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<SEC-DOCUMENT>0000008177-09-000030.txt : 20091113
<SEC-HEADER>0000008177-09-000030.hdr.sgml : 20091113
<ACCEPTANCE-DATETIME>20091113104458
ACCESSION NUMBER:		0000008177-09-000030
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20090930
FILED AS OF DATE:		20091113
DATE AS OF CHANGE:		20091113

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:		091179659

	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>form10q3rd09.htm
<DESCRIPTION>CURRENT REPORT
<TEXT>

<html>
<head>
<title>
Form 10-Q 3rd Quarter 2009
</title>
</head>
<body>
<BR><BR>
<HR width=80% SIZE=2 NOSHADE>
<p align=center><font face="Times New Roman, Serif" size=2>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION<BR>
                                                        Washington, D.C. 20549</font></p>
<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=CENTER>

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

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

<p align=center><font size=2 face="times new roman, serif"><b>For the quarterly period ended September 30, 2009</b></font></p>

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

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

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

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


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

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

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


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


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files). Yes |_| 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, a non-accelerated filer, or a
smaller reporting company. See definitions of &#147;large accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148;
 in Rule 12b-2 of the Exchange Act. (Check one): </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Large Accelerated Filer |_| Accelerated Filer |_|
Non-Accelerated Filer |_| (Do not check if a smaller reporting company) Smaller Reporting Company |X|</FONT></P>

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The total number of shares
of the registrant&#146;s Common Stock, $1 par value, outstanding on November 5,
2009, was 22,293,310. </FONT></P>

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



<PAGE>



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

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

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

<table width=680 align=center cellspacing=0 cellpadding=8 border=0>
<tr>
<td><font size=2 face="times new roman, serif"><u>Part I.</u></font></td>
<td><font size=2 face="times new roman, serif"><u> Financial Information</u></font></td>
<td align=center><font size=2 face="times new roman, serif"><u> Page No.</u></font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 1. </font></td>
<td><font size=2 face="times new roman, serif">Financial Statements:</font></td>
<td>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_balance_sheets">Consolidated Balance Sheets</A>-<BR>
September 30, 2009 and December 31, 2008</font></td>
<td align=center><font size=2 face="times new roman, serif">2</font></td>
</tr>
<tr bgcolor="#eeeeee">

<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_statements_operations">Consolidated Statements of Operations</A>-<BR>
         Three months and nine months ended September 30, 2009 and 2008</font>  </td>
<td align=center> <font size=2 face="times new roman, serif">3</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidated_statements_shareholders_equity">Consolidated Statements of Shareholders' Equity</A> -<BR>
         Nine months ended September 30, 2009 and 2008 </font></td>
<td align=center><font size=2 face="times new roman, serif">4</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td><font size=2 face="times new roman, serif"><A HREF="#consolidates_statement_cash_flows">Consolidated Statements of Cash Flows</A> -<BR>
Nine months ended September 30, 2009 and 2008</font></td>
<td align=center><font size=2 face="times new roman, serif">5</font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td> <font size=2 face="times new roman, serif"><A HREF="#notes_to_consolidated_statements">Notes to Consolidated Financial Statements</A></font></td>
<td align=center><font size=2 face="times new roman, serif">6</font></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2 face="times new roman, serif">Item 2.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#managements_discussion">Management's Discussion and Analysis of Financial Condition</A><BR>
and Results of Operations</font></td>
<td align=center><font size=2 face="times new roman, serif">23</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Item 3.</font></td>
<td> <font size=2 face="times new roman, serif"><A HREF="#quantitative_and_qualitative_disclosures">Quantitative and Qualitative Disclosures About Market Risk</A></font></td>
<td align=center><font size=2 face="times new roman, serif">33</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 4T.</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">33</font></td>
</tr>



<tr>
<td><font size=2 face="times new roman, serif"><u>Part II.</u></font> </td>
<td><font size=2 face="times new roman, serif"><u>Other Information</u></font></td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Item 2.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#legal_proceedings">Unregistered Sales of Equity Securities and Use of Proceeds</A></font></td>
<td align=center><font size=2 face="times new roman, serif">34</font></td>
</tr>


<tr>
<td><font size=2 face="times new roman, serif">Item 6.</font></td>
<td><font size=2 face="times new roman, serif"><A HREF="#exhibits_and_reports">Exhibits</A></font></td>
<td align=center><font size=2 face="times new roman, serif">34</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"><A HREF="#signature">Signature</A></font></td>
<td>&nbsp;</td>
<td align=center> <font size=2 face="times new roman, serif">35</font></td>
</tr>
</table>







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



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


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

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

</tr>
<tr valign=bottom>
<td>&nbsp;</td>
<td align=center colspan=2> <font size=2 face="times new roman, serif"><i>Unaudited</i><BR>September 30,<BR> 2009</font><hr noshade size=1></td>
<td align=center><font size=2 face="times new roman, serif">December 31,<BR>2008</font><hr noshade size=1></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td align=left> <font size=2 face="times new roman, serif">Cash and cash equivalents, including short-term investments of $20,202 and $21,339</font></td>
<td align=right><font size=2 face="times new roman, serif"> $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,471</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;37,321</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: $177,407 and $171,265)</font></td>
<td align=right><font size=2 face="times new roman, serif">176,415</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">163,097</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: $8,816 and $8,816)</font></td>
<td align=right><font size=2 face="times new roman, serif">7,510</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">5,291</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=left> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Other invested assets (cost: $1,064 and $1,433)</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,064</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,433</font></td>
</tr>

<tr 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">2,084</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">2,019</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Real estate</font></td>
<td align=right> <font size=2 face="times new roman, serif">38</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">38</font></td>
</tr>
<tr>
<td valign=top> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Investment in unconsolidated trusts</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,238</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">1,238</font><hr noshade size=1></td>
</tr>


<tr bgcolor="#eeeeee" 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">188,349</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">173,116</font><hr noshade size=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> Receivables:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td> <font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Reinsurance</font></td>
<td align=right> <font size=2 face="times new roman, serif">10,561</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">14,870</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;Other (net of allowance for doubtful accounts: $540 and $676)</font></td>
<td align=right> <font size=2 face="times new roman, serif">7,131</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">7,789</font></td>
</tr>
<tr bgcolor="#eeeeee">
<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">4,744</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">10,577</font></TD>
</tr>
<tr>
<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">19,299</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">19,160</font></TD>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> Other assets</font></td>
<td align=right> <font size=2 face="times new roman, serif">1,484</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,648</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"> Goodwill</font></td>
<td align=right><font size=2 face="times new roman, serif">2,128</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">2,128</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;Total assets</font></td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;263,167</font><hr noshade size=3> </td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;266,609</font><hr noshade size=3></td>
</tr>
</table>


<p align=center><font size=2 face="times new roman, serif"><b>LIABILITIES AND SHAREHOLDERS' EQUITY</b></font></p>
<TABLE ALIGN=CENTER WIDTH=630 CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR>
<td width=71%></td>
<td width=14%></td>
<td width=1%></td>
<td width=14%></td>
</tr>
<TR>
<TD><font size=2 face="times new roman, serif">Insurance reserves and policy funds:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future policy benefits</font></td>
<td align=right width=15%><font size=2 face="times new roman, serif">$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;58,278</font></td>
<td>&nbsp;</td>
<td align=right width=15%><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;56,827</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">19,778</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">19,542</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">49,188</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">52,499</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">1,451</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,906</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">128,695</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">130,774</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">13,441</font></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">19,183</font></td>
</tr>


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

<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities</font></td>
<td align=right><font size=2 face="times new roman, serif">183,374</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right> <font size=2 face="times new roman, serif">191,195</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td colspan=4>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Commitments and contingencies (Note 11)</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Shareholders' equity:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee" 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 D preferred, 70,000 shares issued and outstanding;<BR>
       &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>&nbsp;</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;&nbsp;&nbsp;&nbsp;&nbsp;22,373,900 shares issued;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares outstanding: 22,316,110 and 22,332,087</font></td>
<td align=right><font size=2 face="times new roman, serif"> 22,374</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> 22,374</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">57,129</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">57,107</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">2,898</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,119</font></td>
</tr>




<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss</font></td>
<td align=right> <font size=2 face="times new roman, serif">(2,607)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(9,200)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Treasury stock, at cost: 57,790 and 41,813 shares
<BR></font></td>
<td align=right> <font size=2 face="times new roman, serif">(71)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(56)</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">79,793</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">75,414</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;263,167</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;266,609</font><HR NOSHADE SIZE=2></td>
</tr>
</table>


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


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




<PAGE>

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




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

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

<table align=center width=640 cellspacing=0 cellpadding=1 border=0>
<tr>
<td width=55%>&nbsp;</td>
<td width=10.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10.5%>&nbsp;</td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font><HR NOSHADE SIZE=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Revenue:</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Insurance premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,774</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;22,831</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;68,512</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;68,230</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Investment income</font></td>
<td align=right><font size=2 face="times new roman, serif">2,699</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,111</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,142</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,779</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Realized investment gains (losses), net</font></td>
<td align=right><font size=2 face="times new roman, serif">14</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(367)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(341)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Other income</font></td>
<td align=right><font size=2 face="times new roman, serif">51</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">41</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">202</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">420</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">25,538</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">25,616</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">76,857</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">77,088</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Benefits and expenses:</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Insurance benefits and losses incurred</font></td>
<td align=right><font size=2 face="times new roman, serif">15,840</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">15,067</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">45,753</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">42,662</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Commissions and underwriting expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">6,804</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,192</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">21,734</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">22,915</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</font></td>
<td align=right><font size=2 face="times new roman, serif">679</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">795</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,094</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,517</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
<td align=right><font size=2 face="times new roman, serif">2,044</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,626</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,848</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,267</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total benefits and expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">25,367</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">25,680</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">76,429</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">75,361</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Income (loss) from continuing operations before income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">171</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(64)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">428</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,727</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Income tax expense (Note 9)</font></td>
<td align=right><font size=2 face="times new roman, serif">2,279</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">102</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,268</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">684</font><HR NOSHADE SIZE=1></td>
</tr>

<tr valign=top>
<td><font size=2 face="times new roman, serif">Income (loss) from continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,108)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(166)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,840)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,043</font></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss from discontinued operations, net of tax (Note 3)</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(2,166)</font><HR NOSHADE SIZE=1></td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">Net loss</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,108)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(166)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,840)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,123)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Preferred stock dividends</font></td>
<td align=right><font size=2 face="times new roman, serif">(127)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(428)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(381)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,285)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Net loss applicable to common stock</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,235)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(594)</font><HR NOSHADE SIZE=2>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;(2,221)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,408)</font><HR NOSHADE SIZE=2>
</td>
</tr>


<tr valign=top bgcolor="#eeeeee">
<td colspan=8><font size=2 face="times new roman, serif">Basic loss per common share:</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Loss from continuing operations
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.03)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.01)</font>
</td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations
</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(.10)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net loss applicable to common shareholders
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.03)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.11)</font><HR NOSHADE SIZE=2></td>
</tr>



<tr valign=top bgcolor="#eeeeee">
<td colspan=8><font size=2 face="times new roman, serif">Diluted loss per common share:</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Loss from continuing operations
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.03)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.01)</font>
</td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations
</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(.10)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net loss applicable to common shareholders
</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.03)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.11)</font><HR NOSHADE SIZE=2></td>
</tr>
</table>

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














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


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


<table align="center" width="100%" cellspacing="0" cellpadding="2" border="0">
<tr>
<td width=30%></td>
<td width=10%></td>
<td width=10%></td>
<td width=10%></td>
<td width=10%></td>

<td width=12%></td>
<td width=10%></td>
<td width=10%></td>
</tr>
<tr>
<td align=center colspan=9><font size=2 face="times new roman, serif"><b>ATLANTIC AMERICAN CORPORATION<BR>
                                               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY<BR></b>
                                                      <i>(Unaudited; Dollars in thousands)</i></font></td></tr>
<tr valign=top bgcolor="#eeeeee">
<td align=left><font size=1 face="times new roman, serif">&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Nine Months Ended September 30, 2009</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">&nbsp;<BR>&nbsp;<BR>Retained<BR>Earnings</font><hr noshade size=1></td>

<td align=center><font size=1 face="times new roman, serif">&nbsp;<BR>Accumulated Other<BR>Comprehensive<BR>Income (Loss)</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, 2008</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;70</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;22,374</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;57,107</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,119</font></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;(9,200)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(56)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;75,414</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 loss</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(1,840)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(1,840)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Decrease in unrealized investment losses</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">9,395</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">9,395</font></td>
</tr>
<tr valign=top>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Fair value adjustment to derivative<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
financial instrument</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>373</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>373</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;
Minimum pension liability adjustment</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">375</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">375</font></td>
</tr>


<tr valign=top>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income tax attributable to other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
comprehensive income<BR>&nbsp;</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(3,550)</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(3,550)</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">4,753</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">(381)</font></td>

<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(381)</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Amortization of unearned compensation</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">22</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">22</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Purchase of shares for treasury</font></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td align=right valign=bottom><font size=1 face="times new roman, serif">(15)</font><hr noshade size=1></td>
<td align=right valign=bottom><font size=1 face="times new roman, serif">(15)</font><hr noshade size=1></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Balance, September 30, 2009</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;70</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;22,374</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;57,129</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,898</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;(2,607)</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(71)</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;79,793</font><hr noshade size=2></td>
</tr>
<tr valign=bottom>
<td><font size=1 face="times new roman, serif">Nine Months Ended September 30, 2008</font><hr noshade size=1></td>
<td colspan=8>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Balance, December 31, 2007</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,817</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;56,414</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,530</font></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;(1,171)</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;87,794</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">Comprehensive loss:</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 loss</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(1,123)</font></td>
<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(1,123)</font></td>
</tr>
<tr>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Increase in unrealized investment losses</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(17,786)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(17,786)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Fair value adjustment to derivative<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
financial instrument</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(77)</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>(77)</font></td>
</tr>

<tr valign=top>
<td><font size=1 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income tax attributable to other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
comprehensive loss<BR>&nbsp;</font></td>
<td colspan=4>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>6,252</font></td>
<td>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">&nbsp;<BR>6,252</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Total comprehensive loss<BR>&nbsp;</font></td>
<td colspan=6>&nbsp;</td>
<td valign=bottom align=right><font size=1 face="times new roman, serif">(12,734)</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">(1,285)</font></td>

<td colspan=2>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">(1,285)</font></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Restricted stock grants</font></td>
<td>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">29</font></td>

<td align=right><font size=1 face="times new roman, serif">(29)</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">-</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">50</font></td>
<td colspan=3>&nbsp;</td>
<td align=right><font size=1 face="times new roman, serif">50</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">(29)</font></td>
<td align=right><font size=1 face="times new roman, serif">(29)</font></td>
</tr>
<tr>
<td valign=top><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 valign=bottom>&nbsp;<hr noshade size=1></td>

<td align=right><font face="times new roman, serif" size=1>&nbsp;<BR>75</font><hr noshade size=1></td>
<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>42</font><hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>
<td valign=bottom>&nbsp;<hr noshade size=1></td>


<td align=right><font size=1 face="times new roman, serif">&nbsp;<BR>117</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=1 face="times new roman, serif">Balance, September 30, 2008</font></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;21,921</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;56,477</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,122</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;(12,782)</font><hr noshade size=2></td>
<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(29)</font><hr noshade size=2></td>

<td align=right><font size=1 face="times new roman, serif">$&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;73,913</font><hr noshade size=2></td>
</tr>
<tr>
<td colspan=9>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center colspan=9><font size=2 face="times new roman, serif">
The accompanying notes are an integral part of these consolidated financial statements.</font></td></tr>
<tr>
<td align=center colspan=9><font size=2 face="times new roman, serif">-4-</font></td></tr>
</table>





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




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

<p align=center></p>

<table align=center width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=72%></td>
<td width=13.5%></td>
<td width=1%></td>
<td width=13.5%></td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif"><b>ATLANTIC AMERICAN CORPORATION<BR>

                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS</b><BR>
<i>(Unaudited; Dollars in thousands)</i></font></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>
September 30,</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif"> 2009</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif"> 2008</font><HR NOSHADE SIZE=1></td>
</tr>

<tr bgcolor="#eeeeee" >
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM OPERATING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Net loss</font></td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;(1,840)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif"> $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,123)</font></TD>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;used in operating activities:</font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of deferred acquisition costs</font></td>
<td align=right><font size=2 face="times new roman, serif">7,471</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,480</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition costs deferred</font></td>
<td align=right><font size=2 face="times new roman, serif">(7,610)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(7,712)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realized investment (gains) losses</font></td>
<td align=right><font size=2 face="times new roman, serif">(1)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">341</font></td>
</tr>
<tr bgcolor="#eeeeee">
<Td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Decrease) increase in insurance reserves</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,079)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,965</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations, net</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,166</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation expense related to share awards</font></td>
<td align=right><font size=2 face="times new roman, serif">22</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">50</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization</font></td>
<td align=right><font size=2 face="times new roman, serif">216</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">230</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax expense (benefit)</font></td>
<td align=right><font size=2 face="times new roman, serif">2,283</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,206)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill impairment</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">260</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;Decrease (increase) in receivables, net </font></td>
<td align=right><font size=2 face="times new roman, serif">4,583</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,520)</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">(6,369)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3,770)</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">53</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,802)</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 continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">(3,271)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,641)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;Net cash used in discontinued operations</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3,424)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;Net cash used in operating activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(3,271)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(8,065)</font><HR NOSHADE SIZE=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM INVESTING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from investments sold, called or matured</font></TD>
<td align=right><font size=2 face="times new roman, serif">89,688</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">65,503</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Investments purchased</font></td>
<td align=right><font size=2 face="times new roman, serif">(94,158)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(87,147)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net proceeds from sale of insurance subsidiaries</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">43,392</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Additions to property and equipment</font></td>
<td align=right><font size=2 face="times new roman, serif">(94)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(134)</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 continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">(4,564)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">21,614</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash used in discontinued operations (net of $35,501 of cash<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; transferred in 2008)</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>(11,996)</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 investing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(4,564)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">9,618</font><HR NOSHADE SIZE=1></td>
</tr>
<tr>
<td colspan=5>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif"><b>CASH FLOWS FROM FINANCING ACTIVITIES:</b></font></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>



<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Repayments of debt</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size="-1" face="times new roman, serif">(12,750)</font></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Purchase of shares for treasury</font></td>
<td align=right><font size="-1" face="times new roman, serif">(15)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(29)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Financing of discontinued operations</font></td>
<td align=right><font size="-1" face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">4</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in
continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">(15)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(12,775)</font></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
discontinued operations</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4)</font><HR NOSHADE SIZE=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities</font></td>
<td align=right><font size=2 face="times new roman, serif">(15)</font><HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(12,779)</font><HR NOSHADE SIZE=1></td>
</tr>


<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Net decrease in cash and cash equivalents</font></td>
<td align=right><font size=2 face="times new roman, serif">(7,850)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(11,226)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td colspan=4 ><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents at beginning of period</font></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;Continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">37,321</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">36,909</font>
</td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Discontinued operations</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font>
<HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">15,424</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;Total</font></td>
<td align=right><font size=2 face="times new roman, serif">37,321</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">52,333</font>
<HR NOSHADE SIZE=2></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td colspan=4 ><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents at end of period</font></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;Continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">29,471</font>
</td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">41,107</font>
</td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Discontinued operations</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font>
<HR NOSHADE SIZE=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</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;Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,471</font>
<HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41,107</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>
<td>&nbsp;</td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash paid for interest</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;2,141</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2,596</font><HR NOSHADE SIZE=2></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;Cash paid for income taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
- -</font><HR NOSHADE SIZE=2></td>
<td>&nbsp;</td>
<td align=right><font size="-1" face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2,150</font><HR NOSHADE SIZE=2></td>
</tr>
<tr>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif">The accompanying notes are an integral part of these
 consolidated financial statements.</font></td>
</tr>
<tr>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td align=center colspan=4><font size=2 face="times new roman, serif">-5-</font></td>
</tr>
</table>













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<a name="notes_to_consolidated_statements"></a>
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<p align=center><font face="times new roman, serif" size=2><b>ATLANTIC AMERICAN CORPORATION<BR>
                                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
                                                             September 30, 2009</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 (&#147;GAAP&#148;) 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 GAAP. 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, 2008. Operating results for the three month
and nine month periods ended September 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2009 or for
any other future period. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of
financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those
estimates. </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 evaluated
events subsequent to September 30, 2009, and through the condensed consolidated
financial statement issuance date of November 13, 2009. The Company has not
evaluated subsequent events after that date for presentation in these condensed
consolidated financial statements. See Note 14, Subsequent Events, for a
discussion of events subsequent to September 30, 2009. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2008, the Company
completed the sale of its regional property and casualty operations, comprised
of Association Casualty Insurance Company and Association Risk Management
General Agency, Inc. (collectively known as &#147;Association Casualty&#148;)
and Georgia Casualty &amp; Surety Company (&#147;Georgia Casualty&#148;), to
Columbia Mutual Insurance Company (&#147;Columbia&#148;). Accordingly, the
results of operations of Association Casualty and Georgia Casualty have been
reflected by the Company as discontinued operations. See Note 3, Discontinued
Operations. </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;The Financial Accounting
Standards Board (&#147;FASB&#148;) issued Accounting Standards Codification
105-10-05, <I>Generally Accepted Accounting Principles,</I> which establishes
the Accounting Standards Codification (&#147;Codification&#148; or
&#147;ASC&#148;) as the single source of authoritative GAAP recognized by the
FASB to be applied to nongovernmental entities. Rules and interpretive releases
of the Securities and Exchange Commission (&#147;SEC&#148;) under authority of
federal securities laws are also sources of GAAP for SEC registrants. The
Codification supersedes all existing non-SEC accounting and reporting standards.
GAAP is not intended to be changed as a result of the Codification, but the ASC
does change the way the guidance is organized and presented. As a result, these
changes have a significant impact on how companies reference GAAP in their
financial statements and in their accounting policies for financial statements
issued for the interim and annual periods ending after September 15, 2009. The
Company has included the references to the Codification, as appropriate, in
these consolidated financial statements.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2009, the FASB
issued ASC Update No. 2009-5, <I>Fair Value Measurements and Disclosures (Topic
820) &#150; Measuring Liabilities at Fair Value </I>(&#147;ASU 2009-5&#148;), to
provide guidance on the fair value measurement of liabilities within the scope
of Topic 820. ASU 2009-5 states that if a quoted price in an active market for
the identical liability is available, it represents a Level 1 fair value
measurement. In circumstances in which a quoted priced in an active market for
the identical liability is not available, a reporting entity must measure fair
value using one or more of the following techniques: (a) a valuation technique
that uses the quoted price of the identical liability when traded as an asset
(b) a valuation technique that uses the quoted price for similar liabilities or
similar liabilities when traded as assets (c) another valuation technique that
is consistent with the principles of Topic 820, such as an income approach or a
market approach. In all instances, the reporting entity must maximize the use of
the relevant observable inputs and minimize the use of unobservable inputs. ASU
2009-5 is effective for the first reporting period (including interim periods)
beginning after August 28, 2009. The Company adopted ASU 2009-5 on September 30,
2009. Adoption of this statement did not have a material impact on the
Company&#146;s financial condition or results of operations.</FONT></P>







<BR><BR>

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<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2009, the FASB
issued ASC Update No. 2009-4, <I>Accounting for Redeemable Equity
Instruments</I> (&#147;ASU 2009-4&#148;), which is an amendment to ASC
480-10-S99, <I>Distinguishing Liabilities from Equity</I>. ASU 2009-4 was issued
to provide guidance in the application of SEC Accounting Series Release No. 268
&#150; <I>Presentation in Financial Statements of Redeemable Preferred
Stocks</I> (&#147;ASR 268&#148;) and clarifies that ASR 268 pertains to
preferred stocks and other redeemable securities including common stock,
derivative instruments, non-controlling interests, securities held by an
employee stock ownership plan and share-based payment arrangements with
employees. ASU 2009-4 became effective for the Company upon issuance and did not
have a material impact on the Company&#146;s financial condition or results of
operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2009, the FASB
issued ASC Update No. 2009-01, <I>Topic 105 &#150; Generally Accepted Accounting
Principles &#150; amendments based on Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles</I> (&#147;ASU 2009-01&#148;). ASU
2009-01 amends the FASB Accounting Standards Codification for the issuance of
FASB Statement of Financial Accounting Standards (&#147;SFAS&#148;) No. 168,
<I>The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles.</I> ASC 2009-01 includes SFAS 168 in its
entirety, including the accounting standards update instructions contained in
Appendix B of the statement. The Codification does not change current U.S. GAAP,
but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place. The Codification is effective for interim and annual periods ending after
September 15, 2009, and as of the effective date, all existing accounting
standard documents will be superseded. The Company has included the references
to the Codification, as appropriate, in this Quarterly Report on Form 10-Q for
the quarter ending September 30, 2009 and all subsequent public filings will
reference the Codification as the sole source of authoritative literature. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&#160;2009, the FASB
issued amendments to ASC 810-10 related to pre-Codification FASB Statement No.
167,<I> Amendments to FASB Interpretation No.&#160;46(R)</I> (&#147;ASC
810-10&#148;), which amends the consolidation guidance applicable to variable
interest entities (&#147;VIEs&#148;). An entity would consolidate a VIE, as the
primary beneficiary, when the entity has both of the following: (a)&#160;the
power to direct the activities of a VIE that most significantly impact the
entity&#146;s economic performance and (b)&#160;the obligation to absorb losses
of the entity that could potentially be significant to the VIE or the right to
receive benefits from the entity that could potentially be significant to the
VIE. Ongoing reassessment of whether an enterprise is the primary beneficiary of
a VIE is required. ASC 810-10 amends pre-Codification FASB Interpretation No.
46(R) to eliminate the quantitative approach previously required for determining
the primary beneficiary of a VIE. ASC 810-10 is effective for fiscal years and
interim periods beginning after November&#160;15, 2009. The Company will adopt
the amendments to ASC 810-10 on January&#160;1, 2010 and has not yet determined
the effect of the adoption on its consolidated financial statements.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&#160;2009, the FASB
issued an amendment to ASC 860 related to pre-Codification FASB Statement No.
166,<I> Accounting for Transfers of Financial Assets, an Amendment of FASB
Statement No.&#160;140</I> (&#147;ASC 860&#148;). ASC 860 amends the
derecognition guidance in pre-Codification FASB Statement No. 140 and eliminates
the concept of a qualifying special purpose entity. ASC 860 is effective for
fiscal years and interim periods beginning after November&#160;15, 2009. Early
adoption of ASC 860 is prohibited. The Company will adopt the amendments to ASC
860 on January 1, 2010 and does not expect the adoption to have a material
impact on the Company&#146;s financial condition or results of operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&#160;2009, the FASB
issued ASC 855-10, <I>Subsequent Events</I> (&#147;ASC 855-10&#148;). ASC 855-10
establishes principles and disclosure requirements for events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. In particular, ASC 855-10 sets forth (a)&#160;the period
after the balance sheet date during which management of a reporting entity shall
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (b)&#160;the circumstances under which
an entity is required to recognize events or transactions occurring after the
balance sheet date in its financial statements, and (c)&#160;the disclosures
that an entity is required to make about events or transactions that occur after
the balance sheet date. An entity is required to disclose the date through which
subsequent events have been evaluated, as well as whether that date is the date
the financial statements were issued or the date the financial statements were
available to be issued. ASC 855-10 is effective for interim or annual financial
periods ending after June&#160;15, 2009. The Company adopted ASC 855-10
beginning with its interim reporting period ended on June&#160;30, 2009. See
Note 1, Basis of Presentation, for expanded interim disclosures. </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;In April 2009, the FASB
issued ASC 820-10-65, <I>Transition Related to FASB Staff Position FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly</I> (&#147;ASC 820-10-65&#148;). ASC 820-10-65 clarifies that the
measurement objective in determining fair value when the volume and level of
activity for an asset or liability have significantly decreased is the price
that would be received to sell the asset in an orderly transaction between
willing market participants under current market conditions, and not the value
in a hypothetical active market. ASC 820-10-65 includes additional factors for
determining whether there has been a significant decrease in the volume and
level of activity for an asset or liability compared to normal activity for that
asset or liability (or similar assets or liabilities) and provides additional
guidance in estimating fair value in those instances. ASC 820-10-65 requires an
entity to base its conclusion about whether a transaction was not orderly on the
weight of the evidence. ASC 820-10-65 expands fair value disclosures for
quarterly financial statements and further requires an entity to disclose any
change in valuation techniques, the related inputs, and the effects resulting
from its application. See Note 12, Fair Value Measurements, for expanded interim
disclosures.</FONT></P>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2009, the FASB
issued ASC 320-10-65, <I>Transition Related to FSP No.&#160;FAS 115-2 and No.
FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
</I>(&#147;ASC 320-10-65&#148;). ASC 320-10-65 replaces the existing requirement
that in order for an entity to conclude impairment of debt securities is not
other-than-temporary, it must have the intent and ability to hold an impaired
security for a period sufficient to allow for recovery in value of the
investment. To conclude impairment is not other-than-temporary, ASC 320-10-65
requires management to assert that it does not have the intent to sell the
security and that it is more likely than not it will not have to sell the
security before recovery of its cost basis. ASC 320-10-65 also changes the
presentation in the financial statements of non-credit related impairment
amounts for instruments within its scope. When the entity asserts it does not
have the intent to sell the security and it is more likely than not it will not
have to sell the security before recovery of its cost basis, only the credit
related impairment losses are to be recorded in earnings; non-credit related
losses are to be recorded in accumulated other comprehensive income. ASC
320-10-65 also expands and increases the frequency of existing disclosures about
other-than-temporary impairments for debt and equity securities. See Notes 12,
Fair Value Measurements, and 13, Investments, for expanded interim disclosures.
ASC 320-10-65 is effective for interim and annual reporting periods ending after
June&#160;15, 2009. The Company adopted the provisions of ASC 320-10-65 for its
interim period ending on June&#160;30, 2009. Adoption of ASC 320-10-65 did not
have a material impact on the Company&#146;s financial condition or results of
operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&#160;2009, the
FASB issued ASC 825-10-65, <I>Transition Related to FSP No.&#160;FAS 107-1 and
APB 28-1, Interim Disclosures about Fair Value of Financial Instruments</I>
(&#147;ASC 825-10-65&#148;), which requires disclosures about fair value of
financial instruments for interim financial statements. ASC 825-10-65 also
requires entities to disclose the method(s) and significant assumptions used to
estimate the fair value of financial instruments in the financial statements on
an interim basis and to highlight any changes of the method(s) and significant
assumptions from prior periods. The disclosures in ASC 825-10-65 are effective
for interim reporting periods ending after June&#160;15, 2009, and are not
required for earlier periods that are presented for comparative purposes at
initial adoption. In periods after initial adoption, ASC 825-10-65 requires
comparative disclosures only for periods ending after initial adoption. The
Company adopted ASC 825-10-65 for its interim reporting period ending on
June&#160;30, 2009. See Note 12, Fair Value Measurements, for expanded interim
disclosures.  </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&#160;2008, the FASB
issued ASC 944-20-65, <I>Transition Related to FASB Statement No. 163,
Accounting for Financial Guarantee Insurance Contracts&#151;an interpretation of
FASB Statement No.&#160;60</I> (&#147;ASC 944-20-65&#148;). The scope of ASC
944-20-65 is limited to financial guarantee insurance (and reinsurance)
contracts issued by enterprises that are included within the scope of ASC 944
and that are not accounted for as derivative instruments. ASC 944-20-65 excludes
from its scope insurance contracts that are similar to financial guarantee
insurance such as mortgage guaranty insurance and credit insurance on trade
receivables. ASC 944-20-65 is effective for financial statements issued for
fiscal years beginning after December&#160;15, 2008, and all interim periods
within those fiscal years, except for certain disclosures about the insurance
enterprise&#146;s risk-management activities. Except for certain disclosures,
earlier application is not permitted. The Company adopted ASC 944-20-65 on
January 1, 2009. Adoption of this statement did not have a material impact on
the Company&#146;s financial condition or results of operations.  </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&#160;2008, the
FASB issued ASC 815-10-65, <I>Transition and Effective Date Related to FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No.&#160;133</I> (&#147;ASC
815-10-65&#148;). ASC 815-10-65 amends and expands disclosures about an
entity&#146;s derivative and hedging activities with the intent of providing
users of financial statements with an enhanced understanding of (a) how and why
an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under FASB Statement No. 133 and its
related interpretations, and (c) how derivative instruments and related hedged
items affect an entity&#146;s financial position, financial performance, and
cash flows. ASC 815-10-65 is effective for financial statements issued for
fiscal years and interim periods beginning after November&#160;15, 2008, with
early application encouraged. ASC 815-10-65 encourages, but does not require,
comparative disclosures. The Company adopted ASC 815-10-65 on January 1, 2009.
Adoption of this statement did not have a material impact on the Company&#146;s
financial condition or results of operations. </FONT></P>








<p align=center><font face="times new roman, serif" size=2>-8-</font></p>
<HR SIZE=2 NOSHADE>
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<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2007, the FASB
issued ASC 805-10-65, <I>Transition Related to FASB Statement No. 141 (Revised
2007),</I> <I>Business Combinations </I>(&#147;ASC 805-10-65&#148;). This
statement establishes the principles and requirements for how the acquirer in a
business combination: (a) measures and recognizes the identifiable assets
acquired, liabilities assumed, and any noncontrolling interests in the acquired
entity, (b) measures and recognizes positive goodwill acquired or a gain from
bargain purchase (negative goodwill), and (c) determines the disclosure
information that is decision-useful to users of financial statements in
evaluating the nature and financial effects of the business combination. ASC
805-10-65 further requires all transaction costs for an acquisition to be
expensed as incurred rather than capitalized, and changes the measurement date
to the date an acquisition closes. In December 2007, the FASB also issued ASC
810-10-65, <I>Transition Related to FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements &#150; an amendment of Accounting
Research Bulletin No. 51</I> (&#147;ASC 810-10-65&#148;). Noncontrolling
interest refers to the minority interest portion of the equity of a subsidiary
that is not attributable directly or indirectly to a parent. ASC 810-10-65
establishes accounting and reporting standards that require for-profit entities
that prepare consolidated financial statements to (a) present noncontrolling
interests as a component of equity, separate from the parent&#146;s equity, (b)
separately present the amount of consolidated net income attributable to
noncontrolling interests in the income statement, (c) consistently account for
changes in a parent&#146;s ownership interests in a subsidiary in which the
parent entity has a controlling financial interest as equity transactions, (d)
require an entity to measure at fair value its remaining interest in a
subsidiary that is deconsolidated, and (e) require an entity to provide
sufficient disclosures that identify and clearly distinguish between interests
of the parent and interests of noncontrolling owners. Both ASC 805-10-65 and ASC
810-10-65 are effective for fiscal years beginning on or after December 15, 2008
with earlier adoption prohibited. Therefore, the effects of adoption of ASC
805-10-65 will depend upon the extent and magnitude of acquisitions after
December 31, 2008. The Company adopted ASC 805-10-65 and ASC 810-10-65 on
January 1, 2009. Adoption of these statements did not have a material impact on
the Company&#146;s financial condition or results of operations. </FONT></P>












<p align=center><font face="times new roman, serif" size=2>-9-</font></p>
<HR SIZE=2 NOSHADE>
<H5 align="left" style="page-break-before:always"></H5>












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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March 31, 2008, the
Company completed the sale of its regional property and casualty operations
comprised of Association Casualty and Georgia Casualty to Columbia for
approximately $41,600 in cash. Accordingly, the consolidated financial
statements reflect the operating results of Association Casualty and Georgia
Casualty as discontinued operations. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
provides operating results from the discontinued operations of Association
Casualty and Georgia Casualty for the three month and nine month periods ended
September 30, 2008. </FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=58%></td>
<td width=20.5%></td>
<td width=1%></td>
<td width=20.5%></td>

</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Three Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Nine Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>

</tr>


<tr bgcolor="#eeeeee">
<td colspan=4><font size=2 face="times new roman, serif">Revenue:</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,789</font></td>

</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment income</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,400</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realized investment gains, net</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">11</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">10,208</font><hr noshade size=1></td>
</tr>




<tr bgcolor="#eeeeee">
<td colspan=8><font size=2 face="times new roman, serif">Benefits and expenses:</font></td>

</tr>
<tr>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance benefits and losses incurred</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,657</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commissions and underwriting expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,800</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total benefits and expenses</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">12,457</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss from discontinued operations before taxes</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(2,249)</font></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">Income tax benefit</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(815)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss from discontinued operations, net of tax</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,434)</font></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">Loss from sale of discontinued operations, net of tax of $415</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(732)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">Net loss from discontinued operations</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,166)</font><hr noshade size=2></td>
</tr>
</table>
<BR>


<p><font face="times new roman, serif" size=2><b><u>Note 4.</u></b>&nbsp;&nbsp;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&#146;s
operating subsidiaries, 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;), operate in two
principal business units, each focusing on a specific geographic region and/or
specific products. American Southern operates in the property and casualty
insurance market, while Bankers Fidelity operates in the life and health
insurance market. 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 business unit for the three month and nine month
periods ended September 30, 2009 and 2008.</FONT></P>


<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td bgcolor="#eeeeee"><font size=2 face="times new roman, serif"><b>&nbsp;<BR>Revenues</b></font></td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>



<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,586</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,428</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,865</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31,070</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">15,851</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">14,767</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">46,635</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">45,003</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Corporate and Other</font></td>
<td align=right><font size=2 face="times new roman, serif">101</font><hr size=1 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">421</font><hr size=1 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">357</font><hr size=1 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,015</font><hr size=1 noshade></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Total Revenue</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25,538</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25,616</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;76,857</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;77,088</font>
<hr size=2 noshade></td>
</tr>
</table>
<BR>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td bgcolor="#eeeeee"><font size=2 face="times new roman, serif"><b>&nbsp;<BR>Income (loss) before income taxes
</b></font></td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center colspan=3><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">American Southern</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,149</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,267</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,514</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,115</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Bankers Fidelity</font></td>
<td align=right><font size=2 face="times new roman, serif">466</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">464</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,582</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,170</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Corporate and Other</font></td>
<td align=right><font size=2 face="times new roman, serif">(1,444)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,795)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,668)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,558)</font><hr noshade size=1></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Consolidated Results</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;171</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(64)</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;428</font>
<hr noshade size=2></td>
<td>&nbsp;</td>
<td valign=top align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,727</font>
<hr noshade size=2></td>
</tr>
</table>
<BR>








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

<PAGE>
<HR SIZE=2 NOSHADE>
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<p><font face="times new roman, serif" size=2><b><u>Note 5.</u></b>&nbsp;&nbsp; Credit Arrangements</font></p>

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September 30, 2009, the
Company had a reducing revolving credit facility (the &#147;Credit
Agreement&#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;). In accordance with the terms of the Credit Agreement, the
Commitment Amount is incrementally reduced every six months and was equal to
$12,000 at September 30, 2009. 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%. Interest on
amounts outstanding is payable quarterly. 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 certain 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 due and payable in full.
During the three month and nine month periods ended September 30, 2009, there
was no balance outstanding under this Credit Agreement. The termination date of
this Credit Agreement is June 30, 2010.</FONT></P>


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


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





<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial structure of each of Atlantic American Statutory Trust I and II, as of September 30, 2009 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 align=center><font face="times new roman, serif" size=2>
JUNIOR SUBORDINATED DEBENTURES<SUP> (1) (2)</sup></font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Principal amount owed</font></TD>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
23,196</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Balance September 30, 2009</font></TD>
<td align=right><font face="times new roman, serif" size=2>
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>
23,196</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Balance December 31, 2008</font></TD>
<td align=right><font face="times new roman, serif" size=2>
18,042</font></td>
<td align=right><font face="times new roman, serif" size=2>
23,196</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Coupon rate</font></TD>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.00%</font></td>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.10%</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Interest payable</font></TD>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Maturity date</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2032</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2033</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Redeemable by issuer on or after</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2007</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2008</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
TRUST PREFERRED SECURITIES</font></TD>
<TD COLSPAN=2>&nbsp;</TD>
</TR>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Issuance date</font></TD>
<td align=right><font face="times new roman, serif" size=2>December 4, 2002</font></td>
<td align=right><font face="times new roman, serif" size=2>May 15, 2003</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Securities issued</font></TD>
<td align=right><font face="times new roman, serif" size=2>17,500</font></td>
<td align=right><font face="times new roman, serif" size=2>22,500</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Liquidation preference per security</font></TD>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Liquidation value</font></TD>
<td align=right><font face="times new roman, serif" size=2>17,500</font></td>
<td align=right><font face="times new roman, serif" size=2>22,500</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Coupon rate</font></TD>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.00%</font></td>
<td align=right><font face="times new roman, serif" size=2>LIBOR + 4.10%</font></td>
</tr>
<tr>
<td align=center><font face="times new roman, serif" size=2>
Distribution payable</font></TD>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
<td align=right><font face="times new roman, serif" size=2>Quarterly</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td align=center><font face="times new roman, serif" size=2>
Distribution guaranteed by<sup>(3)</sup></font></TD>
<td align=right><font face="times new roman, serif" size=2>Atlantic American Corporation</font></td>
<td align=right><font face="times new roman, serif" size=2>Atlantic American Corporation</font></td>
</tr>

</table>
<BR>

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

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





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

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



























<p><font face="times new roman, serif" size=2><b><u>Note 6.</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. The Company began making payments
to Wachovia under the zero cost rate collar on June 4, 2008. As a result of
interest rates remaining below the LIBOR floor rate of 4.77%, these payments to
Wachovia under the zero cost rate collar continued throughout 2008 and into
2009. While the Company is exposed to counterparty risk should Wachovia fail to
perform, based on the current level of interest rates, and coupled with the
current macroeconomic outlook, the Company believes that its current exposure is
minimal. </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 interest rate collar at
September 30, 2009 was a liability of approximately $1,712 with a corresponding
increase in accumulated other comprehensive loss in shareholders&#146; equity,
net of deferred tax.</font></p>


<p><font face="times new roman, serif" size=2><b><u>Note 7.</u></b>&nbsp;&nbsp;Reconciliation of Other Comprehensive Income (Loss)</font></p>





<table width=630 cellspacing=0 cellpadding=2 border=0>
<tr>
<td width=45%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
<td width=1%></td>
<td width=13%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended,<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended,<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Net realized gains (losses) on investments included <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in income (loss) from continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
14</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;(367)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;(341)</font></td>
</tr>

<tr valign=bottom>
<td><font size=2 face="times new roman, serif">Net realized gains on investments included in<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;loss from discontinued operations<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;8</font><hr noshade size=1></td>
</tr>

<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total net realized gains (losses) on investments <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;included in net loss<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
14</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;(367)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;(333)</font><hr noshade size=2></td>
</tr>


<tr>
<td><font size=2 face="times new roman, serif">Other components of comprehensive income (loss):</font></td>
<td colspan=4>&nbsp;</td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;
Net pre-tax unrealized gains (losses) on <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;investments arising during period</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,179</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;(10,154)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;9,396</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;(18,119)</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment</font></td>
<td align=right><font size=2 face="times new roman, serif">(14)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">367</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">333</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net pre-tax unrealized gains (losses) on<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
investments recognized in other <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive income (loss)</font></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">7,165</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(9,787)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">9,395</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(17,786)</font></td>
</tr>
<tr>
<td valign=top><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value adjustment to derivative financial<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; instrument</font></td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(130)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(101)</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">373</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right valign=bottom><font size=2 face="times new roman, serif">(77)</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minimum pension liability adjustment</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">375</font></td>
<td valign=bottom>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
</tr>


<tr valign=bottom>
<td><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax attributable to other<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive
income (loss)<BR>&nbsp;</font></td>
<td align=right><font size=2 face="times new roman, serif">(2,462)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">3,461</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(3,550)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,252</font><hr noshade size=1></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Change in accumulated other comprehensive <BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;loss</font></td>
<td align=right><font size=2 face="times new roman, serif">4,573</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(6,427)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,593</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(11,611)</font></td>
</tr>
<tr valign=bottom>
<td><font size=2 face="times new roman, serif">Accumulated other comprehensive loss beginning<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">(7,180)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(6,355)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(9,200)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,171)</font><hr noshade size=1></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Accumulated other comprehensive loss end of<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;period<BR>&nbsp;
</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;(2,607)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;(12,782)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;(2,607)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;(12,782)</font><hr noshade size=2></td>
</tr>
</table>







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






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


























<p><font face="times new roman, serif" size=2><u><b>Note 8.</b></u>&nbsp;&nbsp;Earnings Per Common Share</font></p>

<p><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reconciliation of the numerator and denominator 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>September 30, 2009</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 and Diluted Loss Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Loss from continuing operations</font></td>
<td align=right><font size=2 face="times new roman, serif">$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2,108)</font></td>
<td align=right><font size=2 face="times new roman, serif">22,323</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">(127)</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">Loss from continuing operations applicable to common<BR>&nbsp;&nbsp;&nbsp;&nbsp;shareholders<BR>&nbsp;</font></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2,235)</font><hr noshade size=2></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>22,323</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><hr noshade size=2></Td>
</tr>

</table>
<BR>

<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>September 30, 2008</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 and Diluted Loss Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Loss from continuing operations</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;
(166)</font></td>
<td align=right><font size=2 face="times new roman, serif">21,876</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">(428)</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">Loss from continuing operations applicable to common<BR>&nbsp;&nbsp;&nbsp;&nbsp;shareholders<BR>&nbsp;</font></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(594)</font><hr noshade size=2></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>21,876</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.03)</font><hr noshade size=2></Td>
</tr>

</table>
<BR>


<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">Nine Months Ended<BR>September 30, 2009</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 and Diluted Loss Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Loss from continuing operations</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;
(1,840)</font></td>
<td align=right><font size=2 face="times new roman, serif">22,311</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">(381)</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">Loss from continuing operations applicable to common<BR>&nbsp;&nbsp;&nbsp;&nbsp;shareholders<BR>&nbsp;</font></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2,221)</font><hr noshade size=2></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>22,311</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.10)</font><hr noshade size=2></Td>
</tr>

</table>
<BR>


<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">Nine Months Ended<BR>September 30, 2008</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 and Diluted Loss Per Common Share:</i></font></td>
<td colspan=3>&nbsp;</td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Income from continuing operations</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;
1,043</font></td>
<td align=right><font size=2 face="times new roman, serif">21,849</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">(1,285)</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">Loss from continuing operations applicable to common<BR>&nbsp;&nbsp;&nbsp;&nbsp;shareholders<BR>&nbsp;</font></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(242)</font><hr noshade size=2></td>
<td align=right valign=top><font size=2 face="times new roman, serif">&nbsp;<BR>21,849</font><hr noshade size=2></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>$
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(.01)</font><hr noshade size=2></Td>
</tr>

</table>




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






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











<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The assumed conversion of
the Company&#146;s Series D Preferred Stock was excluded from the earnings per
common share calculation for the three month and nine month periods ended
September 30, 2009 and 2008, respectively, since its impact would have been
antidilutive. All outstanding stock options were excluded from the earnings per
common share calculation for the three month and nine month periods ended
September 30, 2009 and 2008, respectively, since their impact would have been
antidilutive. The assumed conversion of the Company&#146;s Series B Preferred
Stock was excluded from the earnings per common share calculation for the three
month and nine month periods ended September 30, 2008 since its impact would
have been antidilutive. On October 28, 2008, the Company redeemed all of the
issued and outstanding shares of Series B Preferred Stock at the stated value of
$100 per share, for an aggregate payment of $13,400.</FONT></P>


<p><font face="times new roman, serif" size=2><b><u>Note 9.</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 income tax expense from continuing operations is as follows:</FONT></P>

<table width=90% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=51%></td>
<td width=11.5%></td>
<td width=1%></td>
<td width=11.5%></td>
<td width=1%></td>
<td width=11.5%></td>
<td width=1%></td>
<td width=11.5%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;60</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(23)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;150</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;604</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">(56)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(55)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(174)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(154)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Small life deduction</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(75)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(130)</font></td>
</tr>
<tr>
<td><font size=2 face="times new roman, serif">Non-deductible goodwill</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">91</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss carryforward from sale of subsidiaries</font></td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,198)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,717)</font></td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">Other permanent differences</font></td>
<td align=right><font size=2 face="times new roman, serif">16</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">33</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">26</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Change in asset valuation allowance due to change in judgment<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; relating to realizability of deferred tax assets</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,755</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,198</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,755</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>4,717</font></td>
</tr>


<tr valign=top>
<td><font size=2 face="times new roman, serif">Adjustment for prior years' estimates to actual</font></td>
<td align=right><font size=2 face="times new roman, serif">504</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">247</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">504</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">247</font><hr noshade size=1></td>
</tr>




<tr valign=top bgcolor="#eeeeee">
<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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,279</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;102</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,268</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;684</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 from continuing operations were: </font></p>

<table width=80% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=37%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
<td width=1%></td>
<td width=15%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,
</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(15)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;272</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(15)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,890</font></td>
</tr>

<tr>
<td><font size=2 face="times new roman, serif">Deferred - Federal</font></td>
<td align=right><font size=2 face="times new roman, serif">539</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,368)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">528</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(5,923)</font></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Change in deferred tax asset valuation<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;allowance</font></td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,755</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,198</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>1,755</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">&nbsp;<BR>4,717</font><hr noshade size=1></td>
</tr>


<tr valign=top>
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,279</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;102</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,268</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;684</font>
<hr size=2 noshade></td>
</tr>
</table>


<p><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reconciliation of the
differences between income taxes computed at the federal statutory income tax
rate and the income tax benefit from discontinued operations is as follows:</font></p>

<table width=55% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=19.5%></td>
<td width=1%></td>
<td width=19.5%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Three Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Nine Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,189)</font></td>
</tr>
<tr valign=top>
<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">-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(41)</font><hr noshade size=1></td>
</tr>

<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Income tax benefit</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,230)</font>
<hr size=2 noshade></td>
</tr>
</table>

<p><font size=2 face="times new roman, serif">The components of the
income tax benefit from discontinued operations were: </font></p>












<table width=55% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=19.5%></td>
<td width=1%></td>
<td width=19.5%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Three Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" align=center><font size=2 face="times new roman, serif">Nine Months<BR>Ended<BR>September 30,
</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,577)</font></td>
</tr>

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


<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font>
<hr size=2 noshade></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,230)</font>
<hr size=2 noshade></td>
</tr>
</table>






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










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









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


















<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The primary differences
between the effective tax rate and the federal statutory income tax rate for the
three month and nine month periods ended September 30, 2009 resulted from the
dividends-received deduction (&#147;DRD&#148;), the change in deferred tax asset
valuation allowance, and the provision-to-filed return adjustments. The current
estimated DRD is adjusted as underlying factors change. The actual current year
DRD can vary from the estimates based on, but not limited to, actual
distributions from these investments as well as appropriate levels of taxable
income. The change in deferred tax asset valuation allowance was due to the
reassessment of the realization of tax assets related to certain capital losses
on investments as well as other capital loss carryforward benefits. The Company
has established a corresponding valuation allowance of $1,755 as it does not
currently anticipate having sufficient future capital gains to offset these
capital losses during the applicable carryforward period. The Company continues
to periodically assess the potential realization of this and all other deferred
tax benefits. Also, the provision-to-filed return adjustments are generally
updated at the completion of the third quarter of each fiscal year and were $504
in the three month and nine month periods ended September 30, 2009. The
provision-to-filed-return adjustments for the three month and nine month periods
ended September 30, 2009 were primarily due to adjustments related to the 2008
sale of the Company&#146;s regional property and casualty operations.  </FONT></P>


<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 and nine month periods ended September 30, 2008 resulted from the
DRD, the small life insurance company deduction (&#147;SLD&#148;), a
non-deductible goodwill impairment charge, and the change in deferred tax asset
valuation allowance. The SLD varies in amount and is determined at a rate of 60
percent of the tentative life insurance company taxable income
(&#147;LICTI&#148;). The amount of the SLD for any taxable year is reduced (but
not below zero) by 15 percent of the tentative LICTI for such taxable year as it
exceeds $3,000 and is ultimately phased out at $15,000. The change in deferred
tax asset valuation allowance was due to the reassessment of the realization of
certain loss carryforward benefits. On March 31, 2008, the Company completed the
sale of its regional property and casualty operations to Columbia, which
resulted in an estimated loss carryforward benefit of approximately $3.5
million. During the three month period ended September 30, 2008, the Company
revised its original estimate of the loss carryforward benefit from $3.5 million
to $4.7 million as a result of further analysis. Since the Company did not
anticipate having sufficient future capital gains to offset these capital
losses, during the three month period ended September 30, 2008, the Company
increased its deferred tax asset valuation allowance from $3.5 million to $4.7
million to reduce the value attributable to this deferred tax benefit. The
provision-to-filed-return adjustments were $247 in the three month and nine
month periods ended September 30, 2008. The provision-to-filed-return
adjustments for the three month and nine month periods ended September 30, 2008
included a charge of $163, which resulted from the write off of unused net
operating loss carryforwards that had expired. </FONT></P>


<p><font face="times new roman, serif" size=2><b><u>Note 10.</u></b>&nbsp;&nbsp;Employee Retirement Plans</font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective May 31, 2008, the
Company decided to freeze all benefits related to its qualified pension plan, as
well as the supplemental executive retirement plan (&#147;SERP&#148;). The
Company intends to terminate the qualified plan pending governmental approval.
Upon approval, the Company will distribute the accumulated benefits to its
participating employees. In May 2009, the Company terminated the SERP and
distributed the accumulated benefits to those employees participating in the
SERP. </FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January 1, 2009,
the Company modified the provision of its employees&#146; savings plan qualified
under Section 401(k) of the Internal Revenue Code (the &#147;Plan&#148;) such
that the Plan would operate on a safe harbor basis. The Plan covers all of the
Company&#146;s employees. Under the Plan, employees may defer up to 50% of their
compensation, not to exceed the statutory maximum allowed contribution. The
Company&#146;s matching contribution is equal to 100% of the first 4% of such
contributions.</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 of the net periodic benefit cost for all defined benefit
pension plans of the Company for the three month and nine month periods ended
September 30, 2008. </font></p>












<table width=55% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=19.5%></td>
<td width=1%></td>
<td width=19.5%></td>
</tr>
<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Three Months<BR>Ended<BR>September 30,</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Nine Months<BR>Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2  face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Service cost</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;139</font></td>
</tr>

<tr>
<td><font size=2  face="times new roman, serif">Interest cost</font></td>
<td align=right><font size=2  face="times new roman, serif">85</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">254</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">Expected return on plan assets</font></td>
<td align=right><font size=2  face="times new roman, serif">(54)</font></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">(163)</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">20</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">60</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee" valign=top>
<td><font size=2  face="times new roman, serif">Net periodic benefit cost</font></td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;97</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;290</font><hr noshade size=2></td>
</tr>
</table>






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










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




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


















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

<table width=60% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=60%></td>
<td width=19.5%></td>
<td width=1%></td>
<td width=19.5%></td>
</tr>

<tr bgcolor="#eeeeee">
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Nine Months<BR>Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2008</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Discount rate</font></td>
<td align=center><font face="times new roman, serif" size=2>5.75%</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Expected return on plan assets</font></td>
<td align=center><font face="times new roman, serif" size=2>7.00%</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Projected annual salary increases</font></td>
<td align=center><font face="times new roman, serif" size=2>4.50%</font></td>
</tr>
</table>





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

<p><font face="times new roman, serif" size=2><u><b>Note 12.</b></u>&nbsp;&nbsp;Fair Value Measurements</font></p>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company determines the
fair values of certain financial instruments based on the fair market hierarchy
established in ASC 820-10-20, <I>Fair Value Measurements and Disclosures</I>
(&#147;ASC 820-10-20&#148;). ASC 820-10-20 defines fair value, establishes a
framework for measuring fair value under GAAP, and enhances disclosures about
fair value measurements. Fair value is defined as the exchange price at which an
asset could be sold or a liability settled in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820-10-20 provides guidance on
measuring fair value when required under existing accounting standards and
establishes a hierarchy that prioritizes the inputs to valuation techniques. A
financial asset&#146;s or liability&#146;s classification within the hierarchy
is determined based on the lowest level input that is significant to the fair
value measurement. The fair values for fixed maturity and equity securities are
largely determined by either independent methods prescribed by the National
Association of Insurance Commissioners, which do not differ materially from
nationally quoted market prices, when available, or independent broker
quotations. </FONT></P>






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










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




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







<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ASC 820-10-20 establishes a
fair value hierarchy that prioritizes the inputs in the valuation techniques
used to measure fair value into three levels (Level 1, 2 or 3), as defined
below. </FONT></P>




<table width=100% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=7%></td>
<td width=93%></td>

</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 1</font></td>
<td><font face="times new roman, serif" size=2>
Observable inputs that reflect quoted prices for identical assets or
liabilities in active markets that the Company has the ability to access at the
measurement date. The Company&#146;s Level 1 instruments consist of short-term
investments. </font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 2</font></td>
<td><font face="times new roman, serif" size=2>
Observable inputs, other than quoted prices included in Level 1, for the asset
or liability or prices for similar assets and liabilities. The Company&#146;s
Level 2 instruments include most of its fixed maturity securities, which consist
of U.S. Treasury securities and U.S. Government securities, municipal bonds, and
certain corporate fixed maturity securities, as well as its common and
non-redeemable preferred stocks.  </font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 3</font></td>
<td><font face="times new roman, serif" size=2>
 Valuations that are derived from techniques in which one or more of the
significant inputs are unobservable (including assumptions about risk). The
Company&#146;s Level 3 instruments include certain fixed maturity securities and
a zero cost rate collar. Fair value is based on criteria that use assumptions or
other data that are not readily observable from objective sources. As of
September 30, 2009, the Company&#146;s fixed maturity securities valued using
Level 3 criteria totaled $1,828 and the zero cost rate collar was a liability of
$1,712 (See Note 6). The use of different criteria of assumptions of data may
have yielded different results. </font></td>
</tr>
</table>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following provides
information as to the extent to which the Company uses fair value to measure
financial instruments and information about the inputs used to value those
financial instruments. </FONT></P>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables present assets and (liabilities) carried at fair value by ASC 820-10-20 hierarchy level.</FONT></P>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September 30, 2009, assets measured at fair value on a recurring basis are summarized below:</FONT></P>





<table width=600 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Quoted Prices<BR>in Active<BR>Markets<BR>for Identical<BR>Assets<BR>(Level 1)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Significant<BR>Other<BR>Observable<BR>Inputs<BR>(Level 2)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>Significant<BR>&nbsp;Unobservable<BR>Inputs<BR>(Level 3)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Total</font><hr noshade size=1></td>

</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed maturity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;174,587</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;176,415</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Equity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,510</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,510</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20,202</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;182,097</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204,127</font><hr noshade size=2></td>
</tr>
</table>



<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December 31, 2008, assets measured at fair value on a recurring basis are summarized below:</FONT></P>

<table width=600 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
</tr>


<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Quoted Prices<BR>in Active<BR>Markets<BR>for Identical<BR>Assets<BR>(Level 1)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Significant<BR>Other<BR>Observable<BR>Inputs<BR>(Level 2)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>Significant<BR>&nbsp;Unobservable<BR>Inputs<BR>(Level 3)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Total</font><hr noshade size=1></td>

</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed maturity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;161,168</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;163,097</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Equity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,291</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,291</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21,339</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;166,459</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;189,727</font><hr noshade size=2></td>
</tr>
</table>









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










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<HR SIZE=2 NOSHADE>
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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 is a
roll-forward of the financial instruments measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the three month and
nine month periods ended September 30, 2009.</FONT></P>



<table width=60% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=65%>&nbsp;</td>
<td width=17%>&nbsp;</td>
<td>&nbsp;</td>
<td width=17%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fixed<BR>Maturity<BR>Securities</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Derivative<BR>(Liability)</font><hr noshade size=1></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Balance, January 1, 2009</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,085)</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(121)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>81</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Balance, March 31, 2009</font></td>
<td align=right><font face="times new roman, serif" size=2>1,808</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(2,004)</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(78)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>421</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Balance, June 30, 2009</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,730</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(1,583)</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>98</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(129)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Balance, September 30, 2009</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,712)</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 Company&#146;s Level 3
fixed maturity securities are comprised solely of issuances of pooled debt
obligations of multiple, smaller financial services companies. They are not
actively traded and valuation techniques used to measure fair value are based on
future estimated cash flows discounted at a reasonably estimated rate of
interest. Other qualitative and quantitative information received from the
original underwriter of the pooled offering is also considered, as applicable.
As the derivative is an interest rate collar, changes in valuation are more
closely correlated with changes in interest rates and accordingly values are
estimated using projected cash flows at current interest rates discounted at a
reasonably estimated rate of interest. Fair value quotations are also obtained
from the single counterparty to the transaction.</FONT></P>

<p><font face="times new roman, serif" size=2><u><b>Note 13.</b></u>&nbsp;&nbsp;Investments</font></p>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set
forth the carrying value, gross unrealized gains, gross unrealized losses, and
amortized cost of the Company&#146;s investments as of September 30, 2009 and
December 31, 2008. </FONT></P>


<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=7 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>September 30, 2009</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Gross<BR>Unrealized<BR>Gains</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Gross<BR>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed Maturities:</font></td>
<td colspan=7>&nbsp;</td>
</tr>

<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Treasury securities and obligations<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of U.S. Government agencies and authorities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;112,403</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,354</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;614</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111,663</font></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate securities</font></td>
<td align=right><font face="times new roman, serif" size=2>55,297</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,295</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,070</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>56,072</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Redeemable preferred stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>8,715</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>201</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,158</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>9,672</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total fixed maturities</font></td>
<td align=right><font face="times new roman, serif" size=2>176,415</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,850</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>4,842</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>177,407</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Common and non-redeemable preferred stocks</font></td>
<td align=right><font face="times new roman, serif" size=2>7,510</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,159</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,465</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>8,816</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Other invested assets (fair value of $1,064)</font></td>
<td align=right><font face="times new roman, serif" size=2>1,064</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,064</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Policy and student loans</font></td>
<td align=right><font face="times new roman, serif" size=2>2,084</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,084</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Real estate</font></td>
<td align=right><font face="times new roman, serif" size=2>38</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>38</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Investments in unconsolidated trusts</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,238</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,238</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments</font></td>
<td align=right><font face="times new roman, serif" size=2>188,349</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,009</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,307</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>190,647</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;208,551</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,009</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,307</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;210,849</font><hr noshade size=2></td>
</tr>
</table>









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










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














<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=7 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>December 31, 2008</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Gross<BR>Unrealized<BR>Gains</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Gross<BR>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed Maturities:</font></td>
<td colspan=7>&nbsp;</td>
</tr>

<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Treasury securities and obligations<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of U.S. Government agencies and authorities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;120,572</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,386</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;123</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;119,309</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Obligations of states and political subdivisions</font></td>
<td align=right><font face="times new roman, serif" size=2>409</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>10</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>399</font></td>
</tr>

<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate securities</font></td>
<td align=right><font face="times new roman, serif" size=2>34,755</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>41</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,128</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>41,842</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Redeemable preferred stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>7,361</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>27</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,381</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>9,715</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total fixed maturities</font></td>
<td align=right><font face="times new roman, serif" size=2>163,097</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,464</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>9,632</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>171,265</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Common and non-redeemable preferred stocks</font></td>
<td align=right><font face="times new roman, serif" size=2>5,291</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>588</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>4,113</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>8,816</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Other invested assets (fair value of $1,433)</font></td>
<td align=right><font face="times new roman, serif" size=2>1,433</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,433</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Policy and student loans</font></td>
<td align=right><font face="times new roman, serif" size=2>2,019</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,019</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Real estate</font></td>
<td align=right><font face="times new roman, serif" size=2>38</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>38</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Investments in unconsolidated trusts</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,238</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,238</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments</font></td>
<td align=right><font face="times new roman, serif" size=2>173,116</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,052</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>13,745</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>184,809</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;194,455</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,052</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,745</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;206,148</font><hr noshade size=2></td>
</tr>
</table>



<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table
presents the Company&#146;s fixed maturities and short-term investments by
contractual maturity year as of September 30, 2009. </FONT></P>

<table width=60% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=44%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=27%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=27%>&nbsp;</td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Maturities</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td colspan=3 align=center><font face="times new roman, serif" size=2>September 30, 2009</font><hr noshade size=1></td>
</tr>

<tr>
<td colspan=2>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Amortized<BR>Cost</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Due in one year or less</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,740</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,677</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Due after one year through five years</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>12,270</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>11,771</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Due after five  years through ten years</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>18,679</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>18,286</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Due after ten years</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>141,945</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>143,882</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Varying maturities</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>983</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>993</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Totals</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;196,617</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;197,609</font><hr noshade size=2></td>
</tr>
</table>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.</FONT></P>





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










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
















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








<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth the carrying value, amortized cost, and net unrealized gains or losses of
the Company&#146;s investments aggregated by type and industry as of September 30,
2009 and December 31, 2008. </FONT></P>




<table width=100% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=26%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=11.5%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=5 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>September 30, 2009</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td colspan=5 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>December 31, 2008</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Gains<BR>(Losses)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Gains<BR>(Losses)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td colspan=12><font face="times new roman, serif" size=2>Fixed Maturities:<BR>&nbsp;</font></td>
</tr>

<tr>
<td valign=top><font face="times new roman, serif" size=2>U.S. Treasury and<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government agencies</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;112,403</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111,663</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;740</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;120,572</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;119,309</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,263</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Obligations of states and<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;political subdivisions</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>409</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>399</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>10</font><hr noshade size=1></td>
</tr>

<tr>
<td colspan=12><font face="times new roman, serif" size=2>Corporate securities<BR>&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilities and telecom</font></td>
<td align=right><font face="times new roman, serif" size=2>26,310</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>25,015</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,295</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>17,260</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>18,484</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(1,224)</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial services</font></td>
<td align=right><font face="times new roman, serif" size=2>17,290</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>19,517</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(2,227)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>12,986</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>17,416</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(4,430)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diversified services</font></td>
<td align=right><font face="times new roman, serif" size=2>5,956</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>6,009</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(53)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,215</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,489</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(274)</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Media</font></td>
<td align=right><font face="times new roman, serif" size=2>2,262</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,353</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(91)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,194</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,353</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(1,159)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,479</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,178</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>301</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>100</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>100</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total corporate securities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>55,297</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>56,072</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(775)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>34,755</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>41,842</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(7,087)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td colspan=12><font face="times new roman, serif" size=2>Redeemable preferred stocks<BR>&nbsp;</font></td>
</tr>


<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilities and telecom</font></td>
<td align=right><font face="times new roman, serif" size=2>2,637</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,500</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>137</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,525</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,499</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>26</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial services</font></td>
<td align=right><font face="times new roman, serif" size=2>4,605</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,599</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(994)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,694</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,599</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(1,905)</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diversified services</font></td>
<td align=right><font face="times new roman, serif" size=2>249</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>250</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(1)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>230</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>251</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(21)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Automotive</font></td>
<td align=right><font face="times new roman, serif" size=2>239</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>179</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>60</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>222</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>222</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Media</font></td>
<td align=right><font face="times new roman, serif" size=2>792</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>951</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(159)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>498</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>951</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(453)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>193</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>193</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>192</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>193</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(1)</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total redeemable preferred<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>8,715</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>9,672</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(957)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>7,361</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>9,715</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(2,354)</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Total fixed maturities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>176,415</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>177,407</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(992)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>163,097</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>171,265</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(8,168)</font><hr noshade size=1></td>
</tr>
<tr>
<td colspan=12><font face="times new roman, serif" size=2>Common and non-redeemable<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;preferred stocks</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial services</font></td>
<td align=right><font face="times new roman, serif" size=2>6,263</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,571</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>692</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>4,927</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,571</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(644)</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diversified services</font></td>
<td align=right><font face="times new roman, serif" size=2>101</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>47</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>54</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>97</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>47</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>50</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Media</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,146</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,198</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(2,052)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>267</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,198</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(2,931)</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total common and non-<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;redeemable preferred stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>7,510</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>8,816</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(1,306)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>5,291</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>8,816</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(3,525)</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Total</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;183,925</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;186,223</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,298)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;168,388</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;180,081</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11,693)</font><hr noshade size=2></td>
</tr>
</table>






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


<HR SIZE=2 NOSHADE>












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












<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets
forth the carrying value, amortized cost, and net unrealized gains or losses of
the Company&#146;s investments aggregated by industry as of September 30, 2009
and December 31, 2008. </FONT></P>

<table width=95% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=23%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=12%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=12%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=5 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>September 30, 2009</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td colspan=5 align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>December 31, 2008</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Gains<BR>(Losses)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Carrying<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>&nbsp;<BR>Amortized<BR>Cost</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Gains<BR>(Losses)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>U.S. Treasury and<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government agencies</font></td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;112,403</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;111,663</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;740</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;120,572</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;119,309</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,263</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Utilities and telecom</font></td>
<td align=right><font face="times new roman, serif" size=2>28,947</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>27,515</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,432</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>19,785</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>20,983</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(1,198)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Financial services</font></td>
<td align=right><font face="times new roman, serif" size=2>28,158</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>30,687</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(2,529)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>21,607</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>28,586</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(6,979)</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Diversified services</font></td>
<td align=right><font face="times new roman, serif" size=2>6,306</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>6,306</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,542</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,787</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(245)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Automotive</font></td>
<td align=right><font face="times new roman, serif" size=2>239</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>179</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>60</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>222</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>222</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Media<SUP>(1)</sup></font></td>
<td align=right><font face="times new roman, serif" size=2>4,200</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>6,502</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(2,302)</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,959</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>6,502</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(4,543)</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Other</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,672</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>3,371</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>301</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>701</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>692</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>9</font><hr noshade size=1></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;183,925</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;186,223</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,298)</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;168,388</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;180,081</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11,693)</font><hr noshade size=2></td>
</tr>
</table>


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

</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2><sup>(1)</sup></font></td>
<td><font face="times new roman, serif" size=2>
Media  includes  related  party  investments  in Gray  Television,  Inc. and Triple Crown Media,  Inc.  which had an aggregate
         carrying  value  approximating  $1,146 and an  amortized  cost basis of $3,198 at September  30,  2009.  At December 31, 2008,
         these investments had an aggregate carrying value approximating $268 and an amortized cost basis of $3,198.</font></td>
</tr>
</table>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables
present the Company&#146;s unrealized loss aging for securities by type and
length of time the security was in a continuous unrealized loss position as of
September 30, 2009 and December 31, 2008.  </FONT></P>


<table width=95% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=11 align=center><font face="times new roman, serif" size=2>September 30, 2009</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Less than 12 months</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>12 months or longer</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Total</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>U.S. Treasury securities and obligations of<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Government agencies and authorities</font></td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46,063</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;573</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,947</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;50,010</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;614</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Corporate securities</font></td>
<td align=right><font face="times new roman, serif" size=2>3,256</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,234</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>14,057</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,836</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>17,313</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,070</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Redeemable preferred stocks</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,393</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,158</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,393</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>1,158</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Common and non-redeemable preferred stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>4,016</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,465</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>4,016</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,465</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Total temporary impaired securities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;49,319</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,807</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27,413</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,500</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;76,732</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,307</font><hr noshade size=2></td>
</tr>
</table>

<table width=95% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=10%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td colspan=11 align=center><font face="times new roman, serif" size=2>December 31, 2008</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Less than 12 months</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>12 months or longer</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Total</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Fair<BR>Value</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>Unrealized<BR>Losses</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>U.S. Treasury securities and obligations of<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Government agencies and authorities</font></td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27,184</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;123</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27,184</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>&nbsp;<BR>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;123</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Corporate securities</font></td>
<td align=right><font face="times new roman, serif" size=2>22,423</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,792</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,708</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,336</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>28,131</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,128</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Redeemable preferred stocks</font></td>
<td align=right><font face="times new roman, serif" size=2>2,224</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>276</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>3,196</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,105</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,420</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>2,381</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Common and non-redeemable preferred stocks</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>267</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,930</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,100</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,183</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>2,367</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>4,113</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Total temporary impaired securities</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;52,098</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,121</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,004</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,624</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;63,102</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,745</font><hr noshade size=2></td>
</tr>
</table>





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


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
















<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of investment impairments the Company recorded due to other than temporary
declines in values for the three month and nine month periods ended September
30, 2009 and 2008. </FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=45%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=13%>&nbsp;</td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Three Months Ended<BR>September 30,</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center colspan=3 bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Nine Months Ended<BR>September 30,</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font face="times new roman, serif" size=2>2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Redeemable preferred stocks</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Equity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>382</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>382</font></td>
<td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Other invested assests</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>17</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;382</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;61</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;382</font><hr noshade size=2></td>
<td>&nbsp;</td>
</tr>
</table>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the nine month
period ended September 30, 2009, the Company recorded a $61 realized loss due to
other than temporary impairments in its investment in redeemable preferred
securities of General Motors Corporation and certain other invested assets.
During the three month period ended September 30, 2008, the Company recorded a
$382 realized loss due to an other than temporary impairment in its investment
in equity securities of Wachovia Corporation.</FONT></P>


<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The evaluation for other
than temporary impairments is a quantitative and qualitative process, which is
subject to risks and uncertainties in the determination of whether declines in
the fair value of investments are other than temporary. The risks and
uncertainties include, among other things, changes in general economic
conditions, an issuer&#146;s financial condition or near term recovery prospects
and the effects of changes in interest rates. In evaluating impairment, the
Company considers, among other factors, the intent and ability to hold these
securities, the nature of the investment and the prospects for the issuer and
its industry, the issuer&#146;s continued satisfaction of the investment
obligations in accordance with their contractual terms, and management&#146;s
expectation that they will continue to do so, as well as rating actions that
affect the issuer&#146;s credit status. </FONT></P>

<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September 30, 2009,
securities in an unrealized loss position were primarily related to the
Company&#146;s investments in fixed maturities, common and non-redeemable
preferred stocks, most significantly within the financial services and media
sectors, which have experienced significant price deterioration and continue to
be impacted by current macroeconomic conditions. During the nine month period
ended September 30, 2009, net pre-tax unrealized losses on investment securities
recognized in other comprehensive loss decreased $9,395 from net pre-tax
unrealized losses on investment securities of $11,693 valued as of December 31,
2008. Of the $9,395 decrease, $4,450 was due to the increase in fair value of
the Company&#146;s holdings of securities of certain financial services
entities. The Company does not intend to sell nor does it expect to be required
to sell the securities referenced previously. In addition, the Company asserts
its intent and ability to retain the above equity securities until price
recovery. Furthermore, based upon the Company&#146;s expected continuation of
contractually required principal and interest payments, the Company has deemed
these securities to be temporarily impaired as of September 30, 2009. </FONT></P>


<p><font face="times new roman, serif" size=2><u><b>Note 14.</b></u>&nbsp;&nbsp;Subsequent Events</font></p>
<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November 4, 2009, in
connection with the Company&#146;s October 30, 2009 investment securities
evaluation, the Company determined that the aggregate market value of its
General Motors Corporation (&#147;GM&#148;) and General Motors Acceptance
Corporation (&#147;GMAC&#148;) securities holdings exceeded the adjusted
amortized cost by approximately $0.3 million. Further, in the week prior thereto, both
GM and GMAC publicly disclosed that they were seeking to borrow additional funds
from the U.S. Government. As a result of those actions and the Company&#146;s
evaluation, the Company then determined to sell all of its GM and GMAC holdings.
Any gain related to the actual sales prices and the related tax consequences
will be recorded in the fourth quarter of 2009. Because the Company will have
losses on the sale of the investments for tax purposes, further adjustments to
the Company&#146;s recorded deferred tax asset valuation allowance may be
required. </FONT></P>






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










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















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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is
management&#146;s discussion and analysis of the financial condition and results
of operations of Atlantic American Corporation (&#147;Atlantic American&#148; or
the &#147;Parent&#148;) and its subsidiaries (collectively, the
&#147;Company&#148;) for the three month and nine month periods ended September
30, 2009. 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, 2008.</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 primarily through its
insurance subsidiaries: 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 operating
company is managed separately, offers different products and is evaluated on its
individual performance. </FONT></P>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2007, the
Company entered into an agreement for the sale of its regional property and
casualty operations, Association Casualty Insurance Company and Association Risk
Management General Agency, Inc. (together known as &#147;Association
Casualty&#148;) and Georgia Casualty &amp; Surety Company (&#147;Georgia
Casualty&#148;) to Columbia Mutual Insurance Company. This transaction was
completed on March 31, 2008. In accordance with generally accepted accounting
principles, the consolidated financial statements included in this quarterly
report reflect the operating results of the regional property and casualty
operations as discontinued operations. Accordingly, unless otherwise noted,
amounts and analyses contained herein reflect the continuing operations of the
Company and exclude the regional property and casualty operations. References to
income and loss from operations are identified as continuing operations or
discontinued operations, while references to net income or net loss reflect the
consolidated net results of both continuing and discontinued operations.</FONT></P>

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounting and
reporting policies of 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 significantly 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 27% of the Company&#146;s total liabilities at
September 30, 2009. This obligation includes estimates for: 1) unpaid losses on
claims reported prior to September 30, 2009, 2) development on those reported
claims, 3) unpaid ultimate losses on claims incurred prior to September 30, 2009
but not yet reported and 4) unpaid loss adjustment expenses for reported and
unreported claims incurred prior to September 30, 2009. Quantification of loss
estimates for each of these components involves a significant degree of judgment
and estimates may vary, materially, from period to period. Estimated unpaid
losses on reported claims are developed based on historical experience with
similar claims by the Company. Development on reported claims, estimates of
unpaid ultimate losses on claims incurred prior to September 30, 2009 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 actuary 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 and the
reported Bornhuetter-Ferguson 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 of a variety of reserving methods, as opposed to total
reliance on any single method. Unpaid loss and loss adjustment expenses are
reviewed periodically for significant lines of business, and when current
results differ from the original assumptions used to develop such estimates, the
amount of the Company&#146;s recorded liability for unpaid loss and loss
adjustment expenses is adjusted. In the event the Company&#146;s actual reported
losses in any period are materially in excess of the previous estimated amounts,
such losses, to the extent reinsurance coverage does not exist, could 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 32% of the Company&#146;s total liabilities at September
30, 2009. 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, serif" size=2>-23-</font></p>







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






















<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred acquisition costs</i>
comprised 7% of the Company&#146;s total assets at September 30, 2009.
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 7% of the
Company&#146;s total assets at September 30, 2009. 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 83% of the Company&#146;s total assets at September 30, 2009.
Substantially all investments are in bonds and common and preferred stocks, the
values of 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 fixed maturity securities that
do not have publicly quoted values, with an estimated fair value as determined
by management of $1.8 million at September 30, 2009. 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, the Company evaluates such
investment for other than a temporary impairment. The evaluation for other than
temporary impairments is a quantitative and qualitative process, which is
subject to risks and uncertainties in the determination of whether declines in
the fair value of investments are other than temporary. The risks and
uncertainties include, among other things, changes in general economic
conditions, an issuer&#146;s financial condition or near term recovery prospects
and the effects of changes in interest rates. In evaluating impairment, the
Company considers, among other factors, the intent and ability to hold these
securities, the nature of the investment and the prospects for the issuer and
its industry, the issuer&#146;s continued satisfaction of the investment
obligations in accordance with their contractual terms, and management&#146;s
expectation that they will continue to do so, as well as rating actions that
affect the issuer&#146;s credit status. 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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company determines the
fair values of certain financial instruments based on the fair market hierarchy
established in Accounting Standards Codification (&#147;ASC&#148;) 820-10-20,
<I>Fair Value Measurements and Disclosures</I> (&#147;ASC 820-10-20&#148;). ASC
820-10-20 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. Fair value is defined as the
exchange price at which an asset could be sold or a liability settled in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820-10-20
provides guidance on measuring fair value when required under existing
accounting standards and establishes a hierarchy that prioritizes the inputs to
valuation techniques. A financial asset&#146;s or liability&#146;s
classification within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement. The fair values for
fixed maturity and equity securities are largely determined by either
independent methods prescribed by the National Association of Insurance
Commissioners, which do not differ materially from nationally quoted market
prices, when available, or independent broker quotations.</FONT></P>









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






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



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












<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ASC 820-10-20 establishes a
fair value hierarchy that prioritizes the inputs in the valuation techniques
used to measure fair value into three levels (Level 1, 2 or 3), as defined
below. </FONT></P>




<table width=100% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=7%></td>
<td width=93%></td>

</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 1</font></td>
<td><font face="times new roman, serif" size=2>
Observable inputs that reflect quoted prices for identical assets or
liabilities in active markets that the Company has the ability to access at the
measurement date. The Company&#146;s Level 1 instruments consist of short-term
investments.  </font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 2</font></td>
<td><font face="times new roman, serif" size=2>
Observable inputs, other than quoted prices included in Level 1, for the asset
or liability or prices for similar assets and liabilities. The Company&#146;s
Level 2 instruments include most of its fixed maturity securities, which consist
of U.S. Treasury securities and U.S. Government securities, municipal bonds, and
certain corporate fixed maturity securities, as well as its common and
non-redeemable preferred stocks.  </font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Level 3</font></td>
<td><font face="times new roman, serif" size=2>
 Valuations that are derived from techniques in which one or more of the
significant inputs are unobservable (including assumptions about risk). The
Company&#146;s Level 3 instruments include certain fixed maturity securities and
a zero cost rate collar. Fair value is based on criteria that use assumptions or
other data that are not readily observable from objective sources. As of
September 30, 2009, the Company&#146;s fixed maturity securities valued using
Level 3 criteria totaled $1.8 million and the zero cost rate collar was a
liability of $1.7 million (See Note 6 of the accompanying notes to the
consolidated financial statements). The use of different criteria of assumptions
of data may have yielded different results. </font></td>
</tr>
</table>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following provides
information as to the extent to which the Company uses fair value to measure
financial instruments and information about the inputs used to value those
financial instruments. </FONT></P>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following tables present assets and (liabilities) carried at fair value by ASC 820-10-20 hierarchy level.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September 30, 2009, assets measured at fair value on a recurring basis are summarized below:</FONT></P>







<table width=600 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>

</tr>
<tr>
<td>&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Quoted Prices<BR>in Active<BR>Markets<BR>for Identical<BR>Assets<BR>(Level 1)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>Significant<BR>Other<BR>Observable<BR>Inputs<BR>(Level 2)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>Significant<BR>&nbsp;Unobservable<BR>Inputs<BR>(Level 3)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Total</font><hr noshade size=1></td>
</tr>

<tr>
<td>&nbsp;</td>
<td align=center colspan=7><font face="times new roman, serif" size=2>(In thousands)</font></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed maturity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;174,587</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;176,415</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Equity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,510</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>7,510</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>20,202</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20,202</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;182,097</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;204,127</font><hr noshade size=2></td>
</tr>
</table>



<p align=justify><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December 31, 2008, assets measured at fair value on a recurring basis are summarized below:</FONT></P>

<table width=600 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=35%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=15.5%>&nbsp;</td>
</tr>


<tr>
<td>&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Quoted Prices<BR>in Active<BR>Markets<BR>for Identical<BR>Assets<BR>(Level 1)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>Significant<BR>Other<BR>Observable<BR>Inputs<BR>(Level 2)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>Significant<BR>&nbsp;Unobservable<BR>Inputs<BR>(Level 3)</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>&nbsp;<BR>Total</font><hr noshade size=1></td>

</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=7><font face="times new roman, serif" size=2>(In thousands)</font></td>
</tr>


<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Fixed maturity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;161,168</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;163,097</font></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>Equity securities</font></td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,291</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>-</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>5,291</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Short-term investments</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>-</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>21,339</font><hr noshade size=1></td>
</tr>
<tr>
<td><font face="times new roman, serif" size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21,339</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;166,459</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;189,727</font><hr noshade size=2></td>
</tr>
</table>






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


<HR SIZE=2 NOSHADE>











<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a
roll-forward of the financial instruments measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the three month and
nine month periods ended September 30, 2009. </FONT></P>



<table width=60% cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=65%>&nbsp;</td>
<td width=17%>&nbsp;</td>
<td width=1%>&nbsp;</td>
<td width=17%>&nbsp;</td>
</tr>

<tr>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>Fixed<BR>Maturity<BR>Securities</font><hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td align=center bgcolor="#eeeeee"><font face="times new roman, serif" size=2>&nbsp;<BR>Derivative<BR>(Liability)</font><hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center colspan=3><font face="times new roman, serif" size=2>(In thousands)</font></td>
</tr>

<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Balance, January 1, 2009</font></td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,929</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2,085)</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(121)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>81</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font face="times new roman, serif" size=2>Balance, March 31, 2009</font></td>
<td align=right><font face="times new roman, serif" size=2>1,808</font></td>
<td>&nbsp;</td>
<td align=right><font face="times new roman, serif" size=2>(2,004)</font></td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(78)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>421</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Balance, June 30, 2009</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>1,730</font></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>(1,583)</font></td>
</tr>

<tr>
<td valign=top><font face="times new roman, serif" size=2>Total unrealized gains (losses) included in other<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;comprehensive loss</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>98</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>&nbsp;<BR>(129)</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td valign=top><font face="times new roman, serif" size=2>Balance, September 30, 2009</font></td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,828</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right valign=bottom><font face="times new roman, serif" size=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,712)</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 Company&#146;s Level 3
fixed maturity securities are comprised solely of issuances of pooled debt
obligations of multiple, smaller financial services companies. They are not
actively traded and valuation techniques used to measure fair value are based on
future estimated cash flows discounted at a reasonably estimated rate of
interest. Other qualitative and quantitative information received from the
original underwriter of the pooled offering is also considered, as applicable.
As the derivative is an interest rate collar, changes in valuation are more
closely correlated with changes in interest rates and accordingly values are
estimated using projected cash flows at current interest rates discounted at a
reasonably estimated rate of interest. Fair value quotations are also obtained
from the single counterparty to the transaction. </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 2% of the Company&#146;s total assets at
September 30, 2009. 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 deemed more likely than not to be realized. In assessing the
likelihood of realization, management considers estimates of future taxable
income and tax planning strategies.</FONT></P>

<p><font face="times new roman, serif" size=2><b>Recently
Issued Accounting Standards</b></font></p>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For a discussion of
recently issued accounting standards applicable to the Company, see Note 2 of
the accompanying notes to the consolidated financial statements.</FONT></P>


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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On a consolidated basis,
the Company had a net loss of $2.1 million, or $0.10 per diluted share, for the
three month period ended September 30, 2009, compared to a net loss of $0.2
million, or $0.03 per diluted share, for the three month period ended September
30, 2008. The Company had a net loss of $1.8 million, or $0.10 per diluted
share, for the nine month period ended September 30, 2009, compared to a net
loss of $1.1 million, or $0.11 per diluted share, for the nine month period
ended September 30, 2008. The net loss in the three month and nine month periods
ended September 30, 2009 was primarily attributable to a $1.8 million increase
in the Company&#146;s deferred tax asset valuation allowance. The change in
deferred tax asset valuation allowance was due to reassessment of the
realization of certain capital loss carryforward benefits. The Company does not
currently anticipate having sufficient future capital gains to offset these
capital losses. The net loss in the nine month period ended September 30, 2008
was due to the $2.2 million loss from discontinued operations. Income from
continuing operations before taxes was $0.2 million in the three month period
ended September 30, 2009, compared to a loss from continuing operations before
taxes of $0.1 million in the three month period ended September 30, 2008. Income
from continuing operations before taxes for the nine month period ended
September 30, 2009 was $0.4 million compared to $1.7 million for the nine month
period ended September 30, 2008. The decrease in income from continuing
operations before taxes in the nine month period ended September 30, 2009 was
primarily due to several large automobile claims incurred in the Company&#146;s
property and casualty operations which did not occur in the comparable period of
2008, as well as higher overall loss ratios in the Company&#146;s life and
health operations. The property and casualty losses were partially offset by a
reduction in the accrual for profit sharing commissions. Also contributing to
the decrease in income from continuing operations was a non-recurring charge of
$0.4 million, which resulted from the termination and settlement of the
Company&#146;s supplemental executive retirement plan (&#147;SERP&#148;).
Partially offsetting the 2009 decrease in income from continuing operations were
several non-recurring charges included in income from continuing operations for
the nine month period ended September 30, 2008. During the three month period
ended September 30, 2008, the Company recorded a realized loss of $0.4 million
due to an other than temporary impairment in its investment in equity securities
of Wachovia Corporation. Also, in connection with the marketing and sale of the
regional property and casualty companies, the compensation committee of the
board of directors, in the third quarter of 2008,
approved $0.7 million in discretionary bonus payments to certain officers of the
Company. Further, during the first quarter of 2008, the Company incurred a $0.3
million goodwill impairment charge. Premium revenue for the three month period
ended September 30, 2009 decreased $0.1 million, or 0.2%, to $22.8 million. For
the nine month period ended September 30, 2009, premium revenue increased $0.3
million, or 0.4%, to $68.5 million. The decrease in premiums in the three month
period ended September 30, 2009 was due to the continued softness in the
property and casualty markets. The increase in premiums in the nine month period
ended September 30, 2009 was attributable to new business generated by the
Company&#146;s life and health operations as a result of increased marketing
initiatives. Offsetting the increase in life and health premiums in the three
month and nine month periods ended September 30, 2009 was a continued decline in
property and casualty premiums. </FONT></P>


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












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






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



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







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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary
of American Southern&#146;s premiums for the three month and nine month periods
ended September 30, 2009 and the comparable periods in 2008 (in thousands): </FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Gross written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,860</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,520</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31,110</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;34,026</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">(1,573)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(1,578)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,875)</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">(4,631)</font><hr noshade size=1></td>
</tr>

<tr bgcolor="#eeeeee">
<td valign=top><font size=2 face="times new roman, serif">Net written premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,287</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,942</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26,235</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29,395</font><hr noshade size=2></td>
</tr>

<tr valign=top>
<td><font size=2 face="times new roman, serif">Net earned premiums</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,394</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;9,062</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26,214</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;27,118</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 $2.7 million, or 23.1%, during the three month
period ended September 30, 2009, and $2.9 million, or 8.6%, during the nine
month period ended September 30, 2009, from the comparable periods in 2008. The
decrease in gross written premiums during the three month and nine month periods
ended September 30, 2009 was primarily attributable to significant decreases in
the general liability and surety lines of business which resulted from the weak
construction industry. Also contributing to the decrease in gross written
premiums was the loss of one of the company&#146;s agents who had previously
produced approximately $0.7 million in annualized general liability business.
For the nine month period ended September 30, 2009, gross written premiums
generated by this agent were $0.1 million compared to $0.6 million in the nine
month period ended September 2008, a decrease of $0.5 million. Partially
offsetting the decrease in gross written premiums was an increase in commercial
automobile business marketed through a single general agent. </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
slightly during the three month period ended September 30, 2009, from the three
month period ended September 30, 2008, and increased $0.2 million, or 5.3%,
during the nine month period ended September 30, 2009, over the comparable
period in 2008. The increase in ceded premiums during the nine month period
ended September 30, 2009 was primarily attributable to higher reinsurance rates
resulting from changes in the composition of business. Ceded premiums increased
disproportionately due to the higher reinsurance costs associated with the
commercial automobile business versus the reinsurance costs in the declining
lines of business. </FONT></P>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following presents
American Southern&#146;s net earned premiums by line of business for the three
month and nine month periods ended September 30, 2009 and the comparable periods
in 2008 (in thousands):</font></p>









 <table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=30%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
<td width=1%></td>
<td width=16.75%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Commercial automobile</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,759</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4,446</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;14,413</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;12,815</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">1,417</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,939</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">4,610</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,186</font></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Property</font></td>
<td align=right><font size=2 face="times new roman, serif">616</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">616</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,822</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">1,819</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Surety</font></td>
<td align=right><font size=2 face="times new roman, serif">1,602</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,061</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">5,369</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">6,298</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Total</font></td>

<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,394</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,062</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;26,214</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;27,118</font><hr noshade size=2></td>
</tr>
</table>











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






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



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































<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net earned premiums
decreased $0.7 million, or 7.4%, during the three month period ended September
30, 2009, and $0.9 million, or 3.3%, during the nine month period ended
September 30, 2009, from the comparable periods in 2008. The decrease in net
earned premiums in the three month and nine month periods ended September 30,
2009 was primarily due to the reasons discussed previously.</FONT></P>


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth
American Southern&#146;s loss and expense ratios for the three month and nine
month periods ended September 30, 2009 and for the comparable periods in 2008:</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Loss ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">60.1%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">56.9%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">53.9%</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">46.1%</font></td>
</tr>
<tr valign=top>
<td><font size=2 face="times new roman, serif">Expense ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">40.4%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">44.2%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">46.6%</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">49.6%</font><hr noshade size=1></td>
</tr>
<tr valign=top bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Combined ratio</font></td>
<td align=right><font size=2 face="times new roman, serif">100.5%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">101.1%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">100.5%</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">95.7%</font><hr noshade size=2></td>
</tr>
</table>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The loss ratio for the
three month period ended September 30, 2009 increased to 60.1% from 56.9% in the
three month period ended September 30, 2008 and to 53.9% in the nine month
period ended September 30, 2009 from 46.1% in the comparable period of 2008. The
increase in the loss ratio for the three month and nine month periods ended
September 30, 2009 was primarily attributable to several large claims in the
commercial automobile line of business. Also, during the three month and nine
month periods ended September 30, 2008 American Southern had more favorable loss
experience in the property lines of business as compared to the 2009 periods.</FONT></P>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The expense ratio for the
three month period ended September 30, 2009 decreased to 40.4% from 44.2% in the
three month period ended September 30, 2008 and to 46.6% in the nine month
period ended September 30, 2009 from 49.6% in the comparable period of 2008. The
decrease in the expense ratio in the three month and nine month periods ended
September 30, 2009 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. In periods where the loss ratio
increases, commissions and underwriting expenses will decrease and conversely in
periods where the loss ratio decreases, commissions and underwriting expenses
will increase. Partially offsetting the decrease in the expense ratio in the
nine month period ended September 30, 2009 was a non-recurring charge of $0.4
million which resulted from the termination and settlement of the company&#146;s
SERP.</FONT></P>


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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s earned premiums for the three month and nine month
periods ended September 30, 2009 and the comparable periods in 2008 (in
thousands):</FONT></P>

<table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Medicare supplement</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;10,720</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,366</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;31,478</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;30,901</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">979</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">794</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,820</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,513</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">2,681</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">2,609</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">8,000</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">7,698</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">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,380</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13,769</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42,298</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41,112</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 increased $0.6 million, or 4.4%, during the three month period ended
September 30, 2009, and $1.2 million, or 2.9%, during the nine month period
ended September 30, 2009, over the comparable periods in 2008, primarily due to
successful marketing initiatives, recruiting of new agents, and effective
utilization of the company&#146;s proprietary lead program. Premiums from the
Medicare supplement line of business increased $0.4 million, or 3.4%, during the
three month period ended September 30, 2009, and $0.6 million, or 1.9%, during
the nine month period ended September 30, 2009. Partially offsetting this
increase in Medicare supplement business was the non-renewal of certain policies
that resulted from continued pricing and product competition. Premiums from the
life insurance line of business increased $0.1 million, or 2.8%, during the
three month period ended September 30, 2009, and $0.3 million, or 3.9%, during
the nine month period ended September 30, 2009, over the comparable periods in
2008, due to an increase in sales related initiatives. The other health products
premiums increased during the three month and nine month periods ended September
30, 2009 over the comparable periods in 2008 due primarily to an increase in
sales of short-term care products and increased business activities with group
associations. </FONT></P>



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


<HR SIZE=2 NOSHADE>












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




<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes
Bankers Fidelity&#146;s operating expenses for the three month and nine month
periods ended September 30, 2009 and the comparable periods in 2008 (in
thousands):</FONT></P>

 <table width=630 cellspacing=0 cellpadding=0 border=0>
<tr>
<td width=20%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
<td width=1%></td>
<td width=20%></td>
</tr>
<tr>
<td>&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Three Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
<td bgcolor="#eeeeee">&nbsp;</td>
<td bgcolor="#eeeeee" colspan=3 align=center><font size=2 face="times new roman, serif">Nine Months Ended<BR>September 30,</font>
<hr noshade size=1></td>
</tr>
<tr>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2009</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=center><font size=2 face="times new roman, serif">2008</font><hr noshade size=1></td>
</tr>
<tr bgcolor="#eeeeee">
<td><font size=2 face="times new roman, serif">Benefits and losses</font></td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10,794</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,911</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31,619</font></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30,159</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">4,592</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">4,392</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">13,435</font><hr noshade size=1></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">12,674</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">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15,386</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14,303</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;45,054</font><hr noshade size=2></td>
<td>&nbsp;</td>
<td align=right><font size=2 face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42,833</font><hr noshade size=2></td>
</tr>
</table>
<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Benefits and losses
increased $0.9 million, or 8.9%, during the three month period ended September
30, 2009, and $1.5 million, or 4.8%, during the nine month period ended
September 30, 2009, over the comparable periods in 2008. As a percentage of
premiums, benefits and losses were 75.1% for the three month period ended
September 30, 2009 and 74.8% for the nine month period ended September 30, 2009
compared to 72.0% for the three month period ended September 30, 2008 and 73.4%
for the nine month period ended September 30, 2008. The increase in the 2009
quarter and year to date loss ratios was primarily due to favorable loss
experience in the Medicare supplement line of business in the comparable three
month and nine month periods of 2008. During the three month and nine month
periods ended September 30, 2008, Bankers Fidelity experienced favorable loss
development, primarily from reductions to the prior years&#146; incurred but not
reported (&#147;IBNR&#148;) reserves. With the introduction of Medicare
Advantage and other competitive products, Medicare supplement premium peaked in
2005 and continued to decline through 2008. Such premium declines disrupted
historical patterns on which determinations of IBNR reserve adequacy had been
based. Accordingly, until historical experience could be further developed in a
declining business environment, indicated excess reserves as a result of
favorable development were recognized at the low end of the reasonable range of
indicated redundancy. Premiums have since stabilized and during the three month
and nine month periods ended September 30, 2009, Medicare supplement premium
revenue has increased over the comparable periods of 2008. As a result,
management does not believe that redundancies will continue in future years.
Also contributing to the increase in the loss ratio for the three month and nine
month periods ended September 30, 2009 was the continued aging of the Medicare
supplement business.</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 4.6%, during the three month period ended
September 30, 2009, and $0.8 million, or 6.0%, during the nine month period
ended September 30, 2009, over the comparable periods in 2008. The increase in
commissions and other expenses for the three month and nine month periods ended
September 30, 2009 was primarily attributable to commission costs associated
with increased premiums. First year premiums for the Life and Medicare
supplement lines of business increased in the three month and nine month periods
ended September 30, 2009 over the comparable periods in 2008. Also contributing
to the increase in commissions and other expenses for the three month and nine
month periods ended September 30, 2009 were increases in advertising and agency
related expenses which resulted from the company&#146;s marketing initiatives.
As a percentage of premiums, these expenses were 31.9% for the three month
period ended September 30, 2009 and 31.8% for the nine month period ended
September 30, 2009 compared to 31.9% for the three month period ended September
30, 2008 and 30.8% for the nine month period ended September 30, 2008. The
increase in the expense ratio for the nine month period ended September 30, 2009
was primarily due to the increases in advertising and agency related expenses
discussed previously.  </FONT></P>

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment income decreased
$0.4 million, or 13.2%, during the three month period ended September 30, 2009,
and $0.6 million, or 7.3%, during the nine month period ended September 30,
2009, from the comparable periods in 2008. The decrease in investment income for
the three month and nine month periods ended September 30, 2009 was primarily
due to a large number of called securities, the proceeds from which the Company
was not able to reinvest at equivalent interest rates. Also contributing to the
decrease in investment income in the three month and nine month periods ended
September 30, 2009 was a significant decrease in the interest earned on the
Company&#146;s short-term investments.</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 Company had a small net
realized investment gain during the nine month period ended September 30, 2009,
compared to net realized investment losses of $0.3 million in the nine month
period ended September 30, 2008. During the nine month period ending September
30, 2009, the Company recorded a realized loss of $0.1 million due to other than
temporary impairments in its investment in redeemable preferred securities of
General Motors Corporation and certain other invested assets. There were no
impairments recorded during the three month period ended September 30, 2009.
During the three month and nine month periods ended September 30, 2008, the
Company recorded a realized loss of $0.4 million due to an other than temporary
impairment in its investment in equity securities of Wachovia Corporation.
Management continually evaluates the Company&#146;s investment portfolio and, as
needed, makes adjustments for impairments and/or will divest investments. (See
Item 3 of this Quarterly Report on Form 10-Q for a discussion of market risks).</FONT></P>


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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense decreased
$0.1 million, or 14.6%, during the three month period ended September 30, 2009,
and $0.4 million, or 16.8%, during the nine month period ended September 30,
2009, from the comparable periods in 2008. The decrease in interest expense for
the three month and nine month periods ended September 30, 2009 was due to a
decrease in the London Interbank Offered Rate (&#147;LIBOR&#148;), as the
interest rates on the Company&#146;s trust preferred obligations and outstanding
bank debt are based on LIBOR. In addition, on April 1, 2008, the Company repaid
the outstanding balance of $3.8 million under the Company&#146;s credit
agreement (the &#147;Credit Agreement&#148;) with Wachovia Bank, National
Association (&#147;Wachovia&#148;), which decreased interest expense by reducing
the Company&#146;s average debt level for the nine month period ended September
30, 2009 as compared to the same period in 2008. Partially offsetting the
decrease in interest expense for the three month and nine month periods ended
September 30, 2009 were net settlement payments to Wachovia under the
Company&#146;s zero cost rate collar due to the LIBOR rates remaining below the
contractual floor rate of 4.77%.</FONT></P>







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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other expenses
(commissions, underwriting expenses, and other expenses) decreased $1.0 million,
or 9.9%, during the three month period ended September 30, 2009, and $1.6
million, or 5.3%, during the nine month period ended September 30, 2009 from the
comparable periods in 2008. The decrease in other expenses for the three month
and nine month periods ended September 30, 2009 was primarily due to $0.7
million in discretionary bonus payments to certain officers of the Company in
the third quarter of 2008 in connection with the marketing and sale of the
regional property and casualty companies and a reduction in profit sharing
commissions at American Southern. During the three month period ended September
30, 2009, profit sharing commissions at American Southern decreased $0.3 million
from the three month period ended September 30, 2008, due primarily to higher
loss ratios. For the nine month period ended September 30, 2009 profit sharing
commissions decreased $1.1 million from the comparable period in 2008. The
majority of American Southern&#146;s business is structured in a way that agents
are rewarded based upon the loss ratios of the business they submit to the
company. In periods where the loss ratio increases, commissions and underwriting
expenses will decrease and conversely in periods where the loss ratio decreases,
commissions and underwriting expenses will increase. In addition, during the
three month and nine month periods ended September 30, 2009, American
Southern&#146;s commission expense decreased from the comparable periods of 2008
solely due to the decline in premiums described above. Also contributing to the
decrease in other expenses was a $0.3 million goodwill impairment charge
recorded in the three month period ended March 31, 2008 which did not recur in
the nine month period ended September 30, 2009 as well as the elimination of the
SERP expense due to its termination in the three month period ended June 30,
2009. Partially offsetting the decrease in other expenses for the nine month
period ended September 30, 2009 was a non-recurring charge of $0.4 million,
which resulted from the termination and settlement of the Company&#146;s SERP.
In addition, during the nine month period ended September 30, 2009, the
Company&#146;s life and health operations experienced increases in advertising
and agency related expenses due to marketing initiatives. On a consolidated
basis, as a percentage of earned premiums, other expenses decreased to 38.9% in
the three month period ended September 30, 2009 from 43.0% in the three month
period ended September 30, 2008. For the nine month period ended September 30,
2009, this ratio decreased to 41.7% from 44.2% in the comparable period in 2008.
The decrease in the expense ratio for the three month and nine month periods
ended September 30, 2009 was primarily due to the reduction in profit sharing
commissions and the $0.7 million non-recurring charge related to 2008
discretionary bonus payments to certain officers of the Company discussed
previously. </FONT></P>

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary differences
between the effective tax rate and the federal statutory income tax rate for the
three month and nine month periods ended September 30, 2009 resulted from the
dividends-received deduction (&#147;DRD&#148;), the change in deferred tax asset
valuation allowance, and the provision-to-filed return adjustments. The current
estimated DRD is adjusted as underlying factors change. The actual current year
DRD can vary from the estimates based on, but not limited to, actual
distributions from these investments as well as appropriate levels of taxable
income. The change in deferred tax asset valuation allowance was due to the
reassessment of the realization of tax assets related to certain capital losses
on investments as well as other capital loss carryforward benefits. The Company
has established a corresponding valuation allowance of $1.8 million as it does
not currently anticipate having sufficient future capital gains to offset these
capital losses during the applicable carryforward period. The Company continues
to periodically assess the potential realization of this and all other deferred
tax benefits. Also, the provision-to-filed return adjustments are generally
updated at the completion of the third quarter of each fiscal year and were $0.5
million in the three month and nine month periods ended September 30, 2009. The
provision-to-filed-return adjustments for the three month and nine month periods
ended September 30, 2009 were primarily due to adjustments related to the 2008
sale of the Company&#146;s regional property and casualty operations. </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 primary differences
between the effective tax rate and the federal statutory income tax rate for the
three month and nine month periods ended September 30, 2008 resulted from the
DRD, the small life insurance company deduction (&#147;SLD&#148;), a
non-deductible goodwill impairment charge, and the change in deferred tax asset
valuation allowance. The SLD varies in amount and is determined at a rate of 60
percent of the tentative life insurance company taxable income
(&#147;LICTI&#148;). The amount of the SLD for any taxable year is reduced (but
not below zero) by 15 percent of the tentative LICTI for such taxable year as it
exceeds $3.0 million and is ultimately phased out at $15.0 million. The change
in deferred tax asset valuation allowance was due to the reassessment of the
realization of certain loss carryforward benefits. On March 31, 2008, the
Company completed the sale of its regional property and casualty operations to
Columbia, which resulted in an estimated loss carryforward benefit of
approximately $3.5 million. During the three month period ended September 30,
2008, the Company revised its original estimate of the loss carryforward benefit
from $3.5 million to $4.7 million as a result of further analysis. Since the
Company did not anticipate having sufficient future capital gains to offset
these capital losses, during the three month period ended September 30, 2008,
the Company increased its deferred tax asset valuation allowance from $3.5
million to $4.7 million to reduce the value attributable to this deferred tax
benefit. The provision-to-filed-return adjustments were $0.2 million in the
three month and nine month periods ended September 30, 2008. The
provision-to-filed-return adjustments for the three month and nine month periods
ended September 30, 2008 included a charge of $0.2 million, which resulted from
the write off of unused net operating loss carryforwards that had expired.</FONT></P>



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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary cash needs of the
Company are for the payment of claims and operating expenses, maintaining
adequate statutory capital and surplus levels, and meeting debt service
requirements. Current and expected patterns of claim frequency and severity may
change from period to period but generally are expected to continue within
historical ranges. The Company&#146;s primary sources of cash are written
premiums, investment income and the sale and maturity of its invested assets.
The Company believes that, within each operating company, 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.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows at the Parent
are derived from dividends, management fees, and tax sharing payments from its
subsidiaries. The cash needs of the Parent are primarily for the payment of
operating expenses, the acquisition of capital assets and debt service
requirements. At September 30, 2009, the Parent had approximately $20.6 million
of cash and short-term investments. The Company believes that given traditional
funding sources of the Parent combined with current cash and short-term
investments, the current liquidity issues being faced by certain other companies
as a result of the current economic conditions and funding constraints should
not be an issue for the Company and/or the Parent for the foreseeable future.</FONT></P>


<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 $5.0 million for the nine month
period ended September 30, 2009 compared to statutory net income of $5.5 million
for the nine month period ended September 30, 2008. Statutory results are
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 GAAP net income of $4.8
million for the nine month period ended September 30, 2009, compared to $5.4
million for the nine month period ended September 30, 2008. The reasons for the
decrease in GAAP net income in the nine month period ended September 30, 2009
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 for financial reporting purposes. 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;Over 90% of the investment
assets of the Parent&#146;s insurance subsidiaries are in marketable securities
that can be converted into cash, if required; however, the use of such assets by
the Company is limited by state insurance regulations. Dividend payments to the
Parent by its wholly owned insurance subsidiaries are subject to annual
limitations and are restricted to the greater of 10% of statutory surplus or
statutory earnings before recognizing realized investment gains of the
individual insurance subsidiaries. At September 30, 2009, American Southern had
$38.3 million of statutory surplus and Bankers Fidelity had $30.7 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;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 $6.6 million at September
30, 2009. </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;In addition to these
internal funding sources, the Company maintains its revolving credit facility
under the Credit Agreement pursuant to which the Company was able to, subject to
the terms and conditions thereof, initially borrow or reborrow up to $15.0
million (the &#147;Commitment Amount&#148;). In accordance with the terms of the
Credit Agreement, the Commitment Amount is incrementally reduced every six
months and was equal to $12.0 million at September 30, 2009. 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
LIBOR 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. 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 certain 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 due and payable in full.
During the three month and nine month periods ended September 30, 2009, there
was no balance outstanding under this Credit Agreement. The termination date of
this Credit Agreement is June 30, 2010.</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 deferrable interest debentures (&#147;Junior Subordinated
Debentures&#148;). The outstanding $41.2 million of Junior Subordinated
Debentures have a maturity of thirty years from their original dates 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 September 30, 2009, the effective interest rate
was 4.45%. 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;
During 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 $18.0 million 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. The Company began making payments to
Wachovia under the zero cost rate collar on June 4, 2008. As a result of
interest rates remaining below the LIBOR floor rate of 4.77%, these payments to
Wachovia under the zero cost rate collar continued throughout 2008 and into
2009. While the Company is exposed to counterparty risk should Wachovia fail to
perform, based on the current level of interest rates, and coupled with the
current macroeconomic outlook, the Company believes that its current exposure is
minimal.  </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, if any, and the Junior Subordinated
Debentures using dividend and tax sharing payments from its operating
subsidiaries, or from potential future financing arrangements. In addition, the
Company believes that, if necessary, at maturity, the Credit Agreement could be
refinanced, although there can be no assurance of the terms or conditions of
such a refinancing, or its availability.</FONT></P>

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September 30, 2009, the
Company had 70,000 shares of Series D Preferred Stock (&#147;Series D Preferred
Stock&#148;) outstanding. All of the shares of Series D Preferred Stock are held
by an affiliate of the Company&#146;s Chairman Emeritus. The outstanding shares
of Series D Preferred Stock have a stated value of $100 per share; accrue annual
dividends at a rate of $7.25 per share (payable in cash or shares of the
Company&#146;s common stock at the option of the board of directors of the
Company) and are cumulative. In certain circumstances, the shares of the 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. At September 30, 2009, the Company had accrued, but unpaid,
dividends on the Series D Preferred Stock totaling $0.4 million.</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;
Net cash used in operating
activities was $3.3 million in the nine month period ended September 30, 2009,
compared to $4.6 million in the nine month period ended September 30, 2008. Cash
and short-term investments decreased from $37.3 million at December 31, 2008 to
$29.5 million at September 30, 2009. The decrease in cash and short-term
investments during the nine month period ended September 30, 2009 was primarily
due to an increased level of investing exceeding normal sales and maturities. In
addition, during the nine month period ended September 30, 2009, the Company
distributed accumulated benefits of $2.8 million due to the termination of its
SERP. Also contributing to the decrease in cash and short-term investments
during the nine month period ended September 30, 2009 was a final settlement of
$1.8 million with Columbia Mutual Insurance Company relating to a valuation
matter with respect to certain loss reserves in connection with the 2008 sale of
the Company&#146;s regional property and casualty operations.</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>


<a name="quantitative_and_qualitative_disclosures"></a>




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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Due to the nature of the
Company&#146;s business it is exposed to both interest rate and market risk.
Changes in interest rates, which have historically represented the largest
market risk factor affecting the Company, may result in changes in the fair
market value of the Company&#146;s investments, cash flows and interest income
and expense. The Company is also subject to risk from changes in equity prices.
As of September 30, 2009, securities in an unrealized loss position were
primarily related to the Company&#146;s investments in fixed maturities, common
and non-redeemable preferred stocks, most significantly within the financial
services and media sectors, which have experienced significant price
deterioration and continue to be impacted by current macroeconomic conditions.
During the nine month period ended September 30, 2009, net pre-tax unrealized
losses on investment securities recognized in other comprehensive loss decreased
$9.4 million from net pre-tax unrealized losses on investment securities of
$11.7 million valued as of December 31, 2008. Of the $9.4 million decrease, $4.5
million was due to the increase in fair value of the Company&#146;s holdings of
securities of certain financial services entities. </FONT></P>



<a name="controls_and_procedures"></a>
<p><font face="times new roman, serif" size=2><u>Item 4T. 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 Exchange Act). 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. We maintain disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in our Securities and Exchange Act of 1934 (the &#147;Exchange
Act&#148;) reports is recorded, processed, summarized and reported within the
time periods specified in the SEC&#146;s rules and forms, and that such
information is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. Management necessarily applies its
judgment in assessing the costs and benefits of such controls and procedures,
which, by their nature, can provide only reasonable assurance regarding
management&#146;s control objectives. The Company&#146;s management, including
the Chief Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures can prevent all possible errors or fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. There are inherent limitations in all control systems, including the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple errors or mistakes. Additionally, controls can be
circumvented by the individual acts of one or more persons. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and, while our disclosure controls and procedures
are designed to be effective under circumstances where they should reasonably be
expected to operate effectively, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Because of the inherent limitations in any control system, misstatements due to
possible errors or fraud may occur and may not be detected.</FONT></P>

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







<p align=center><font face="times new roman, serif" size=2>-33-</font></p>
<HR SIZE=2 NOSHADE>








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





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



























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


<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This report contains and references
certain information that constitutes forward-looking statements as that term is
defined in the federal securities laws. Those statements, to the extent they are
not historical facts, should be considered forward-looking statements, and are
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, 2008 and the other filings made by the
Company from time to time with the Securities and Exchange Commission.</I> </FONT></P>






<a name="legal_proceedings"></a>

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


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

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

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

<P align=justify><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth
information regarding repurchases by the Company of shares of its common stock
on a monthly basis during the three month period ended September 30, 2009.</FONT></P>


<table width=100% cellspacing=0 cellpadding=3 border=0>
<tr>
<td width=30%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
<td width=14%>&nbsp;</td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td align=left><font size=2  face="times new roman, serif"><b>Period</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Total Number<BR>of Shares<BR>Purchased</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Average<BR>Price Paid<BR>per Share</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Total Number<BR>of Shares<BR>Purchased as<BR>
Part of Publicly<BR>Announced<BR>Plans or<BR>Programs</b>
</font><hr width=100% size=1></td>
<td align=center><font size=2  face="times new roman, serif"><b>Maximum<BR>Number of<BR>Shares that<BR>
May Yet be<BR>Purchased<BR>Under the<BR>Plans or<BR>Programs</b>
</font><hr width=100% size=1></td>
</tr>
<tr valign=bottom>
<td><font size=2  face="times new roman, serif">July 1 - July 31, 2009</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=center><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=center><font size=2  face="times new roman, serif">503,889</font></td>
</tr>
<tr valign=bottom bgcolor="#eeeeee">
<td><font size=2  face="times new roman, serif">August 1 - August 31, 2009</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;-</font></td>

<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</font></td>
<td align=center><font size=2  face="times new roman, serif">503,889</font></td>
</tr>


<tr valign=top>
<td><font size=2  face="times new roman, serif">September 1 - September 30, 2009</font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,485</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.11</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,485</font><hr noshade size=1></td>
<td align=center><font size=2  face="times new roman, serif">496,404</font></td>
</tr>






<tr valign=top bgcolor="#eeeeee">
<td align=center><font size=2  face="times new roman, serif"><b>Total</b></font></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,485&nbsp;</font><hr noshade size=2></td>
<td align=center><font size=2  face="times new roman, serif">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.11</font><hr noshade size=2></td>
<td align=center><font size=2  face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7,485</font><hr noshade size=2></td>
<td>&nbsp;</td>
</tr>
</table>

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

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

</tr>

<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>31.1 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2>
<A HREF="exhibit_31109.htm">Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes Oxley&#150;Act of 2002.</A></font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>31.2&nbsp;&nbsp;&nbsp; &#150;</font></td>
<td><font face="times new roman, serif" size=2><A HREF="exhibit_31209.htm">
Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes Oxley&#150;Act of 2002.</a></font></td>
</tr>
<tr>
<td colspan=2>&nbsp;</td>
</tr>
<tr>
<td valign=top><font face="times new roman, serif" size=2>32.1 &nbsp;&nbsp;&nbsp;&#150;</font></td>
<td><font face="times new roman, serif" size=2><A HREF="exhibit_32109.htm">
Certifications
pursuant to Section 906 of the Sarbanes Oxley&#150;Act of 2002.</a></font></td>
</tr>
</table>























<p align=center><font face="times new roman, serif" size=2>-34-</font></p>
<HR SIZE=2 NOSHADE>








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





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

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

<p align=justify><font size=2 face="times new roman, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.</font></p>


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


<table width=80% align=left cellspacing=0 cellpadding=0 border=0>
<tr>
<td valign=top width=45%><font size=2 face="times new roman, serif">Date:&nbsp;<u> November 13, 2009</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>-35-</font></p>
<HR SIZE=2 NOSHADE>







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



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

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

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

</tr>



<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;31.1</FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR><A HREF="exhibit_31109.htm">Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>


<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;31.2 </FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR><A HREF="exhibit_31209.htm">Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>
<tr>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;32.1</FONT></td>
<td><FONT FACE="Times New Roman, Times, Serif" SIZE=2><A HREF="exhibit_32109.htm">Certifications
pursuant to Section 906 of the Sarbanes&#150;Oxley Act of 2002.</a></FONT></td>
</tr>
</table>
<BR><BR><BR><BR><BR>


</body>
</html>










</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>exhibit_31109.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)) and internal control over financial reporting (as
              defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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>
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
                      designed under our supervision, to provide reasonable assurance regarding the reliability of financial
                      reporting and the preparation of financial statements for external purposes in accordance with generally
                      accepted accounting principles;
</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>
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>d)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
                      registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
                      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
                      control over financial reporting; and
</font></td>
</tr>
</table>

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

<tr valign=top>

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

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





<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 13, 2009&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>
</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>exhibit_31209.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)) and internal control over financial reporting (as
              defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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>
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
                      designed under our supervision, to provide reasonable assurance regarding the reliability of financial
                      reporting and the preparation of financial statements for external purposes in accordance with generally
                      accepted accounting principles;
</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>
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>d)</font></td>
<td valign=top align=justify><font face="times new roman, serif" size=2>
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
                      registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
                      report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
                      control over financial reporting; and
</font></td>
</tr>
</table>

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

<tr valign=top>

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

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





<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 13, 2009&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_32109.htm
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 906
<TEXT>
<html>
<head>
<title>
Exhibit 32.1
</title>
</head>
<body>




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

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

             Pursuant to 18 U.S.C.
&#167;1350, as adopted pursuant to &#167;906 of the Sarbanes-Oxley Act of 2002,
in connection with the filing of the Quarterly Report on Form 10-Q of Atlantic
American Corporation (the &#147;Company&#148;) for the quarterly period ended
September 30, 2009, as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), each of the undersigned officers of the Company
certifies, that, to such officer&#146;s knowledge:</font></p>
<table width=95% cellpadding=0 cellspacing=8 border=0>
<tr valign=top>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td width=5 align=center><font face="times new roman, serif" size=2>(1)</font></td>
<td colspan=2><p align=justify><font size=2 face="times new roman, serif">
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and</font></td>
</tr>
<tr valign=top>
<td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td width=5 align=center><font face="times new roman, serif" size=2>(2)</font></td>
<td colspan=2><p align=justify><font size=2 face="times new roman, serif">
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
               operations of the Company as of the dates and for the periods expressed in the Report.</font></td>
</tr>
</table>


<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 13, 2009&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font>
</td>
<td>
&nbsp;
</td>
<td align=center>
<font size=2  face="times new roman, serif"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Hilton H. Howell, Jr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
President and Chief Executive Officer</font></td>
</tr>
</table>




<table align=center width=95% cellspacing=0 cellpadding=8 border=0>
<tr>
<td width=40%>
&nbsp;
</td>
<td width=20%>
&nbsp;
</td>
<td width=40%>
&nbsp;</td>
</tr>
<tr>
<td valign=top><font size=2  face="times new roman, serif">Date:&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
November 13, 2009&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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