SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|X| Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

|_| Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Commission File Number 0-3722

ATLANTIC AMERICAN CORPORATION
Incorporated pursuant to the laws of the State of Georgia

Internal Revenue Service-- Employer Identification No.
58-1027114

Address of Principal Executive Offices:
4370 Peachtree Road, N.E., Atlanta, Georgia 30319
(404) 266-5500

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

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding on August 2, 2002, was 21,344,531.

ATLANTIC AMERICAN CORPORATION

INDEX

Part I.	Financial Information	Page No.
Item 1.	Financial Statements:
	Consolidated Balance Sheets - June 30, 2002 and December 31, 2001	2
	Consolidated Statements of Operations- Three months and six months ended June 30, 2002 and 2001	3
	Consolidated Statements of Shareholders' Equity - Six months ended June 30, 2002 and 2001	4
	Consolidated Statements of Cash Flows - Six months ended June 30, 2002 and 2001	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Part II.	Other Information
Item 6.	Exhibits and Reports on Form 8-K	19
Signature		20

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited; In thousands, except share and per share data)
ASSETS
	June 30, 2002	December 31, 2001
Cash, including short-term investments of $8,442 and $39,151	$ 44,008	$ 68,846
Investments:
Bonds (cost: $158,311 and $132,242)	160,584	133,470
Common and preferred stocks (cost: $42,233 and $41,658)	59,777	54,628
Other invested assets (cost: $5,498 and $5,062)	5,276	4,854
Mortgage loans	3,358	3,421
Policy and student loans	2,333	2,713
Real estate	46	46
Total investments	231,374	199,132
Receivables:
Reinsurance	53,752	48,946
Other (net of allowance for bad debts: $1,192 and $1,119)	55,247	39,055
Deferred income taxes, net	-	2,294
Deferred acquisition costs	26,679	24,681
Other assets	10,360	10,241
Goodwill (Note 2)	3,008	18,824
Total assets	$ 424,428	$ 412,019

LIABILITIES AND SHAREHOLDERS' EQUITY

Insurance reserves and policy funds:
Future policy benefits	$ 45,611	$ 44,355
Unearned premiums	64,701	51,025
Losses and claims	147,229	143,515
Other policy liabilities	4,580	4,304
Total policy liabilities	262,121	243,199
Deferred income taxes, net	662	-
Accounts payable and accrued expenses	40,537	37,294
Debt payable	44,000	44,000
Total liabilities	347,320	324,493

Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series B preferred, 134,000 shares issued and outstanding, $13,400 redemption value	134	134
Series C preferred, 25,000 shares issued and outstanding, $2,500 redemption value	25	25
Common stock, $1 par, 30,000,000 shares authorized; 21,412,138 shares issued in 2002 and 2001 and 21,295,451 outstanding in 2002 and 21,245,711 shares outstanding in 2001	21,412	21,412
Additional paid-in capital	55,909	56,606
Retained earnings (accumulated deficit)	(12,359)	1,097
Accumulated other comprehensive income	12,292	8,748
Treasury stock, at cost, 116,687 shares in 2002 and 166,427 shares in 2001	(305)	(496)
Total shareholders' equity	77,108	87,526
Total liabilities and shareholders' equity	$ 424,428	$ 412,019

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

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ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30,		Six Months Ended June 30,
(Unaudited; In thousands, except per share data)	2002	2001	2002	2001
Revenue:
Insurance premiums	$ 39,396	$ 36,005	$ 75,532	$ 71,855
Investment income	3,539	3,809	6,911	7,577
Realized investment gains (losses), net	(29)	994	102	1,148
Other income	173	252	603	701
Total revenue	43,079	41,060	83,148	81,281
Benefits and expenses:
Insurance benefits and losses incurred	27,891	28,041	53,507	53,593
Commissions and underwriting expenses	10,346	8,294	19,100	17,737
Interest expense	643	869	1,249	1,823
Other	2,778	2,827	5,607	5,500
Total benefits and expenses	41,658	40,031	79,463	78,653
Income before income tax expense and cumulative effect of change in accounting principle	1,421	1,029	3,685	2,628
Income tax expense	479	389	1,238	998
Income before cumulative effect of change in accounting principle	942	640	2,447	1,630
Cumulative effect of change in accounting principle (Note 2)	-	-	(15,816)	-
Net income (loss)	942	640	(13,369)	1,630
Preferred stock dividends	(357)	(357)	(715)	(715)
Net income (loss) applicable to common stock	$ 585	$ 283	$ (14,084)	$ 915
Basic earnings per common share:
Income before cumulative effect of change in accounting principle	$ .03	$ .01	$ .08	$ .04
Cumulative effect of change in accounting principle	-	-	(.74)	-
Net income (loss)	$ .03	$ .01	$ (.66)	$ .04
Diluted earnings per common share:
Income before cumulative effect of change in accounting principle	$ .03	$ .01	$ .08	$ .04
Cumulative effect of change in accounting principle	-	-	(.73)	-
Net income (loss)	$ .03	$ .01	$ (.65)	$ .04

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

-3-

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited; Amounts in thousands)


Six Months Ended June 30, 2002	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)
Balance, December 31, 2001	$ 159	$ 21,412	$ 56,606	$ 1,097
Comprehensive income:
Net loss				(13,369)
Increase in unrealized investment gains
Fair value adjustment to interest rate swap
Deferred income tax attributable to other comprehensive income
Total comprehensive income

Dividends accrued on preferred stock			(715)
Compensation expense related to stock grants			18
Purchase of shares for treasury
Issuance of shares for employee benefit plans and stock options				(87)
Balance, June 30, 2002	$ 159	$ 21,412	$ 55,909	$ (12,359)


Six Months Ended June 30, 2002	Net Accumulated Other Comprehensive Income	Treasury Stock	Total
Balance, December 31, 2001	$ 8,748	$ (496)	$ 87,526
Comprehensive income:
Net loss			(13,369)
Increase in unrealized investment gains	5,605		5,605
Fair value adjustment to interest rate swap	(152)		(152)
Deferred income tax attributable to other comprehensive income	(1,909)		(1,909)
Total comprehensive income			(9,825)

Dividends accrued on preferred stock			(715)
Compensation expense related to stock grants			18
Purchase of shares for treasury		(1)	(1)
Issuance of shares for employee benefit plans and stock options		192	105
Balance, June 30, 2002	$ 12,292	$ (305)	$ 77,108


Six Months Ended June 30, 2001	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)
Balance, December 31, 2000	$ 159	$ 21,412	$ 56,997	$ (1,248)
Comprehensive income:
Net income				1,630
Increase in unrealized investment gains
Fair value adjustment to interest rate swap
Deferred income tax attributable to other comprehensive income
Total comprehensive income

Dividends accrued on preferred stock			(437)	(278)
Compensation expense related to stock grants			24
Purchase of shares for treasury
Issuance of shares for employee benefit plans and stock options				(104)
Balance, June 30, 2001	$ 159	$ 21,412	$ 56,584	$ -


Six Months Ended June 30, 2001	Net Accumulated Other Comprehensive Income	Treasury Stock	Total
Balance, December 31, 2000	$ 6,820	$ (900)	$ 83,240
Comprehensive income:
Net income			1,630
Increase in unrealized investment gains	5,168		5,168
Fair value adjustment to interest rate swap	21		21
Deferred income tax attributable to other comprehensive income	(1,816)		(1,816)
Total comprehensive income			(5,003)

Dividends accrued on preferred stock			(715)
Compensation expense related to stock grants			24
Purchase of shares for treasury		(8)	(8)
Issuance of shares for employee benefit plans and stock options		173	69
Balance, June 30, 2001	$ 10,193	$ (735)	$ 87,613

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

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ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2002	2001
(Unaudited; In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (13,369)	$ 1,630
Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities:
Cumulative effect of change in accounting principle	15,816	-
Amortization of deferred acquisition costs	8,724	9,029
Acquisition costs deferred	(10,722)	(10,076)
Realized investment gains	(102)	(1,148)
Increase in insurance reserves	18,922	18,348
Compensation expense related to stock grants	18	24
Depreciation and amortization	483	828
Deferred income tax expense	1,047	916
Increase in receivables, net	(20,998)	(15,776)
(Decrease) increase in other liabilities	(569)	3,496
Other, net	(521)	(4,461)
Net cash (used) provided by operating activities	(1,271)	2,810

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold, called or matured	35,363	40,977
Investments purchased	(58,742)	(51,393)
Additions to property and equipment	(144)	(420)
Acquisition of Association Casualty	-	(40)
Net cash used by investing activities	(23,523)	(10,876)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	13	-
Purchase of treasury shares	(1)	(8)
Preferred stock dividends	(56)	-
Proceeds from the issuance of Series C Preferred Stock	-	750
Repayments of debt	-	(1,500)
Net cash used by financing activities	(44)	(758)
Net decrease in cash and cash equivalents	(24,838)	(8,824)
Cash and cash equivalents at beginning of period	68,846	31,914
Cash and cash equivalents at end of period	$ 44,008	$ 23,090
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$ 998	$ 1,916
Cash paid for income taxes	$ 113	$ -

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

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ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited; In thousands)

Note 1. Basis of presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying statements have been prepared in accordance with U.S. generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

Note 2. Impact of recently issued accounting standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance on the initial recognition and measurement of goodwill and other tangible assets arising from business combinations completed after June 30, 2001. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their remaining useful lives. The Company completed the transitional goodwill impairment test required by SFAS No. 142 in the first quarter of 2002. The impact of adopting SFAS No. 142 resulted in an impairment loss of $15,816 in the casualty division. The impairment loss was reflected as a cumulative effect of change in accounting principle in the company’s first quarter results of operations.

The following table compares net income per share for 2001, as adjusted for the adoption of SFAS No. 142.


	Three Months Ended June 30,		Six Months Ended, June 30,
	2002	2001	2002	2001
Net income (loss)	$ 942	$ 640	$ (13,369)	$ 1,630
Add back: Impairment loss	-	-	15,816	-
Add back: Goodwill amortization	-	198	-	397
Adjusted net income	$ 942	$ 838	$ 2,447	$ 2,027
Adjusted net income per common share (basic and diluted)	$ .03	$ .02	$ .08	$ .06

Note 3. Segment Information

The Company has four principal insurance subsidiaries that each focus on a specific geographic region and/or specific products. Each company is managed independently and is evaluated on its individual performance. The following summary sets forth each company’s revenue and pretax income (loss) for the three months and six months ended June 30, 2002 and 2001.


Revenues	Three Months Ended June 30,		Six Months Ended June 30,
	2002	2001	2002	2001
American Southern	$ 11,855	$ 10,691	$ 22,228	$ 21,987
Association Casualty	6,726	7,478	13,630	14,318
Georgia Casualty	8,497	7,474	15,032	14,585
Bankers Fidelity	15,858	15,214	31,786	29,859
Corporate and Other	1,883	1,982	3,800	3,832
Adjustments and eliminations	(1,740)	(1,779)	(3,328)	(3,300)
Total Revenue	43,079	41,060	83,148	81,281
Realized investment
(gains) losses, net	29	(994)	(102)	(1,148)
Operating Revenue	$ 43,108	$ 40,066	$ 83,046	$ 80,133

- -6-


Income (loss) before income tax expense and cumulative effect of change in accounting principle	Three Months Ended June 30,		Six Months Ended June 30,
	2002	2001	2002	2001
American Southern	$ 1,463	$ 1,635	$ 2,806	$ 2,925
Association Casualty	(142)	(596)	890	(145)
Georgia Casualty	643	595	766	1,231
Bankers Fidelity	816	869	1,741	1,700
Corporate and Other	(1,359)	(1,474)	(2,518)	(3,083)
Consolidated results	$ 1,421	$ 1,029	$ 3,685	$ 2,628

Note 4. Credit Arrangements

At April 1, 2002, the Company was a party to a five-year revolving credit facility with Wachovia Bank, N.A. (“Wachovia”) that provided for borrowings up to $30,000. The interest rate on the borrowings under the facility was based upon the London Interbank Offered Rate (“LIBOR”) plus an applicable margin, which was 2.50% at April 1, 2002. Interest on the revolving credit facility was payable quarterly. The credit facility provided for the payment of all of the outstanding principal balance at June 30, 2004 with no required principal payments prior to that time.

The Company also had outstanding, at April 1, 2002, $25,000 of Series 1999, Variable Rate Demand Bonds (the “Bonds”) due July 1, 2009. The Bonds, which by their terms were redeemable at the Company’s option, paid a variable interest rate that approximated 30-day LIBOR. The Bonds were backed by a letter of credit issued by Wachovia, which was automatically renewable on a monthly basis until thirteen months after such time as Wachovia gave the Company notice of its option not to renew the letter of credit. The Bonds would be subject to mandatory redemption upon termination of the letter of credit, if an alternative letter of credit facility was not secured. The cost of the letter of credit and its associated fees were 2.50%, making the effective rate on the Bonds LIBOR plus 2.50% at April 1, 2002. The interest on the Bonds was payable monthly and the letter of credit fees were payable quarterly. The Bonds did not require the repayment of any principal prior to maturity, except as provided above.

Effective December 31, 2001, the revolving credit facility and letter of credit were both amended by Wachovia. The amendment established new covenants pertaining to rates related to interest coverage and eliminated funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) except in determining the applicable margin. In addition, the Company was required to consolidate the revolving credit facility and the Bonds into a single term loan on April 2, 2002. On that date, the Company converted the $30,000 revolving credit facility into a $44,000 term loan (the “Term Loan”) and used the additional proceeds to redeem the Bonds. The Term Loan will mature on June 30, 2004. The interest rate on the Term Loan is based upon LIBOR plus an applicable margin, which was 2.75% at June 30, 2002. Interest on the Term Loan is payable quarterly. The Company must repay the principal of the Term Loan in two annual installments of $2,000 on or before each of December 31, 2002 and 2003, together with one final installment of the remaining balance at maturity in 2004.

The Company is required under the Term Loan to maintain certain covenants including, among others, ratios that relate funded debt to total capitalization and interest coverage. The Company was in compliance with all debt covenants at June 30, 2002 and expects to remain in compliance with applicable covenants for the remainder of 2002.

Note 5. Derivative Financial Instruments

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

The following table summarizes the notional amount, fair value and carrying value of the Company’s derivative financial instruments at June 30, 2002, as follows:


	Notional Amount	Fair Value	Carrying Value (Liability)
Interest rate swap agreement	$ 15,000	$ (685)	$ (685)

-7-

Note 6. Reconciliation of Other Comprehensive Income


	Three Months Ended, June 30,		Six Months Ended, June 30,
	2002	2001	2002	2001
Gain (loss) on sale of securities included in net income	$ (29)	$ 994	$ 102	$ 1,148
Other comprehensive income:
Net pre-tax unrealized gain arising during year	5,563	2,071	5,707	6,316
Reclassification adjustment	29	(994)	(102)	(1,148)
Net pre-tax unrealized gain recognized in other comprehensive income	5,592	1,077	5,605	5,168
Fair value adjustment to interest rate swap	(275)	55	(152)	21
Deferred income tax attributable to other comprehensive income	(1,861)	(384)	(1,909)	(1,816)
Other comprehensive income	$ 3,456	$ 748	$ 3,544	$ 3,373

Note 7. Earnings per common share

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


	Three Months Ended June 30, 2002
(In thousands, except per share data)	Income	Shares	Per share amount
Basic Earnings Per Common Share:
Net Income	$ 942	21,282
Less preferred stock dividends	(357)
Net income available to common shareholders	$ 585	21,282	$ .03
Diluted Earnings Per Common Share:
Effect of dilutive stock options		269
Net income available to common shareholders	$ 585	21,551	$ .03


	Three Months Ended June 30, 2001
(In thousands, except per share data)	Income	Shares	Per share amount
Basic Earnings Per Common Share:
Net Income	$ 640	21,186
Less preferred stock dividends	(357)
Net income available to common shareholders	$ 283	21,186	$ ..01
Diluted Earnings Per Common Share:
Effect of dilutive stock options		-
Net income available to common shareholders	$ 283	21,186	$ .01

-8-

Note 7. Earnings per common share (continued)


	Six Months Ended June 30, 2002
(In thousands, except per share data)	Income	Shares	Per share amount
Basic Earnings (Loss) Per Common Share:
Income before cumulative effect of change in accounting principle	$ 2,447	21,267
Less preferred stock dividends	(715)
Income before cumulative effect of change in accounting principle available to common shareholders	1,732	21,267	.08
Cumulative effect of change in accounting principle	(15,816)	21,267	(.74)
Net loss available to common shareholders	$ (14,084)	21,267	$ (.66)
Diluted Earnings (Loss) Per Common Share:
Effect of dilutive stock options		258
Income before cumulative effect of change in accounting principle available to common shareholders	1,732	21,525	.08
Cumulative effect of change in accounting principle	(15,816)	21,525	(.73)
Net loss available to common shareholders	$ (14,084)	21,525	$ (.65)


	Six Months Ended June 30, 2001
(In thousands, except per share data)	Income	Shares	Per share amount
Basic Earnings Per Common Share:
Net Income	$ 1,630	21,175
Less preferred stock dividends	(715)
Net income available to common shareholders	$ 915	21,175	$ ..04
Diluted Earnings Per Common Share:
Effect of dilutive stock options		-
Net income available to common shareholders	$ 915	21,175	$ .04

Outstanding stock options of 695,000 for the three months and six months ended June 30, 2002 were excluded from the earnings per common share calculation since their impact was antidilutive. Outstanding stock options of 759,000 for the three months and six months ended June 30, 2001 were excluded from the earnings per common share calculation since their impact was antidilutive. The assumed conversion of the Series B and Series C Preferred Stock was excluded from the earnings per common share calculation for 2002 and 2001 since its impact was antidilutive.

-9-

Note 8. Commitments and Contingencies

During 2000, the Company’s subsidiary American Southern renewed one of its larger accounts. Although this contract was renewed through a competitive bidding process, one of the parties bidding for this particular contract contested the award of this business to American Southern and filed a claim to obtain nullification of the contract. During the fourth quarter of 2000, American Southern received an unfavorable judgment relating to this litigation and has appealed the ruling. The contract, which accounts for approximately 10% of annualized premium revenue of Atlantic American, is to remain in effect pending appeal. While management at this time cannot predict the potential outcome in this case, or quantify the actual impact of an adverse decision, it may have a material impact on the future results of operations of the Company.

From time to time the Company and its subsidiaries are parties to litigation occurring in the normal course of business. In the opinion of management, such litigation will not have a material adverse effect on the Company’s financial position or results of operations.

Note 9. Prior Year Reclassifications

Certain reclassifications have been made to the 2001 balances to conform with the 2002 presentation.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overall Corporate Results

On a consolidated basis, the Company earned $0.9 million, or $0.03 per diluted share, for the second quarter ended June 30, 2002 compared to net income of $0.6 million, or $0.01 per diluted share, for the second quarter ended June 30, 2001. The Company had a net loss of $13.4 million or $0.65 per diluted share for the six months ended June 30, 2002 compared to net income of $1.6 million or $0.04 per diluted share for the six months ended June 30, 2001. The net loss for the six months ended June 30, 2002 was due to a non-cash charge of $15.8 million to reflect a change in accounting for goodwill. Premium revenue for the quarter ended June 30, 2002 increased 9.4% to $39.4 million. For the six months ended June 30, 2002, premium revenue increased 5.1% to $75.5 million. The increase in premiums for the second quarter and six months ended June 30, 2002 is primarily attributable to rate increases and overall market expansion. Pre-tax operating income before realized gains and excluding charges related to accounting for goodwill for the six months ended June 30, 2002, increased 90.9% to $3.6 million primarily due to better underwriting results in Association Casualty.

The Company’s casualty operations, referred to as the Casualty Division, are comprised of its subsidiaries American Southern Insurance Company and American Safety Insurance Company (collectively known as American Southern), Association Casualty Insurance Company and its affiliated agency Association Risk Management General Agency, Inc. (collectively referred to as Association Casualty), and Georgia Casualty & Surety Company. The Company’s life and health operations, referred to as the Life and Health Division, are comprised of the operations of Bankers Fidelity Life Insurance Company.

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

UNDERWRITING RESULTS

American Southern
The following is a summary of American Southern's premiums for the second quarter and first six months of 2002 and the comparable
periods in 2001 (in thousands):


	Three months ended June 30,		Six months ended June 30,
	2002	2001	2002	2001
Gross written premiums	$ 24,335	$ 22,767	$ 29,414	$ 28,316
Ceded premiums	(1,715)	(1,203)	(3,203)	(2,365)
Net written premiums	$ 22,620	$ 21,564	$ 26,211	$ 25,951
Net earned premiums	$ 10,792	$ 9,427	$ 20,096	$ 19,489

Gross written premiums at American Southern increased 6.9% or $1.6 million during the second quarter of 2002 and 3.9% or $1.1 million for the year to date period. The increase in premiums for the second quarter and first six months of 2002 is primarily attributable to the addition of one new state contract that contributed $1.1 million in written premiums as well as a $2.0 million increase from existing accounts and other new accounts. Offsetting this increase in gross written premiums was the loss of one of the company’s state contracts, which contributed approximately $2.0 million in written premiums during the first six months of 2001.

Ceded premiums increased 42.6%, or $0.5 million during the second quarter of 2002 and 35.4%, or $0.8 million during the first six months of 2002. The increase in ceded premiums is due to several factors. First, rates charged by reinsurance companies for the second quarter and year to date period increased over the comparable periods of 2001. In addition, the company’s premiums are ceded as a percentage of earned premiums as opposed to on a written basis, which results in an increase in ceded premiums when earned premiums increase. Further, included in the second quarter and first six months of 2001 was a state contract that accounted for $2.0 million in written premiums during the first six months of 2001. This contract was not renewed in 2002 and furthermore was not subject to reinsurance. Accordingly in 2002, there was a higher effective percent of premiums ceded to premiums written than in 2001.

Net earned premiums for the quarter and year to date period increased $1.4 million and $0.6 million, respectively, over the comparable periods in 2001 and is primarily due to factors discussed previously.

-11-

The following is American Southern's earned premium by line of business for the second quarter and first six months of 2002 and the comparable periods in 2001 (in thousands):


	Three months ended June 30,		Six months ended June 30,
	2002	2001	2002	2001
Commercial automobile	$ 8,241	$ 6,977	$ 15,100	$ 14,779
Private passenger auto	807	797	1,615	1,489
General liability	823	805	1,612	1,565
Property	908	826	1,740	1,621
Other	13	22	29	35
	$ 10,792	$ 9,427	$ 20,096	$ 19,489

American Southern produces much of its business through contracts with various states and municipalities, some of which represent significant amounts of revenue for the company. These contracts, which last from one to three years, are periodically subject to competitive renewal quotes and the loss of a significant contract could have a material adverse effect on the business or financial condition of American Southern and the Company. During 2000, American Southern renewed one of its larger accounts. Although this contract was renewed through a competitive bidding process, one of the parties bidding for this particular contract contested the award of this business to American Southern and filed a claim to obtain nullification of the contract. During the fourth quarter of 2000, American Southern received an unfavorable judgment relating to this litigation and has appealed the ruling. The contract, which accounts for approximately 10% of annualized premium revenue of Atlantic American, is to remain in effect pending appeal. While management at this time cannot predict the potential outcome in this case, or quantify the actual impact of an adverse decision, an adverse outcome may have a material adverse affect on the company’s financial position or results of operations. In an effort to increase the number of programs underwritten by American Southern and to insulate it from the loss of any one program, the company is continually evaluating new underwriting programs. There can be no assurance, however, that new programs or new accounts will offset lost business resulting from non-renewals of accounts.

The following sets forth the loss and expense ratios of American Southern for the second quarter and first six months of 2002 and for the comparable periods in 2001:


	Three months ended June 30,		Six months ended June 30,