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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 September 30, 2004

OR

|_| 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 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 |_|

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

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding on November 5, 2004 was 21,151,267.



ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS

Part I. Financial Information Page No.
Item 1. Financial Statements:  
  Consolidated Balance Sheets-
September 30, 2004 and December 31, 2003		 2
  Consolidated Statements of Operations-
Three months and nine months ended Sepetmber 30, 2004 and 2003 		3
  Consolidated Statements of Shareholders' Equity -
Nine months ended September 30, 2004 and 2003 		4
  Consolidated Statements of Cash Flows -
Nine months ended September 30, 2004 and 2003		 5
  Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations		 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
Part II. Other Information  
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 23
Item 6. Exhibits and Reports on Form 8-K 24
Signature   25

TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; In thousands, except share data)

ASSETS
  September 30,
2004
 December 31,
2003
Cash, including short-term investments of $0 and $25,819 $      40,128
   $      34,238
Investments:    
   Fixed maturities (cost: $221,413 and $223,153) 224,942   229,449
   Common and non-redeemable preferred stocks (cost: $15,593 and $21,708) 35,084   44,000
   Other invested assets (cost: $4,741 and $4,639) 4,730   4,639
   Mortgage loans     3,075       3,189
   Policy and student loans 2,245   2,375
   Investment in unconsolidated trusts 1,238
   1,238
      Total investments 271,314
   284,890
Receivables:      
    Reinsurance 60,341   42,913
    Other (net of allowance for doubtful accounts: $1,505 and $1,418) 45,132   41,044
Deferred income taxes, net 1,893   -
Deferred acquisition costs 29,324   27,996
Other assets 6,978   9,463
Goodwill 3,008
   3,008
     Total assets $     458,118
   $    443,552

LIABILITIES AND SHAREHOLDERS' EQUITY

       
Insurance reserves and policy funds:      
     Future policy benefits $        48,475   $       47,226
     Unearned premiums 65,148   61,150
     Losses and claims 163,063   150,092
     Other policy liabilities 5,634
   5,277
        Total policy liabilities 282,320   263,745
Accounts payable and accrued expenses 36,317   35,734
Deferred income taxes, net -   942
Bank debt payable 12,000   15,000
Junior subordinated debenture obligations 41,238
   41,238
        Total liabilities 371,875
   356,659
 
Commitments and contingencies (Note 9)      
Shareholders' equity:      
     Preferred stock, $1 par, 4,000,000 shares authorized:
        Series B preferred, 134,000 shares issued and outstanding;
            $13,400 redemption value 		134   134
        Series C preferred, 5,000 shares issued and outstanding
            in 2003; $500 redemption value 		-   5
     Common stock, $1 par; shares authorized: 50,000,000;
            shares issued: 21,412,138 and 21,412,138;
            shares outstanding: 21,120,227 and 21,198,553 		21,412   21,412
     Additional paid-in capital 50,673   51,978
     Accumulated deficit (23)   (4,457)
     Unearned compensation (39)   (22)
     Accumulated other comprehensive income 14,956   18,293
     Treasury stock, at cost; 291,911 and 213,585 shares
 (870)
   (450)
          Total shareholders' equity 86,243
   86,893
                Total liabilities and shareholders' equity $     458,118
   $      443,552

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

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TABLE OF CONTENTS

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; In thousands, except per share data)

               
  Three Months Ended
September 30,
   Nine Months Ended
September 30,
  2004
 2003
   2004
 2003
Revenue:  
    Insurance premiums $    43,947   $    37,916   $  128,542   $  115,671
    Investment income 3,939   3,900   11,858   11,770
    Realized investment gains (losses), net 1,623   (501)   2,441   834
    Other income 139
   219
   626
   741
          Total revenue 49,648
   41,534
   143,467
   129,016
Benefits and expenses:  
    Insurance benefits and losses incurred 30,504   23,220   84,837   78,535
    Commissions and underwriting expenses 15,237   12,279   42,636   34,172
    Interest expense 698   827   2,331   2,295
    Other 3,395
   3,491
   10,260
   9,721
          Total benefits and expenses 49,834
   39,817
   140,064
   124,723
Income (loss) before income taxes (186)   1,717   3,403   4,293
Income tax benefit 2,023
   1,549
   1,050
   880
Net income 1,837   3,266   4,453   5,173
Preferred stock dividends (302)
   (324)
   (915)
   (1,036)
Net income applicable to common stock $    1,535
   $     2,942
   $     3,538
   $      4,137
Net income per common share (basic) $        .07
  $         .14
  $         .17
  $          .20
Net income per common share (diluted) $        .07
  $         .13
  $         .16
  $          .19

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

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TABLE OF CONTENTS

ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (Unaudited; In thousands)
 
 
 
Nine Months Ended September 30, 2004
  
 
Preferred
Stock
  
 
Common
Stock
  
Additional
Paid-in
Capital
  
 
Accumulated
Deficit
  
 
Unearned
Compensation
  
Accumulated Other
Comprehensive
Income
  
 
Treasury
Stock
  
 
 
Total
Balance, December 31, 2003 $           139 $      21,412 $      51,978 $       (4,457) $       (22) $       18,293 $       (450) $      86,893
Comprehensive income (loss):  
           Net income   4,453   4,453
           Decrease in unrealized investment gains   (5,579)   (5,579)
           Fair value adjustment to interest rate swap   445   445
           Deferred income tax attributable to other
           comprehensive income (loss)
 		    
1,797		    
1,797
Total comprehensive income
 		   1,116
Preferred stock redeemed (5)   (495)   (500)
Dividends accrued on preferred stock   (915)   (915)
Deferred share compensation expense   27   27
Restricted stock grants   21   (66)   45 -
Amortization of unearned compensation   49   49
Purchase of shares for treasury   (690) (690)
Issuance of shares for employee benefit plans
          and stock options
 		  
  
 57
 (19)
  
  
 225
 263
Balance, September 30, 2004 $          134
 $      21,412
 $      50,673
 $         (23)
 $         (39)
 $       14,956
 $       (870)
 $     86,243
Nine Months Ended September 30, 2003
  
Balance, December 31, 2002 $          159 $      21,412 $     55,204 $     (11,270) $       (30) $       13,143 $        (78) $     78,540
Comprehensive income:  
           Net income   5,173   5,173
           Increase in unrealized investment gains   2,223   2,223
           Fair value adjustment to interest rate swap   314   314
           Deferred income tax attributable to other
           comprehensive income
 		    
(888)		    
(888)
Total comprehensive income
 		   6,822
Preferred stock redeemed (20)   (1,980)   (2,000)
Dividends accrued on preferred stock   (1,036)   (1,036)
Deferred share compensation expense   39   39
Restricted stock grants   (1)   (66)   67 -
Amortization of unearned compensation   57   57
Purchase of shares for treasury   (580) (580)
Issuance of shares for employee benefit plans
          and stock options
 		  
  
 32
 (27)
  
  
 213
 218
Balance, September 30, 2003 $          139
 $     21,412
 $     52,258
 $     (6,124)
 $        (39)
 $      14,792
 $       (378)
 $     82,060
The accompanying notes are an integral part of these consolidated financial statements.
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ATLANTIC AMERICAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; In thousands)
  Nine Months Ended
September 30,
  2004
 2003
CASH FLOWS FROM OPERATING ACTIVITIES:      
   Net income $      4,453   $      5,173
   Adjustments to reconcile net income to net cash
        (used) provided by operating activities:		      
        Amortization of deferred acquisition costs 17,658   13,209
        Acquisition costs deferred (18,986)   (14,222)
        Realized investment gains (2,441)   (834)
        Increase in insurance reserves 18,575   4,618
        Compensation expense related to share awards 76   96
        Depreciation and amortization 1,066   865
        Deferred income tax benefit (1,038)   (1,410)
        (Increase) decrease in receivables, net (21,266)    1,395
        Decrease in other liabilities (2,098)   (634)
        Other, net 2,136
   632
            Net cash (used) provided by operating activities (1,865)
   8,888
CASH FLOWS FROM INVESTING ACTIVITIES:      
    Proceeds from investments sold, called, or matured 89,092   95,680
    Investments purchased (76,796)   (120,259)
    Additions to property and equipment (420)
   (428)
            Net cash provided (used) by investing activities 11,876
   (25,007)
 
CASH FLOWS FROM FINANCING ACTIVITIES:      
    Net proceeds from issuance of junior subordinated debentures -   21,824
    Repayments of debt (3,000)   (17,000)
    Preferred stock redemption (500)   (2,000)
    Preferred stock dividends (10)   (131)
    Proceeds from the exercise of stock options 79   13
    Purchase of treasury shares (690)
   (278)
           Net cash (used) provided by financing activities (4,121)
   2,428
    Net increase (decrease) in cash and cash equivalents 5,890   (13,691)
    Cash and cash equivalents at beginning of period 34,238
   41,638
    Cash and cash equivalents at end of period $     40,128
  $     27,947
SUPPLEMENTAL CASH FLOW INFORMATION:      
    Cash paid for interest $       2,470
   $       2,466
    Cash paid for income taxes $       1,118
   $          357
The accompanying notes are an integral part of these consolidated financial statements.
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ATLANTIC AMERICAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited; In thousands, except share and per share data)

Note 1.  Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The consolidated financial statements and the related notes thereto included herein should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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 nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Note 2.  Impact of Recently Issued Accounting Standards

        In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 discusses the effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and supersedes FASB Staff Position No. 106-1. Adoption of this statement did not have an impact on the Company’s financial condition or results of operations.

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

        In December 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement requires additional detailed disclosures regarding pension plan assets, benefit obligations, cash flows, benefit costs and related information. The Company has adopted this statement. See Note 8.

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

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



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Note 3.   Segment Information

        The Company has four principal insurance subsidiaries, each focusing on a specific geographic region and/or specific products. Each operating company is managed independently and is evaluated on its individual performance. The following summary sets forth each principal operating company’s revenue and pre-tax income (loss) for the three months and nine months ended September 30, 2004 and 2003.

Revenues Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2004
 2003
   2004
 2003
American Southern $       14,249   $       9,470   $       39,414   $       32,071
Association Casualty 6,364   5,352   18,704   16,981
Georgia Casualty 10,601   9,510   31,577   27,951
Bankers Fidelity 18,321   17,062   53,149   51,384
Corporate and Other 2,889   2,685   9,032   7,416
Adjustments and Eliminations (2,776)
   (2,545)
   (8,409)
   (6,787)
Total Revenue $       49,648
  $     41,534
  $     143,467
  $     129,016

Income before income taxes Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2004
 2003
   2004
 2003
American Southern $        1,890   $        2,101   $        5,295   $        5,584
Association Casualty 338   53   783   (1,358)
Georgia Casualty (3,248)   267   (2,271)   1,260
Bankers Fidelity 2,322   1,166   4,257   3,861
Corporate and Other (1,488)
   (1,870)
   (4,661)
   (5,054)
Consolidated Results $        (186)
  $        1,717
  $        3,403
  $        4,293

Note 4.   Credit Arrangements

        At September 30, 2004, the Company’s $53,238 of borrowings consisted of $12,000 of bank debt (the “Term Loan”) with Wachovia Bank, N.A. (“Wachovia”) and an aggregate of $41,238 of outstanding junior subordinated deferrable interest debentures of the Parent (“Junior Subordinated Debentures”). The Term Loan required the Company to repay $2,000 in principal on July 1, 2004 and requires the Company to repay an additional $1,000 on December 31, 2004. Beginning in 2005 and each year thereafter, the Company must repay $500 on June 30 and $1,250 on December 31, with one final payment of $6,750 at maturity on June 30, 2008. The interest rate on the Term Loan is equivalent to three-month LIBOR plus an applicable margin, which was 2.50% at September 30, 2004. The margin varies based upon the Company’s leverage ratio (debt to total capitalization, as defined) and ranges from 1.75% to 2.50%. The Term Loan requires the Company to comply with certain covenants including, among others, ratios that relate funded debt, as defined, to total capitalization and earnings before interest, taxes, depreciation, and amortization. The Company must also comply with limitations on capital expenditures and additional debt obligations. On July 1, 2004, in accordance with the Term Loan agreement, the Company repaid $2,000 in principal to Wachovia. In addition, on September 30, 2004, the Company elected to prepay, out of available cash, the scheduled December principal payment of $1,000 to Wachovia, thereby reducing the outstanding amount of the Term Loan to $12,000 and resulting in a decreased interest rate of three month LIBOR plus 2.00%, effective as of October 1, 2004.

        The Company also has formed two statutory business trusts, which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $41,238 of Junior Subordinated Debentures have a maturity of thirty years from their original date of issuance, are callable, in whole or in part, only at the option of the Company after five years and quarterly thereafter, and have an interest rate of three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. The obligations of the Company with respect to the issuance of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities.



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Note 5.  Reconciliation of Other Comprehensive Income

  Three Months Ended,
September 30,
  Nine Months Ended,
September 30,
  2004
 2003
   2004
 2003
Gain (loss) on sale of securities included in net income
 		 $             1,623
   $              (501)
   $             2,441
   $               834
Other comprehensive income (loss):  
     Net pre-tax unrealized gain (loss) arising during
     period		 $             4,871   $           (2,328)   $          (3,138)   $            3,057
     Reclassification adjustment (1,623)
   501
   (2,441)
   (834)
     Net pre-tax unrealized gain (loss) recognized in
     other comprehensive income (loss)		 3,248   (1,827)   (5,579)   2,223
     Fair value adjustment to interest rate swap -   143   445   314
     Deferred income tax attributable to other
     comprehensive income (loss)
 		 (1,137)
   589
   1,797
   (888)
Increase (decrease) in accumulated other
comprehensive income		 2,111   (1,095)   (3,337)   1,649
Accumulated other comprehensive income
beginning of period
  		12,845
   15,887
   18,293
   13,143
Accumulated other comprehensive income
end of period
  		 
$            14,956
    
$           14,792
    
$          14,956
    
$          14,792

Note 6.  Earnings Per Common Share

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

  Three Months Ended
September 30, 2004
   
Income
  
Shares
 Per Share
Amount
Basic Earnings Per Common Share:  
Net Income $                  1,837   21,254  
Less preferred stock dividends
 		 (302)
    
  
Net income applicable to common shareholders
 		 $                  1,535
  21,254
 		   $                    .07
Diluted Earnings Per Common Share:  
Effect of dilutive stock options   475
  
Net income applicable to common shareholders $                  1,535
  21,729
  $                   .07

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Note 6.  Earnings Per Common Share (continued)

  Three Months Ended
September 30, 2003
   
Income
  
Shares
 Per Share
Amount
Basic Earnings Per Common Share:  
Net Income $           3,266   21,150  
Less preferred stock dividends
 		 (324)
    
  
Net income applicable to common shareholders
 		 2,942   21,150
 		   $             .14
Diluted Earnings Per Common Share:  
Effect of dilutive stock options -   470  
Effect of Series B Preferred Stock 301   3,358  
Effect of Series C Preferred Stock 23
   125
  
Net income applicable to common shareholders $            3,266
   25,103
  $             .13

  Nine Months Ended
September 30, 2004
   
Income
  
Shares
 Per Share
Amount
Basic Earnings Per Common Share:  
Net Income $                 4,453   21,247  
Less preferred stock dividends
 		 (915)
    
  
Net income applicable to common shareholders
 		 $                 3,538
  21,247
 		   $                   .17
Diluted Earnings Per Common Share:  
Effect of dilutive stock options   464
  
Net income applicable to common shareholders $                 3,538
  21,711
   $                   .16

  Nine Months Ended
September 30, 2003
   
Income
  
Shares
 Per Share
Amount
Basic Earnings Per Common Share:  
Net Income $                 5,173   21,209  
Less preferred stock dividends
 		 (1,036)
    
  
Net income applicable to common shareholders
 		 $                 4,137
  21,209
 		   $                   .20
Diluted Earnings Per Common Share:  
Effect of dilutive stock options   344
  
Net income applicable to common shareholders $                 4,137
  21,553
   $                   .19

        Outstanding stock options of 5,000 for the three months ended September 30, 2004 were excluded from the earnings per common share calculation since their impact was antidilutive. Average outstanding stock options of 77,000 for the nine months ended September 30, 2004 were excluded from the earnings per common share calculation since their impact was antidilutive. Outstanding stock options of 386,500 for the three months ended September 30, 2003 were excluded from the earnings per common share calculation since their impact was antidilutive. Average outstanding stock options of 444,000 for the nine months ended September 30, 2003 were excluded from the earnings per common share calculation since their impact was antidilutive. The assumed conversion of the Series B Preferred Stock was excluded from the earnings per common share calculation for the nine months ended September 30, 2004 and 2003 since its impact was antidilutive. The assumed conversion of the Series C Preferred Stock was excluded from the earnings per common share calculation for the nine months ended September 30, 2003 since its impact was antidilutive.

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Note 7.  Stock Options

         The Company accounts for stock options as prescribed by Accounting Principles Board Opinion No. 25 and discloses pro forma information as provided by SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”. Pro forma net income and net income per common share were determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of these options was estimated at the date of grant using an options pricing model, which requires the input of subjective assumptions, including the volatility of the stock price. The following table presents the pro forma disclosures used to estimate the fair value of these options for the three months and nine months ended September 30, 2004 and 2003:

               
  Three Months Ended
September 30,
   Nine Months Ended
September 30,
  2004
 2003
   2004
 2003
Net income, as reported
 		 $  1,837
 		   $  3,266
 		   $  4,453
 		   $  5,173
 
Add: Stock-based employee compensation
expense included in reported net
income, net of tax
 		  
 
12
 		    
 
19
 		    
 
50
 		    
 
62
 
Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of tax		  
 
(65)
    
 
(78)
    
 
(212)
    
 
(224)
Pro forma net income $  1,784
   $  3,207
   $  4,291
   $  5,011
Net income per common share:
 		  
 
Basic - as reported $      .07   $      .14   $      .17   $      .20
Basic - pro forma $      .07   $      .14   $      .16   $      .19
Diluted - as reported $      .07   $      .13   $      .16   $      .19
Diluted - pro forma $      .07   $      .13   $      .16   $      .18

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

Note 8.  Employee Retirement Plans

      The following table provides the components for the net periodic benefit cost for all defined benefit pension plans:

               
  Three Months Ended
September 30,
   Nine Months Ended
September 30,
  2004
 2003
   2004
 2003
Service cost $          42   $          36   $          127   $          108
Interest cost 69   67   208   200
Expected return on plan assets (42)   (35)   (126)   (103)
Net amortization 20
   21
   61
   65
Net periodic benefit cost $          89
   $          89
   $         270
   $         270

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      The weighted-average assumptions used to determine the net periodic benefit cost are as follows:

     
  Nine Months Ended
September 30,
  2004
 2003
Discount rate 6.00% 6.50%
Expected return on plan assets 7.00% 7.00%
Projected annual salary increases 4.50% 4.50%

      The Company expects to contribute $236 for all defined benefit pension plans in 2004. During the three months and nine months ended September 30, 2004, the Company made payments of $18 and $53, respectively, to the pension plans.

Note 9.  Commitments and Contingencies

        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 10.  Related Party Transaction

        During the first quarter of 2004, in accordance with the terms of the Series C Preferred Stock, the Company redeemed the 5,000 shares of outstanding Series C Preferred Stock at the redemption price of $100 per share, or $500 in aggregate. All of the 5,000 shares of Series C Preferred Stock were owned by affiliates of the Company’s Chairman.

Note 11.  Prior Year Reclassifications

        Certain reclassifications have been made to the 2003 balances to conform with the 2004 presentation.

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Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively, the “Company”) for the third quarter and nine months ended September 30, 2004. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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

CRITICAL ACCOUNTING ESTIMATES

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

         Unpaid loss and loss adjustment expenses comprised 44% of the Company’s liabilities at September 30, 2004. This obligation includes estimates for: 1) unpaid losses on claims reported prior to September 30, 2004, 2) future development on those reported claims, 3) unpaid ultimate losses on claims incurred prior to September 30, 2004 but not yet reported to the Company and 4) unpaid claims adjustment expense for reported and unreported claims incurred prior to September 30, 2004. Quantification of loss estimates for each of these components involves a significant degree of judgment and estimates may vary, materially, from period to period. Estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the Company. Future development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to September 30, 2004 but not yet reported to the Company, and estimates of unpaid claims adjustment expense are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis. The Company’s actuarial staff develops ranges of estimated future development on reported and unreported claims as well as loss adjustment expenses using various methods including the paid-loss development method, the reported-loss development method, the paid Bornhuetter-Ferguson method, the reported Bornhuetter-Ferguson method, the Berquist-Sherman method and a frequency-severity method. Any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the Company’s administrative policies. Further, a variety of external factors, such as legislative changes, medical inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses. The Company’s approach is the selection of an estimate of ultimate losses based on comparing results of a variety of reserving methods, as opposed to total reliance on any single method. Unpaid loss and loss adjustment expenses are generally reviewed quarterly for significant lines of business, and when current results differ from the original assumptions used to develop such estimates, the amount of the Company’s recorded liability for unpaid claims and claim adjustment expenses is adjusted. In the event the Company’s reported losses in any period develop mat