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<SEC-DOCUMENT>0000008177-07-000013.txt : 20070514
<SEC-HEADER>0000008177-07-000013.hdr.sgml : 20070514
<ACCEPTANCE-DATETIME>20070514142956
ACCESSION NUMBER:		0000008177-07-000013
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20070331
FILED AS OF DATE:		20070514
DATE AS OF CHANGE:		20070514

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:			0228

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-03722
		FILM NUMBER:		07845693

	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>form10q1st07.htm
<DESCRIPTION>CURRENT REPORT
<TEXT>
<html>
<head>
<title>
Form 10Q 1st Qtr 2007
</title>
</head>
<body>
<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 March 31, 2007</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
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 May 9,
2007, was 21,587,627. </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=630 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>
March 31, 2007 and December 31, 2006</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 ended March 31, 2007 and 2006</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>
         Three months ended March 31, 2007 and 2006 </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>
Three months ended March 31, 2007 and 2006</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">
<td valign=top><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">12</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">Quantitative and Qualitative Disclosures About Market Risks</A></font></td>
<td align=center><font size=2 face="times new roman, serif">21</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">21</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="#exhibits_and_reports">Unregistered Sales of Equity Securities and Use of Proceeds</A></font></td>
<td align=center><font size=2 face="times new roman, serif">21</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_on_form_8k">Exhibits</A></font></td>
<td align=center><font size=2 face="times new roman, serif">22</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">23</font></td>
</tr>
</table>






<PAGE>




<HR SIZE=2       COLOR=GRAY 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=72%></td>
<td width=14%></td>
<td width=14%></td>
</tr>
<tr>
<td align=center colspan=3><font size=2 face="times new roman, serif"><b>ASSETS</b></font></td>

</tr>
<tr>
<td>&nbsp;</td>
<td align=center> <font size=2 face="times new roman, serif"><i>Unaudited</i><BR>March 31,<BR> 2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">&nbsp;<BR>December 31,<BR>2006</font><hr noshade size=1></td>
</tr>
</TABLE>
<TABLE WIDTH=630 ALIGN=CENTER CELLSPACING=0 CELLPADDING=3 BORDER=0>
<tr>
<td width=72%></td>
<td width=14%></td>
<td width=14%></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 $5 and $20,188</font></td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,991</font><hr noshade size=1></td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27,294</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: $268,193 and $260,400)</font></td>
<td align=right><font size=2 face="times new roman, serif">270,934</font></td>
<td align=right> <font size=2 face="times new roman, serif">262,316</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: $11,279 and $11,279)</font></td>
<td align=right><font size=2 face="times new roman, serif">29,367</font></td>
<td align=right> <font size=2 face="times new roman, serif">28,826</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=left> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other invested assets (cost: $3,150 and $3,099)</font></td>
<td align=right> <font size=2 face="times new roman, serif">3,090</font></td>
<td align=right><font size=2 face="times new roman, serif">3,030</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;1,360</font></td>
<td align=right><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;1,378</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">1,908</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,949</font></td>
</tr>
<tr valign=top>
<td> <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 align=right> <font size=2 face="times new roman, serif">38</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td> <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 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"> 307,935</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif"> 298,775</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>
</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">57,670</font></td>
<td align=right><font size=2 face="times new roman, serif"> 54,493</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: $1,419 and $1,718)</font></td>
<td align=right> <font size=2 face="times new roman, serif">28,740</font></td>
<td align=right> <font size=2 face="times new roman, serif">34,976</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">4,848</font></td>
<td align=right><font size=2 face="times new roman, serif">5,755</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">23,030</font></td>
<td align=right><font size=2 face="times new roman, serif">24,418</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">9,779</font></td>
<td align=right><font size=2 face="times new roman, serif">9,913</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<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 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;449,001</font><hr noshade size=3> </td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;458,632</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 WIDTH=630 ALIGN=CENTER CELLSPACING=0 CELLPADDING=3 BORDER=0>
<TR>
<TD width=72%><font size=2 face="times new roman, serif">Insurance reserves and policy funds:</font></td>
<td width=14%>&nbsp;</td>
<td width=14%>&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=14%><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;52,406</font></td>
<td align=right width=14%><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;52,019</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">45,008</font></td>
<td align=right><font size=2 face="times new roman, serif">50,722</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">166,173</font></td>
<td align=right><font size=2 face="times new roman, serif">162,950</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">1,658</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">1,816</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">265,245</font></td>
<td align=right> <font size=2 face="times new roman, serif">267,507</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">34,077</font></td>
<td align=right> <font size=2 face="times new roman, serif">42,949</font></td>
</tr>



<tr valign=top 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">12,750</font></td>
<td align=right><font size=2 face="times new roman, serif">12,750</font></td>
</tr>

<tr valign=top>
<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 align=right><font size=2 face="times new roman, serif">41,238</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;Total liabilities</font></td>
<td align=right><font size=2 face="times new roman, serif"> 353,310</font><HR NOSHADE SIZE=1></td>
<td align=right> <font size=2 face="times new roman, serif">364,444</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Commitments and contingencies (Note 10)</font></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>
</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;&nbsp;$13,400 redemption value</font></td>
<td align=right><font size=2 face="times new roman, serif">134</font></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 shares issued and outstanding;<BR>
       &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$7,000 redemption value</font></td>
<td align=right><font size=2 face="times new roman, serif">70</font></td>
<td align=right> <font size=2 face="times new roman, serif">70</font></td>
</tr>

<tr valign=bottom>
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock, $1 par, 50,000,000 shares authorized;<BR>
      &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares issued: 21,542,169 and 21,484,440;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares outstanding: 21,542,169 and 21,481,413</font></td>
<td align=right><font size=2 face="times new roman, serif"> 21,542</font></td>
<td align=right><font size=2 face="times new roman, serif"> 21,484</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">55,974</font></td>
<td align=right><font size=2 face="times new roman, serif">55,832</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retained earnings</font></td>
<td align=right><font size=2 face="times new roman, serif">5,413</font></td>
<td align=right><font size=2 face="times new roman, serif">4,969</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">12,558</font></td>
<td align=right><font size=2 face="times new roman, serif">11,707</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Treasury stock, at cost: 0 and 3,027 shares</font></td>

<td align=right> <font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td align=right> <font size=2 face="times new roman, serif">(8)</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">95,691</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">94,188</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;&nbsp;449,001</font><HR NOSHADE SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;458,632</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>






<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=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=20%></td>
<td width=20%></td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=2><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<HR NOSHADE SIZE=1></td>
</tr>

<tr valign=bottom>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><HR NOSHADE SIZE=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><HR NOSHADE SIZE=1></td>

</tr>
</table>
<table align=center width=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=60%></td>
<td width=20%></td>
<td width=20%></td>
</tr>


<tr>
<td bgcolor="#eeeeee"><font size=2 face="times new roman, serif">Revenue:</font></td>
<td bgcolor="#eeeeee" colspan=4>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Insurance premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;35,100</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;40,334</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Investment income</font></td>
<td align=right><font size=2 face="times new roman, serif">4,470</font></td>
<td align=right><font size=2 face="times new roman, serif">4,463</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Realized investment gains, net</font></td>
<td align=right><font size=2 face="times new roman, serif">17</font></td>
<td align=right><font size=2 face="times new roman, serif">3,968</font></td>

</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other income</font></td>
<td align=right><font size=2 face="times new roman, serif">311</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">320</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 revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">39,898</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">49,085</font><HR NOSHADE SIZE=1></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Benefits and expenses:</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Insurance benefits and losses incurred</font></td>
<td align=right><font size=2 face="times new roman, serif">22,395</font></td>
<td align=right><font size=2 face="times new roman, serif">25,418</font></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Commissions and underwriting expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">11,535</font></td>
<td align=right><font size=2 face="times new roman, serif">13,666</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Interest expense</font></td>
<td align=right><font size=2 face="times new roman, serif">1,030</font></td>
<td align=right><font size=2 face="times new roman, serif">1,045</font></td>

</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other</font></td>
<td align=right><font size=2 face="times new roman, serif">3,617</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">3,904</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 benefits and expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">38,577</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">44,033</font><HR NOSHADE SIZE=1></td>

</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Income before income tax expense</font></td>
<td align=right><font size=2 face="times new roman, serif">1,321</font></td>
<td align=right><font size=2 face="times new roman, serif">5,052</font></td>

</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Income tax expense</font></td>
<td align=right><font size=2 face="times new roman, serif">470</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">1,558</font><HR NOSHADE SIZE=1></td>

</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net income</font></td>
<td align=right><font size=2 face="times new roman, serif">851</font></td>
<td align=right><font size=2 face="times new roman, serif">3,494</font></td>

</tr>
<tr valign=top>
<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">(407)</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">(301)</font><HR NOSHADE SIZE=1></td>

</tr>
<tr valign=top bgcolor="#eeeeee">
<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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;444</font><HR NOSHADE
SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,193</font><HR NOSHADE SIZE=2>
</td>
</tr>
<tr valign=top>
<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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.02</font>
<HR NOSHADE SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.15</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 (diluted)</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.02</font>
<HR NOSHADE SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.14</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>





<PAGE>

<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>

<p align=center><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></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 valign=top bgcolor="#eeeeee">
<td align=left><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Three Months Ended March 31, 2007</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">Net<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, 2006</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,484</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;55,832</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,969</font></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,707</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;94,188</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">851</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">851</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;
Increase in unrealized investment gains</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">1,375</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">1,375</font></td>
</tr>

<tr valign=bottom>
<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;
financial instrument</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(66)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(66)</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;
Deferred income tax attributable to other<BR>&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">(458)</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(458)</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">1,702</font><hr noshade size=1></td>

</tr>

<tr bgcolor="#eeeeee">
<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">(407)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(407)</font></td>
</tr>

<tr>
<td><font size=1 face="times new roman, serif">Common stock issued in lieu of preferred<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
stock dividend payments</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>43</font></td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>84</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>127</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">1</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">1</font></td>

</tr>
<tr>
<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">16</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">16</font></td>
</tr>

<tr bgcolor="#eeeeee">
<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">(4)</font></td>
<td align=right><font size=1 face="times new roman, serif">(4)</font></td>
</tr>
<tr valign=bottom>
<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>15</font><hr noshade size=1></td>
<td align=right><font face="times new roman, serif" size=1>41</font><hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>

<td align=right><font size=1 face="times new roman, serif">12</font><hr noshade size=1></td>

<td align=right><font size=1 face="times new roman, serif">68</font><hr noshade size=1></td>

</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Balance, March 31, 2007</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,542</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;55,974</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;5,413</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;12,558</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;95,691</font><hr noshade size=2></td>

</tr>



<tr>
<td><font size=1 face="times new roman, serif">Three Months Ended March 31, 2006</font><hr noshade size=2></td>
<td colspan=7>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td colspan=9>&nbsp;</td>
</tr>


<tr bgcolor="#eeeeee">
<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;(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;(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>
<td><font size=1 face="times new roman, serif">Comprehensive income:</font></td>
<td colspan=8>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<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">3,494</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">3,494</font></td>

</tr>
<tr>
<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">(3,397)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(3,397)</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;
Fair value adjustment to derivative<BR>&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>132</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>132</font></td>
</tr>
<tr>
<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;
comprehensive income<BR>&nbsp;</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">1,143</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>1,143</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<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">1,372</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">(301)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(301)</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">1</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">1</font></td>
</tr>
<tr>
<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">16</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">16</font></td>
</tr>

<tr bgcolor="#eeeeee">
<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">(16)</font></td>
<td align=right><font size=1 face="times new roman, serif">(16)</font></td>
</tr>
<tr valign=bottom>
<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>(5)</font><hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>
<td>&nbsp;<hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">79</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">74</font><hr noshade size=1></td>

</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Balance, March 31, 2006</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">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;48,937</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;413</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,724</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(21)</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;81,599</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">-4-</font></p>









<PAGE>
<HR SIZE=2       COLOR=GRAY NOSHADE>
<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><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></p>

<table align=center width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=20%></td>
<td width=20%></td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=2><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<HR NOSHADE SIZE=1></td>
</tr>

<tr valign=bottom>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><HR NOSHADE SIZE=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><HR NOSHADE SIZE=1></td>

</tr>
</table>
<table align=center width=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=60%></td>
<td width=20%></td>
<td width=20%></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>
</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;&nbsp;&nbsp;&nbsp;851</font></td>
<td align=right><font size=2 face="times new roman, serif"> $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,494</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;used in operating activities:</font></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;Amortization of deferred acquisition costs</font></td>
<td align=right><font size=2 face="times new roman, serif">5,524</font></td>
<td align=right><font size=2 face="times new roman, serif">6,754</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition costs deferred</font></td>
<td align=right><font size=2 face="times new roman, serif">(4,136)</font></td>
<td align=right><font size=2 face="times new roman, serif">(5,399)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realized investment gains</font></td>
<td align=right><font size=2 face="times new roman, serif">(17)</font></td>
<td align=right><font size=2 face="times new roman, serif">(3,968)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<Td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in insurance reserves</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,262)</font></td>
<td align=right><font size=2 face="times new roman, serif">(11,259)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&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">17</font></td>
<td align=right><font size=2 face="times new roman, serif">17</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and (accretion) amortization</font></td>
<td align=right><font size=2 face="times new roman, serif">(127)</font></td>
<td align=right><font size=2 face="times new roman, serif">266</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax expense</font></td>
<td align=right><font size=2 face="times new roman, serif">450</font></td>
<td align=right><font size=2 face="times new roman, serif">1,548</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">1,833</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;11,292</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">(9,218)</font></td>
<td align=right><font size=2 face="times new roman, serif">(8,571)</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">213</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">60</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;Net cash used in operating activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(6,872)</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">(5,766)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM INVESTING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Proceeds from investments sold, called, or matured</font></TD>
<td align=right><font size=2 face="times new roman, serif">15,842</font></td>
<td align=right><font size=2 face="times new roman, serif">19,357</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Investments purchased</font></td>
<td align=right><font size=2 face="times new roman, serif">(22,001)</font></td>
<td align=right><font size=2 face="times new roman, serif">(42,067)</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Additions to property and equipment</font></td>
<td align=right><font size=2 face="times new roman, serif">(268)</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">(71)</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 investing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(6,427)</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">(22,781)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM FINANCING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Repayments of debt</font></td>
<td align=right><font size=2 face="times new roman, serif">(9,000)</font></td>
<td align=right><font size="-1" face="times new roman, serif">-</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Proceeds from bank financing</font></td>
<td align=right><font size=2 face="times new roman, serif">9,000</font></td>
<td align=right><font size="-1" face="times new roman, serif">3,000</font></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Purchase of treasury shares</font></td>
<td align=right><font size="-1" face="times new roman, serif">(4)</font><HR NOSHADE SIZE=1></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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash (used in) provided by financing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(4)</font><HR NOSHADE SIZE=1></td>
<td align=right><font size=2 face="times new roman, serif">2,984</font><HR NOSHADE SIZE=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net decrease in cash and cash equivalents</font></td>
<td align=right><font size=2 face="times new roman, serif">(13,303)</font></td>
<td align=right><font size=2 face="times new roman, serif">(25,563)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Cash and cash equivalents at beginning of period</font></td>
<td align=right><font size=2 face="times new roman, serif">27,294</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">41,776</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee" >
<td><font size=2 face="times new roman, serif">Cash and cash equivalents at end of period </font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,991</font>
<HR NOSHADE SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,213</font>
<HR NOSHADE SIZE=2></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"><b>SUPPLEMENTAL CASH FLOW INFORMATION:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Cash paid for interest</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;1,039</font><HR NOSHADE SIZE=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1,029</font><HR NOSHADE SIZE=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Cash paid for income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font><HR NOSHADE SIZE=2></td>
<td align=right><font size="-1" face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
100</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">-5-</font></p>








<PAGE>

<HR SIZE=2       COLOR=GRAY NOSHADE>
<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>
                                                             March 31, 2007</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,
2006. Operating results for the three month period ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2007.</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 February&#160;2007, the
Financial Accounting Standards Board (&#147;FASB&#148;)&#160;issued Statement of Financial Accounting Standards ("SFAS")
No.&#160;159, &#147;The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement No.&#160;115.&#148; This
statement permits entities to choose, at specified election dates, to measure
eligible items at fair value (i.e. the fair value option). Items eligible for
the fair value option include certain recognized financial assets and
liabilities, rights and obligations under certain insurance contracts that are
not financial instruments, host financial instruments resulting from the
separation of an embedded nonfinancial derivative instrument from a nonfinancial
hybrid instrument, and certain commitments. Business entities are required to
report unrealized gains and losses on items for which the fair value option has
been elected in net income. The fair value option: (a)&#160;may be applied
instrument by instrument, with certain exceptions; (b)&#160;is irrevocable
(unless a new election date occurs); and (c)&#160;is applied only to entire
instruments and not to portions of instruments. SFAS No. 159 is effective as of
the beginning of an entity&#146;s first fiscal year that begins after
November&#160;15, 2007, although early adoption is permitted under certain
conditions. The Company does not currently expect to apply the fair value option
to any eligible items.</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 Financial Interpretation No.&#160;(&#147;FIN&#148;) 48, &#147;Accounting
for Uncertainty in Income Taxes&#160;- an interpretation of FASB Statement
No.&#160;109.&#148; FIN 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 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN&#160;48 is effective for fiscal years beginning after
December&#160;15, 2006, with early adoption permitted. The Company adopted the
provisions of FIN 48 on January 1, 2007 and did not recognize any liability for
unrecognized tax benefits or adjust retained earnings. The Company&#146;s policy
is to classify interest and penalties related to unrecognized tax benefits in
income tax expense and as of January 1, 2007, the Company had no accrued
interest and penalties.&#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;2005, the
AICPA issued Statement of Position 05-1, &#147;Accounting by Insurance
Enterprises for Deferred Acquisition Costs (&#147;DAC&#148;) in Connection with
Modifications or Exchanges of Insurance Contracts&#148; (&#147;SOP 05-1&#148;).
SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on
internal replacements of insurance. An internal replacement is a modification in
product benefits, features, rights or coverages that occurs by the exchange of a
contract for a new contract, or by amendment, endorsement, or rider to a
contract, or by the election of a feature or coverage within a contract.
Modifications that result in a replacement contract that is substantially
changed from the replaced contract should be accounted for as an extinguishment
of the replaced contract. Unamortized DAC, unearned revenue liabilities and
deferred sales inducements from the replaced contract must be written-off.
Modifications that result in a contract that is substantially unchanged from the
replaced contract should be accounted for as a continuation of the replaced
contract. SOP 05-1 is effective for internal replacements occurring in fiscal
years beginning after December&#160;15, 2006, with earlier adoption encouraged.
The Company adopted SOP 05-1 on January 1, 2007. Adoption of this statement had
no impact on the Company&#146;s financial condition or results of
operations.&#160; </FONT></P>





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








<PAGE>

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



















<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 three
principal business units, each focusing on a specific geographic region and/or
specific products. Each business unit is managed independently and is evaluated
on its individual performance. The following summary sets forth the revenue and
pre-tax income (loss) for each principal business unit for the three month
periods ended March 31, 2007 and 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 2007, the Company
reported its segment data in accordance with the operating results of its four
primary operating subsidiaries. As previously disclosed, the Company has
completed its efforts to conform the information systems, policies and
procedures, products, marketing and managerial responsibilities between
Association Casualty Insurance Company and Georgia Casualty and Surety Company,
two of the Company&#146;s operating subsidiaries, to create a southern
&#147;regional&#148; property and casualty operation. Accordingly, effective
January 1, 2007, the Company began internally reporting the results and
activities of these companies on a combined basis.</FONT></P>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Segment data for prior periods has been restated to conform the prior presentation with that of the current period.</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=40%>&nbsp;</td>
<td width=15%>&nbsp;</td>
<td width=15%>&nbsp;</td>
</tr>
<tr>
<td align=left><font size=2 face="times new roman, serif"><b>Revenues</b></font></td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=40%></td>
<td width=15%></td>
<td width=15%></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Regional property and casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,611</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,150</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">12,335</font></td>
<td align=right><font size=2 face="times new roman, serif">14,550</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">15,659</font></td>
<td align=right><font size=2 face="times new roman, serif">17,834</font></td>
</tr>
<tr>
<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">4,514</font></td>
<td align=right><font size=2 face="times new roman, serif">4,548</font></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<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">(4,221)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">(3,997)</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 revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39,898</font>
<hr size=2 noshade></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;49,085</font>
<hr size=2 noshade></td>
</tr>
</table>








<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=40%>&nbsp;</td>
<td width=15%>&nbsp;</td>
<td width=15%>&nbsp;</td>
</tr>
<tr>
<td valign=top align=left><font size=2 face="times new roman, serif"><b>Income (loss) before income taxes</b></font></td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=40%></td>
<td width=15%></td>
<td width=15%></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Regional property and casualty</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;430</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,400</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">2,390</font></td>
<td align=right><font size=2 face="times new roman, serif">2,657</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">295</font></td>
<td align=right><font size=2 face="times new roman, serif">1,497</font></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">Corporate and other</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,794)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">(1,502)</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;Consolidated results</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,321</font>
<hr size=2 noshade></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,052</font>
<hr size=2 noshade></td>
</tr>
</table>
<p><font face="times new roman, serif" size=2><b><u>Note 4.</u></b>&nbsp;&nbsp;Credit Arrangements</font></p>

<p><font face="times new roman, serif" size=2><b><i>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 March 31, 2007, the
Company&#146;s $12,750 of bank debt consisted of a reducing revolving credit
facility (the &#147;Revolver&#148;) with Wachovia Bank, National Association
(&#147;Wachovia&#148;) pursuant to which the Company was able to, subject to the
terms and conditions thereof, initially borrow or reborrow up to $15,000 (the
&#147;Commitment Amount&#148;). The Commitment Amount is incrementally reduced
every six months beginning on July 1, 2007. The interest rate on amounts
outstanding under the Revolver is, at the option of the Company, equivalent to
either (a) the base rate (which equals the higher of the Prime Rate or 0.5%
above the Federal Funds Rate, each as defined) or (b) the London Interbank
Offered Rate (&#147;LIBOR&#148;) determined on an interest period of 1-month,
2-months, 3-months or 6-months, plus an Applicable Margin (as defined). The
Applicable Margin varies based upon the Company&#146;s leverage ratio (funded
debt to total capitalization, each as defined) and ranges from 1.75% to 2.50%.
Interest on amounts outstanding is payable quarterly. If not sooner repaid in
full, the Revolver requires the Company to repay $500 in principal on each of
June&#160;30 and December 31, 2007 and 2008, $1,000 and $1,500 in principal on
June 30 and December 31, 2009, respectively, and $10,500 in principal at
maturity on June 30, 2010. The Revolver requires the Company to comply with
certain covenants, including, among others, ratios that relate funded debt to
both 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,
certain payments, additional debt obligations, equity repurchases and
redemptions, as well as minimum risk-based capital levels. Upon the occurrence
of an event of default, Wachovia may terminate the Revolver and declare all
amounts outstanding due and payable in full. As of March 31, 2007, the
Revolver&#146;s effective interest rate was 7.99%. </FONT></P>






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








<PAGE>

<HR SIZE=2       COLOR=GRAY 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><b><i>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 align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The financial structure of
each of Atlantic American Statutory Trust I and II, as of March 31, 2007 was 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><font face="times new roman, serif" size=2>
JUNIOR SUBORDINATED DEBENTURES (1) (2)</font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td><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><font face="times new roman, serif" size=2>
Balance March 31, 2007</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><font face="times new roman, serif" size=2>
Balance December 31, 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>
<td><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><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><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><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><font face="times new roman, serif" size=2>
TRUST PREFERRED SECURITIES</font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td><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><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><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>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font></td>
</tr>
<tr>
<td><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><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><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><font face="times new roman, serif" size=2>
Distribution guaranteed by (3)</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>(1)</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>

</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>(2)</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 valign=top><font face="times new roman, serif" size=2>(3)</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>

<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=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated fair value
and related carrying value of the Company&#146;s rate collar at March 31, 2007
was a liability of approximately $231.</font></p>





<p align=center><font size=2 face="times new roman, serif">-8-</font></p>








<PAGE>

<HR SIZE=2       COLOR=GRAY 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><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=50%>&nbsp;</td>
<td width=12.5%>&nbsp;</td>
<td width=12.5%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended,<BR>March 31,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table align=left width=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=12.5%></td>
<td width=12.5%></td>

</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net realized gains on investments included in net income</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
17</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;3,968</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 bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;
Net pre-tax unrealized gains arising during period</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,392</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;571</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 valign=top align=right><font size=2 face="times new roman, serif">(17)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">(3,968)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net pre-tax unrealized gains (losses) recognized in other<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive income<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">1,375</font></td>
<td align=right><font size=2 face="times new roman, serif">(3,397)</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value adjustment to derivative financial instrument</font></td>
<td align=right><font size=2 face="times new roman, serif">(66)</font></td>
<td align=right><font size=2 face="times new roman, serif">132</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;comprehensive
income (loss)<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">(458)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">1,143</font><hr noshade size=1></td>

</tr>
<tr valign=top>
<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">851</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,122)</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;beginning of period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">11,707</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">12,846</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;end of period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,558</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,724</font><hr noshade size=2></td>
</tr>
</table><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>













<p><font face="times new roman, serif" size=2><b><u>Note 7.</u></b>&nbsp;&nbsp;Earnings Per Common Share</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 numerator and denominator used in the earnings per common share calculations is as follows:</FONT></P>


<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=16.66%>&nbsp;</td>
<td width=16.66%>&nbsp;</td>
<td width=16.66%>&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>March 31, 2007</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;
851</font></td>
<td align=right><font size=2 face="times new roman, serif">21,497</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">(407)</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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
444<BR>&nbsp;</font>
</td>
<td align=right><font size=2 face="times new roman, serif">21,497<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;.02</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;<hr noshade size=1></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">408</font><hr noshade size=1></td>
<td>&nbsp;</td>
</tr>


<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;<BR>Net income applicable to common shareholders</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;444</font><hr noshade size=2></Td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>21,905</font><hr noshade size=2></Td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.02</font><hr noshade size=2></Td>
</tr>
</table>
<BR>










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















<PAGE>
<HR SIZE=2       COLOR=GRAY 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=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=16.66%>&nbsp;</td>
<td width=16.66%>&nbsp;</td>
<td width=16.66%>&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>March 31, 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;
3,494</font></td>
<td align=right><font size=2 face="times new roman, serif">21,366</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">(301)</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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
3,193<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">21,366<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;.15</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">330</font></td>
<td>&nbsp;</td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Effect of Series B Preferred Stock</font></td>
<td align=right><font size=2 face="times new roman, serif">301</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">3,358</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 (assuming conversion)</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,494</font><hr noshade size=2></Td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>25,054</font><hr noshade size=2></Td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.14</font><hr noshade size=2></Td>
</tr>
</table>
<BR>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The assumed conversion of
the Series B and D Preferred Stock was excluded from the earnings per common
share calculation for the three month period ended March 31, 2007 since their impact
was antidilutive.</FONT></P>

<p><font face="times new roman, serif" size=2><b><u>Note 8.</u></b>&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 for income taxes is 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>March 31,
</font><hr noshade size=1></td>

</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;462</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,768</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">(112)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(34)</font></td>

</tr>

<tr bgcolor="#eeeeee">
<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">10</font></td>

</tr>
<tr valign=bottom>
<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>100</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>(193)</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">9</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7</font><hr noshade size=1></td>


</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Income tax expense</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;470</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,558</font>
<hr size=2 noshade></td>

</tr>
</table>
<BR>

<p><font size=2 face="times new roman, serif">The components of the income tax expense 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>March 31,
</font><hr noshade size=1></td>

</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=2><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3</font></td>

</tr>

<tr>
<td><font size=2 face="times new roman, serif">Current - State</font></td>
<td align=right><font size=2 face="times new roman, serif">9</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7</font></td>

</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Deferred - Federal</font></td>
<td align=right><font size=2 face="times new roman, serif">450</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,548</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;470</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,558</font>
<hr size=2 noshade></td>
</tr>
</table>




<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&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 periods ended March 31, 2007 and 2006 resulted from the
dividends-received deduction (&#147;DRD&#148;) and the change in asset valuation
allowance. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The current estimated DRD
is adjusted as underlying factors change, including known actual 2007
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 change in
the asset valuation allowance results from reassessment of the realization of
certain net operating loss carry forwards. </FONT></P>














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






<PAGE>
<HR SIZE=2       COLOR=GRAY 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><b><u>Note 9.</u></b>&nbsp;&nbsp;Employee Retirement Plans</font></p>


 <p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table
provides the components for the net periodic benefit cost for all defined
benefit pension plans of the Company: </font></p>


 <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%>&nbsp;</td>
<td width=20%>&nbsp;</td>
<td width=20%>&nbsp;</td>

</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=2 align=center><font face="times new roman, serif" size=2>Three Months Ended<BR>March 31,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=60%></td>
<td width=20%></td>
<td width=20%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50</font></td>
</tr>
<tr valign=top>
<td><font size=2  face="times new roman, serif">Interest cost</font></td>
<td align=right><font size=2  face="times new roman, serif">83</font></td>
<td align=right><font size=2  face="times new roman, serif">78</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<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">(54)</font></td>
<td align=right><font size=2  face="times new roman, serif">(48)</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">28</font><hr noshade size=1></td>
<td align=right><font size=2  face="times new roman, serif">35</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2  face="times new roman, serif"> Net periodic pension benefit cost</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;108</font><hr noshade size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;115</font><hr noshade size=2></td>
</tr>
</table>



<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&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=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=60%>&nbsp;</td>
<td width=20%>&nbsp;</td>
<td width=20%>&nbsp;</td>

</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=2 align=center><font face="times new roman, serif" size=2>Three Months Ended<BR>March 31,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Discount rate</font></td>
<td align=right><font size=2  face="times new roman, serif">5.50%</font></td>
<td align=right><font size=2  face="times new roman, serif">5.50%</font></td>
</tr>
<tr valign=top>
<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">7.00%</font></td>
<td align=right><font size=2  face="times new roman, serif">7.00%</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2  face="times new roman, serif">Projected annual salary increases</font></td>
<td align=right><font size=2  face="times new roman, serif">4.50%</font></td>
<td align=right><font size=2  face="times new roman, serif">4.50%</font></td>
</tr>
</table>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company expects to
contribute $184 for all defined benefit pension plans in 2007. During the three
month period ended March 31, 2007, the Company did not make any payments to the
pension plans.</FONT></P>

<p><font face="times new roman, serif" size=2><b><u>Note 10.</u></b>&nbsp;&nbsp;Commitments and Contingencies</font></p>


<P align=justify><FONT FACE="Times New Roman, Times, 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>-11-</font></p>










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















<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, Times, Serif" SIZE=2><u>Item 2.</u></font></p>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>MANAGEMENT&#146;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 period ended March 31, 2007. 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, 2006. </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 various
operating insurance companies organized into separate business units:
Association Casualty Insurance Company, Association Risk Management General
Agency, Inc. and Georgia Casualty &amp; Surety Company (collectively known
as &#147;Regional Property and Casualty&#148;); American Southern Insurance
Company and American Safety Insurance Company (together known as &#147;American
Southern&#148;); and Bankers Fidelity Life Insurance Company (&#147;Bankers
Fidelity&#148;). Each business unit is managed separately based upon its
geographic location or the type of products it offers and is evaluated on its
individual performance. </FONT></P>

<p><FONT FACE="Times New Roman, Times, 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 the Company 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 47% of the Company&#146;s liabilities at March
31, 2007. This obligation includes estimates for: 1) unpaid losses on claims
reported prior to March 31, 2007, 2) development on those reported claims, 3)
unpaid ultimate losses on claims incurred prior to March 31, 2007 but not yet
reported and 4) unpaid loss adjustment expenses for reported and unreported
claims incurred prior to March 31, 2007. 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 March 31, 2007 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 cost 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 from 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 previously estimated
amounts, such losses, to the extent they are not covered by reinsurance
coverage, 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 March 31,
2007. 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=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2> -12-</font></p>








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<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 5% of the Company&#146;s total assets at March 31, 2007.
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=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 19% of the
Company&#146;s total assets at March 31, 2007. 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 March 31, 2007.
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 involve 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 March
31, 2007. 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, Times, Serif" SIZE=2><b><u>OVERALL
CORPORATE RESULTS</u></b></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 $0.9 million, or $0.02 per diluted share, for the
three month period ended March 31, 2007, compared to net income of $3.5 million,
or $0.14 per diluted share, for the three month period ended March 31, 2006.
Premium revenue for the three month period ended March 31, 2007, decreased $5.2
million, or 13.0%, to $35.1 million from the comparable period in 2006. The
decrease in premiums in the three month period ended March 31, 2007 was
primarily attributable to increased pricing competition on most property and
casualty lines, the non-renewal of targeted classes of property business as well
as the loss of a significant account. In addition, the Company&#146;s life and
health operations have experienced a premium decline resulting from lower new
sales activity and an increased level of product competition, specifically in
the Medicare supplement market. The decrease in net income during the three
month period ended March 31, 2007 as compared to the three month period ended
March 31, 2006 was primarily due to a decrease in realized investment gains.
During the three month period ended March 31, 2007, the Company had net realized
investment gains of $17,000 compared to net realized investment gains of $4.0
million in the same period of 2006. </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 Regional Property and Casualty and
American Southern. The Company&#146;s life and health operations are comprised
of the operations of Bankers Fidelity.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A more detailed analysis of
the individual business units and other corporate activities is provided below.</FONT></P>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-13-</font></p>










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<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><u>UNDERWRITING RESULTS</u></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Regional Property and Casualty</b></FONT></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of Regional Property and Casualty&#146;s premiums for the three month period
ended March 31, 2007 and the comparable period in 2006 (in thousands):</FONT></P>

<table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,029</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,127</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">(3,416)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">(4,494)</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">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,613</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,633</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">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,012</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,085</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;Regional Property and
Casualty&#146;s gross written premiums decreased $1.1 million, or 8.4%, during
the three month period ended March 31, 2007 from the comparable period in 2006.
The decrease in gross written premiums for the three month period ended March
31, 2007 was primarily due to an increased level of price competition in the
marketplace which has resulted in the renewal of expiring policies at rates 10%
to 15% lower than previously charged. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regional Property and
Casualty&#146;s ceded premiums decreased $1.1 million, or 24.0%, during the
three month period ended March 31, 2007 from the comparable period in 2006. The
decrease in ceded premiums for the three month period ended March 31, 2007 was
primarily attributable to the decline in gross written premiums as well as an
overall reduction in reinsurance rates due to a change in the business
unit&#146;s risk profile. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following presents
Regional Property and Casualty&#146;s net earned premiums by line of business
for the three month period ended March 31, 2007 and the comparable period in
2006 (in thousands):</FONT></P>


 <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>

<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,913</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,289</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">789</font></td>
<td align=right><font size=2 face="times new roman, serif">1,031</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">3,129</font></td>
<td align=right><font size=2 face="times new roman, serif">4,170</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">2,181</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">2,595</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">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;10,012</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;12,085</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 $2.1 million, or 17.2%, during the three month period ended March 31,
2007 from the comparable period in 2006. The decrease in net earned premiums for
the three month period ended March 31, 2007 was primarily due to the renewal
rate decreases described above coupled with slightly lower levels of retained
business. </FONT></P>






<p align=center> <FONT FACE="Times New Roman, Times, Serif" SIZE=2> -14-</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 align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
Regional Property and Casualty&#146;s loss and expense ratios for the three
month period ended March 31, 2007 and the comparable period in 2006:</FONT></P>

<table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;69.9%</font></td>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;65.3%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41.8</font><hr noshade size=1></td>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;48.5</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><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111.7%</font><hr noshade size=2></td>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;113.8%</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
69.9% in the three month period ended March 31, 2007 from 65.3% in the
comparable period of 2006. The increase in the loss ratio for the three month
period ended March 31, 2007 was primarily due to the incurrence of several large
claims in the property and automobile lines of business. The expense ratio
decreased to 41.8% in the three month period ended March 31, 2007 from 48.5% in
the three month period ended March 31, 2006. The decrease in the expense ratio
was primarily due to a 30% reinsurance ceding commission of $0.7 million in the
three month period ended March 31, 2007 for which there was no similar
commission in the three month period ended March 31, 2006.</FONT></P>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>American Southern</b></FONT></p>

<P><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 period ended March 31,
2007 and the comparable period in 2006 (in thousands):</FONT></P>

 <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,335&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,878&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">(1,765)</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">(2,346)</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;6,570&nbsp;</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,532&nbsp;</font><hr noshade size=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net earned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,962&nbsp;</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;12,877&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;
Gross written premiums at
American Southern decreased $3.5 million, or 29.8%, during the three month
period ended March 31, 2007 from the comparable period in 2006. The decrease in
gross written premiums during the three month period ended March 31, 2007 was
primarily due to the loss of a significant account which had previously produced
approximately $10.5 million in annualized commercial automobile business. Also
contributing to the decrease in gross written premiums was the non-renewal of
several performance bonds in the surety line of business as well as a reduction
of business writings from a previously existing joint venture with Carolina
Motor Club, Inc. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Ceded premiums decreased
$0.6 million, or 24.8%, during the three month period ended March 31, 2007 from
the comparable period in 2006. The decrease in ceded premiums was primarily due
to the significant decline in gross written premiums.</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 period ended March 31, 2007 and the comparable period in 2006 (in
thousands): </FONT></P>

<table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,999</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,844</font></td>
</tr>
<tr valign=top>
<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">42</font></td>
<td align=right><font size=2 face="times new roman, serif">825</font></td>
</tr>
<tr valign=top 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">2,652</font></td>
<td align=right><font size=2 face="times new roman, serif">2,887</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Property</font></td>
<td align=right><font size=2 face="times new roman, serif">728</font></td>
<td align=right><font size=2 face="times new roman, serif">810</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">2,541</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">2,511</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;10,962</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,877</font><hr noshade size=2></td>
</tr>
</table>

<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-15-</font></p>











<PAGE>
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<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;
Net earned premiums
decreased $1.9 million, or 14.9%, during the three month period ended March 31,
2007 from the comparable period in 2006 primarily due to the decline in policy
writings described above. </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 period
ended March 31, 2007 and the comparable period in 2006:</FONT></P>

  <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></td>

</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<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;45.8%</font></td>
<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;46.6%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<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;44.9</font><hr noshade size=1></td>
<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;45.8</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><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;90.7%</font><hr noshade size=2></td>
<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;92.4%</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 March 31, 2007 decreased to 45.8% from 46.6% in the
comparable period of 2006. The decrease in the loss ratio for the three month
period ended March 31, 2007 was primarily attributable to favorable loss
experience in the commercial automobile and physical damage lines of business.
The expense ratio for the three month period ended March 31, 2007 decreased to
44.9% from 45.8% in the comparable period of 2006. The decrease in the expense
ratio for the three month period ended March 31, 2007 was primarily due to
American Southern&#146;s variable commission structure, which compensates the
company&#146;s agents in relation to the loss ratios of the business they write. </FONT></P>





<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bankers
Fidelity</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s earned premiums for the three month period ended March
31, 2007 and the comparable period in 2006 (in thousands):</FONT></P>

  <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;10,582</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,892</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">904</font></td>
<td align=right><font size=2 face="times new roman, serif">711</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">2,640</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">2,769</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">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,126</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15,372</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 $1.2 million, or 8.1%, during the three month period ended
March 31, 2007 from the comparable period in 2006. Premiums from the Medicare
supplement and other health lines of business decreased $1.1 million, or 8.9%,
during the three month period ended March 31, 2007 due to the continued decline
in new business levels and the non-renewal of certain policies that resulted
from increased competition. Premiums from the life insurance line of business
decreased $0.1 million, or 4.7%, during the three month period ended March 31,
2007 from the comparable period in 2006 due to the continued decline in sales
related activities. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s operating expenses for the three month period ended
March 31, 2007 and the comparable period in 2006 (in thousands):</FONT></P>

 <table width=500 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=50%>&nbsp;</td>
<td width=25%>&nbsp;</td>
<td width=25%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=2 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>March 31,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2007</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">2006</font><hr noshade size=1></td>
</tr>
</table>
<table width=500 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=50%></td>
<td width=25%></td>
<td width=25%></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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,374</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,538</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">4,990</font><hr noshade size=1></td>
<td align=right><font size=2 face="times new roman, serif">4,799</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15,364</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,337</font><hr noshade size=2></td>
</tr>
</table>






<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-16-</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 align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Benefits and losses
decreased $1.2 million, or 10.1%, during the three month period ended March 31,
2007, from the comparable period in 2006. As a percentage of premiums, benefits
and losses were 73.4% for the three month period ended March 31, 2007 compared
to 75.1% for the three month period ended March 31, 2006. The decrease in the
loss ratio was primarily due to favorable claims experience in the Medicare
supplement line of business partially offset by the continued aging of the
existing block of life insurance business as well as a declining revenue base.</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 increased $0.2 million, or 4.0%, during the three month period ended
March 31, 2007 over the comparable period in 2006. The increase in commissions
and other expenses was primarily due to an increase in marketing activities
related to new business opportunities as well as increased agency related
expenses and higher lead costs. As a percentage of premiums, these expenses were
35.3% for the three month period ended March 31, 2007 compared to 31.2% for the
three month period ended March 31, 2006. The increase in the expense ratio for
the three month period ended March 31, 2007 was primarily due to a consistent
level of fixed expenses coupled with a decrease in premium revenues. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>INVESTMENT
INCOME AND REALIZED GAINS</u></FONT></H2>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Investment income increased
slightly during the three month period ended March 31, 2007 over the comparable
period in 2006. The increase in investment income for the three month period
ended March 31, 2007 was primarily due to a higher level of average invested
assets. </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 $17,000 during the three month period ended March
31, 2007 compared to net realized investment gains of $4.0 million in the three
month period ended March 31, 2006. The decrease in net realized gains for the
three month period ended March 31, 2007 was primarily due to sales of a portion
of the Company&#146;s investments in the automotive sector (bonds of General
Motors Corporation), 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 occurred in the three month period ended March 31, 2006
and resulted in realized investment gains totaling $4.0 million during that
period. 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>


<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>INTEREST
EXPENSE</u></FONT></H2>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest expense of $1.0
million decreased slightly during the three month period ended March 31, 2007
from the comparable period in 2006. The decrease in interest expense was due to
a lower average debt level under the Company&#146;s revolving credit facility
(the &#147;Revolver&#148;) as a part of its credit agreement (the &#147;Credit
Agreement&#148;) with Wachovia Bank, National Association
(&#147;Wachovia&#148;). In January 2007, the Company repaid $9.0 million in
principal under the Revolver and reborrowed $9.0 million in March 2007. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>OTHER EXPENSES</u></FONT></H2>

<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 $2.4 million,
or 13.8%, during the three month period ended March 31, 2007 from the comparable
period in 2006. The decrease in other expenses for the three month period ended
March 31, 2007 was primarily attributable to a reduction in commission expenses
that resulted from the decline in insurance premiums described above. On a
consolidated basis, as a percentage of earned premiums, other expenses decreased
to 43.2% in the three month period ended March 31, 2007 from 43.6% in the three
month period ended March 31, 2006. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>LIQUIDITY AND
CAPITAL RESOURCES</u></FONT></H2>

<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 business unit, 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 company are derived from dividends, management fees, and tax sharing
payments from the subsidiaries. The cash needs of the Parent company are for the
payment of operating expenses, the acquisition of capital assets and debt
service requirements. </FONT></P>





<p align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-17-</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 statutory net income of $4.0
million for the three month period ended March 31, 2007 compared to a combined
statutory net loss of $2.9 million for the three month period ended March 31,
2006. The increase 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 $2.4 million for the three
month period ended March 31, 2007 compared to $6.4 million for the three month
period ended March 31, 2006. The reasons for the decrease in GAAP net income in
the three month period ended March 31, 2007 are discussed above under
&#147;Results of Operations.&#148; Statutory results for the Company&#146;s
property and casualty operations differ from the Company&#146;s results of
operations under GAAP due to the deferral of acquisition costs. The
Company&#146;s life and health operations&#146; statutory results differ from
GAAP results 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;
At March 31, 2007, the
Company had 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
Preferred 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 solely at the Company&#146;s option.
The Series B Preferred Stock is not currently convertible. At March 31, 2007,
the Company had accrued, but unpaid, dividends on the Series B Preferred Stock
totaling $13.6 million. The outstanding shares of Series D Preferred Stock
(&#147;Series D Preferred 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 the shares of Series D
Preferred Stock may be convertible into an aggregate of approximately 1,754,000
shares of the Company&#146;s 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. As of March 31, 2007,
the Company had accrued but unpaid dividends on the Series D Preferred Stock of
$0.1 million. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March 31, 2007, the
Company&#146;s $54.0 million of borrowings consisted of $12.8 million of bank
debt pursuant to the Company&#146;s Credit Agreement with Wachovia and an
aggregate of $41.2 million of outstanding junior subordinated deferrable
interest debentures (&#147;Junior Subordinated Debentures&#148;). The Credit
Agreement provides for a reducing revolving credit facility pursuant to which
the Company may, subject to the terms and conditions thereof, initially borrow
or reborrow up to $15.0 million (the &#147;Commitment Amount&#148;). The
Commitment Amount is incrementally reduced every six months beginning on July 1,
2007. The interest rate on amounts outstanding under the Credit Agreement is, at
the option of the Company, equivalent to either (a) the base rate (which equals
the higher of the Prime Rate or 0.5% above the Federal Funds Rate, each as
defined) or (b) the London Interbank Offered Rate (&#147;LIBOR&#148;) determined
on an interest period of 1-month, 2-months, 3-months or 6-months, plus an
Applicable Margin (as defined). The Applicable Margin varies based upon the Company&#146;s
leverage ratio (funded debt to total capitalization, each as defined) and ranges
from 1.75% to 2.50%. As of March 31, 2007, the combined effective interest rate was 7.99%.  Interest on amounts outstanding is payable quarterly. If
not sooner repaid in full, the Credit Agreement requires the Company to repay
$0.5 million in principal on each of June&#160;30 and December 31, 2007 and
2008, $1.0 million and $1.5 million in principal on June 30 and December 31,
2009, respectively, and $10.5 million in principal at maturity on June 30, 2010.
The Credit Agreement requires the Company to comply with certain covenants,
including, among others, ratios that relate funded debt to both 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,
certain payments, additional debt obligations, equity repurchases and
redemptions, as well as minimum risk-based capital levels. Upon the occurrence
of an event of default, Wachovia may terminate the Credit Agreement and declare
all amounts outstanding under the Credit Agreement due and payable in full.</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 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 five years after their respective dates of issue 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 March 31, 2007, the effective
interest rate was 9.41%. 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 Credit Agreement 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 Credit Agreement could 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=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-18-</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 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 include reimbursements for
various shared services and other expenses incurred directly on behalf of the
subsidiaries by the Parent. 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 $10.6 million at March 31,
2007. </FONT></P>

<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 March 31, 2007, American
Southern had $36.3 million of statutory surplus, Georgia Casualty had $23.2
million of statutory surplus, Association Casualty had $22.3 million of
statutory surplus (the Regional Property and Casualty business unit had an
aggregate of $45.5 million of statutory surplus), and Bankers Fidelity had $34.7
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 $6.9 million in the three month period ended March 31, 2007
compared to $5.8 million in the three month period ended March 31, 2006; and
cash and short-term investments decreased from $27.3 million at December 31,
2006 to $14.0 million at March 31, 2007. The decrease in cash and short-term
investments during the three month period ended March 31, 2007 was primarily
attributable to the decrease in premiums coupled with an increased level of
investing exceeding normal sales and maturities. </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, Times, Serif" SIZE=2>-19-</font></p>












<PAGE>
<HR SIZE=2       COLOR=GRAY 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>




<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>CONTRACTUAL
OBLIGATIONS</u></FONT></H2>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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=630 cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=40%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=12%>&nbsp;</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>
<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 bgcolor="#eeeeee">
<td>&nbsp;</td>
<td colspan=5 align=center><font size=2  face="times new roman, serif">(In thousands)</font></td>
</tr>
<tr valign=bottom>
<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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,750</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1,000</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,500</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,250</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;-</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<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>
<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">101,013</font></td>
<td align=right><font size=2  face="times new roman, serif">4,704</font></td>
<td align=right><font size=2  face="times new roman, serif">9,532</font></td>
<td align=right><font size=2  face="times new roman, serif">7,916</font></td>
<td align=right><font size=2  face="times new roman, serif">78,861</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Operating leases</font></td>
<td align=right><font size=2  face="times new roman, serif">4,283</font></td>
<td align=right><font size=2  face="times new roman, serif">1,092</font></td>
<td align=right><font size=2  face="times new roman, serif">2,086 </font></td>
<td align=right><font size=2  face="times new roman, serif">1,025</font></td>
<td align=right><font size=2  face="times new roman, serif">80</font></td>
</tr>
<tr valign=bottom>
<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">6,361</font></td>
<td align=right><font size=2  face="times new roman, serif">6,323</font></td>
<td align=right><font size=2  face="times new roman, serif">38</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 bgcolor="#eeeeee">
<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">166,173</font></td>
<td align=right><font size=2  face="times new roman, serif">63,146</font></td>
<td align=right><font size=2  face="times new roman, serif">49,852</font></td>
<td align=right><font size=2  face="times new roman, serif">18,279</font></td>
<td align=right><font size=2  face="times new roman, serif">34,896</font></td>
</tr>
<tr valign=bottom>
<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">52,406</font></td>
<td align=right><font size=2  face="times new roman, serif">8,909</font></td>
<td align=right><font size=2  face="times new roman, serif">18,342</font></td>
<td align=right><font size=2  face="times new roman, serif">17,818</font></td>
<td align=right><font size=2  face="times new roman, serif">7,337</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<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">23,404</font></td>
<td align=right><font size=2  face="times new roman, serif">10,532</font></td>
<td align=right><font size=2  face="times new roman, serif">6,787</font></td>
<td align=right><font size=2  face="times new roman, serif">3,277</font></td>
<td align=right><font size=2  face="times new roman, serif">2,808</font></td>
</tr>
<tr valign=top>
<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">1,658</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">1,658</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 bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;409,286</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;97,364</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;90,137</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;56,565</font><hr width=100% size=1></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;165,220</font><hr width=100% size=1></td>
</tr>
</table><BR>



<table align=left 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 March 31, 2007 and assumes  that all debt  remains  outstanding  until its
         stated  contractual  maturity.  The interest rates on outstanding  bank debt and trust preferred  obligations are at various rates of interest.</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 March 31, 2007.  To the
         extent contracts  provide for early  termination with notice but without penalty,  only the amounts  contractually  due during
         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  incurred but not reported  ("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 does perform
         cash flow modeling of such liabilities,  which is the basis for the indicated disclosure;  however, due to the significance of
         the assumptions used, the amount 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 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>




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

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-20-</font></p>







<PAGE>
<HR SIZE=2       COLOR=GRAY 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>
<a name="quantitative_and_qualitative"></a>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>Item 3. Quantitative and Qualitative Disclosures About Market Risks</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, 2006, as identified in the Company&#146;s Annual Report on
Form 10-K for the fiscal year ended December 31, 2006.</FONT></P>
<a name="controls_and_procedures"></a>
<P><FONT FACE="Times New Roman, Times, 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>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FORWARD-LOOKING
STATEMENTS</FONT></H2>

<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 federal securities laws. 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, 2006 and the other filings made by the Company from time to
time with the Securities and Exchange Commission.</I></FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II.
OTHER INFORMATION</FONT></H1>
<a name="exhibits_and_reports"></a>

<p ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>Item 2.&nbsp;
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 month period ended
March 31, 2007. </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><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">January 1 - January 31, 2007</font></td>
<td align=right><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;857</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.36</font></td>
<td align=right><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;857</font></td>
<td align=right><font size=2  face="times new roman, serif">558,992</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">February 1 - February 28, 2007</font></td>
<td align=right><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=right><font size=2  face="times new roman, serif">-</font></td>
<td align=right><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=right><font size=2  face="times new roman, serif">558,992</font></td>
</tr>
<tr valign=top>
<td><font size=2  face="times new roman, serif">March 1 - March 31, 2007<BR>&nbsp;</font></td>
<td align=right><font size=2  face="times new roman, serif">140</font><hr noshade size=1></td>
<td align=right><font size=2  face="times new roman, serif">3.72</font><hr noshade size=1></td>
<td align=right><font size=2  face="times new roman, serif">140</font><hr noshade size=1></td>
<td align=right><font size=2  face="times new roman, serif">558,852<BR>&nbsp;</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</b></font></td>
<td align=right><font size=2  face="times new roman, serif">997</font><hr noshade size=2></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.41</font><hr noshade size=2></td>
<td align=right><font size=2  face="times new roman, serif">997</font><hr noshade size=2></td>
<td>&nbsp;</td>
</tr>
</table>

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







<PAGE>

<HR SIZE=2       COLOR=GRAY 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>
<a name="exhibits_on_form_8k"></a>
<p ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>Item 6.&nbsp;
Exhibits</u></FONT></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.1 &#150; Certification
of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31.2 &#150; Certification
of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32.1 &#150; Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</font></p>



<p align=center><font size=2  face="times new roman, serif">-22-</font></p>











<PAGE>
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<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>SIGNATURE</b></u></font></p>

<p align=justify><font size=2 face="times new roman, serif">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> May 14, 2007</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>-23-</font></p>






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<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>Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</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>Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</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>Certifications
pursuant to Section 906 of the Sarbanes&#150;Oxley Act of 2002. </FONT></td>
</tr>
</table>

<BR><BR><BR>






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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit_31107.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;
May 14, 2007&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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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>exhibit_31207.htm
<DESCRIPTION>CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
<TEXT>
<html>
<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;
May 14, 2007&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_32107.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
March 31, 2007, 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;
May 14, 2007&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;
May 14, 2007&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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