif" size=2><b><u>EXHIBIT 31.2</u></b></font></p>

<p align=center><font size=2 face="times new roman, serif"><b>CERTIFICATION
OF THE PRINCIPAL FINANCIAL OFFICER<BR>PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002</b></font></p>

<p><font size=2  face="times new roman, serif">I, John G. Sample, Jr., certify that:</font></p>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>

<tr>

<td width=5 align=center><font face="times new roman, serif" size=2>1.</font></td>
<td colspan=2 align=justify><font size=2 face="times new roman, serif">
I have reviewed this report on Form 10-Q of Atlantic American Corporation;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">2.</font></td>
<td valign=top><p align=justify><font size=2 face="times new roman, serif">
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
              necessary to make the statements made, in light of the circumstances under which such statements were made, not
              misleading with respect to the period covered by this report;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">3.</font></td>
<td valign=top><p align=justify><font size=2 face="times new roman, serif">
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
              all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
              the periods presented in this report;</font></td>
</tr>

<tr valign=top>
<td align=center><font size=2 face="times new roman, serif">4.</font></td>
<td colspan=2><p align=justify><font size=2  face="times new roman, serif">
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
              procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:</font></td>
</tr>

</table>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>a)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
                      supervision, to ensure that material information relating to the registrant, including its consolidated
                      subsidiaries, is made known to us by others within those entities, particularly during the period in which this
                      report is being prepared;
</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>b)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
                      conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
                      covered by this report based on such evaluation; and
</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>c)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
                      registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
                      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
                      control over financial reporting; and
</font></td>
</tr>
</table>

<table align=center width=95% cellspacing=0 cellpadding=8 border=0>

<tr valign=top>

<td width=5 align=center><font face="times new roman, serif" size=2>5.</font></td>
<td colspan=2 align=justify><font size=2 face="times new roman, serif">
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
              financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons
              performing the equivalent functions):
</font></td>
</tr>
</table>
<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr valign=top>
<td width=10>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>a)</font></td>
<td valign=top><p align=justify><font face="times new roman, serif" size=2>
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
                      which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
                      report financial information; and
</font></td>
</tr>
<tr valign=top>
<td width=10>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>b)</font></td>
<td valign=top><p align=justify><font face="times new roman, serif" size=2>
any fraud, whether or not material, that involves management or other employees who have a significant role in the
                      registrant's internal control over financial reporting.
</font></td>
</tr>
</table>
<table align=center width=95% cellspacing=0 cellpadding=8 border=0>





<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 14, 2006&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font>
</td>
<td>
&nbsp;
</td>
<td align=center>
<font size=2  face="times new roman, serif"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ John G. Sample, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
John G. Sample, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
Senior Vice President and <BR>Chief Financial Officer</font></td>
</tr>
</table>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>exhibit_32106.htm
<DESCRIPTION>CERTIFICATIONS PURSUANT TO SECTION 906
<TEXT>
<html>
<head>
<title>
Exhibit 32.1
</title>
</head>
<body>




<p align=right><font size=2 face="times new roman, serif"><B><U>EXHIBIT 32.1</U></B></font></p>

<p><font size=2  face="times new roman, serif">
Certifications Pursuant to &sect;906 of the Sarbanes-Oxley Act of 2002</font></p>
<p align=justify><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

             Pursuant to 18 U.S.C.
&#167;1350, as adopted pursuant to &#167;906 of the Sarbanes-Oxley Act of 2002,
in connection with the filing of the Quarterly Report on Form 10-Q of Atlantic
American Corporation (the &#147;Company&#148;) for the quarterly period ended
September 30, 2006, as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), each of the undersigned officers of the Company
certifies, that, to such officer&#146;s knowledge:</font></p>
<table width=95% cellpadding=0 cellspacing=8 border=0>
<tr valign=top>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td width=5 align=center><font face="times new roman, serif" size=2>(1)</font></td>
<td colspan=2><p align=justify><font size=2 face="times new roman, serif">
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and</font></td>
</tr>
<tr valign=top>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td width=5 align=center><font face="times new roman, serif" size=2>(2)</font></td>
<td colspan=2><p align=justify><font size=2 face="times new roman, serif">
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
               operations of the Company as of the dates and for the periods expressed in the Report.</font></td>
</tr>
</table>


<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 14, 2006&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font>
</td>
<td>
&nbsp;
</td>
<td align=center>
<font size=2  face="times new roman, serif"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
President and Chief Executive Officer</font></td>
</tr>
</table>




<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 14, 2006&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font>
</td>
<td>
&nbsp;
</td>
<td align=center>
<font size=2  face="times new roman, serif"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ John G. Sample, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
John G. Sample, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
Senior Vice President and <BR>Chief Financial Officer</font></td>
</tr>
</table>

<BR><BR><BR><BR>

<p align=justify><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

         A signed original of this
written statement required by Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906,
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.</font></p>








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