MIDLAND CO, S-3, 1999-05-12

MIDLAND CO
S-3, 1999-05-12
FIRE, MARINE & CASUALTY INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

THE MIDLAND COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
OHIO 31-0742526
(State or other jurisdiction of incorporation or (IRS Employer Identification Number)
organization)
</TABLE>

7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102-2607
(513) 943-7100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

JOHN I. VON LEHMAN
THE MIDLAND COMPANY
7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102-2607
TELEPHONE: (513) 943-7100
FACSIMILE: (513) 943-7111
(Name, address, including zip code, telephone and facsimile numbers, including
area code, of agent for service)

Copies to:

<TABLE>
<S> <C>
PAUL V. MUETHING, ESQ. FRANK M. CONNER, III, ESQ.
KEATING, MUETHING & KLEKAMP, P.L.L. ALSTON & BIRD LLP
1800 PROVIDENT TOWER 601 PENNSYLVANIA AVENUE, N.W.
ONE EAST FOURTH STREET NORTH BUILDING, 11TH FLOOR
CINCINNATI, OHIO 45202 WASHINGTON, D.C. 20004-2601
TELEPHONE: (513) 579-6517 TELEPHONE: (202) 756-3303
FACSIMILE: (513) 579-6457 FACSIMILE: (202) 756-3333
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
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Proposed Maximum Proposed Maximum
Title of Shares to be Amount to Offering Price Aggregate Offering Amount of
Registered Be Registered per Share Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, without par
value.................... 2,012,500 shares $24.50 $49,306,250 $13,708
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</TABLE>

(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 based on
the average of the high and low sales prices of the common stock as reported
on the American Stock Exchange on May 7, 1999 solely for the purpose of
calculating the registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED MAY 12, 1999

PROSPECTUS

1,750,000 SHARES

THE MIDLAND COMPANY

COMMON STOCK

MIDLAND LOGO TO COME

---------------------

The Midland Company is selling 1,170,000 shares of its common stock and the
selling shareholders named in this prospectus are selling 580,000 shares.
Midland will not receive any proceeds from the sale of shares by the selling
shareholders.

Midland's common stock currently trades on the American Stock Exchange
under the symbol "MLA." Midland has applied to list the common stock on the
Nasdaq National Market under the symbol "MLAN." The last reported sale price of
Midland's common stock on the American Stock Exchange on May , 1999 was
$ per share.

---------------------

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE THE SECTION OF
THIS PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7.

The Securities and Exchange Commission and state securities regulators have
not approved these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.

---------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discount.................................... $ $
Proceeds to Midland (before expenses).................... $ $
Proceeds to selling shareholders (before expenses)....... $ $
</TABLE>

The underwriters may purchase up to 262,500 additional shares of common
stock from Midland under certain circumstances.

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.

---------------------

THE ROBINSON-HUMPHREY COMPANY
MCDONALD INVESTMENTS INC.
J.J.B. HILLIARD, W.L. LYONS, INC.

, 1999
<PAGE> 3

This prospectus and the documents "incorporated by reference" into this
prospectus contain "forward-looking statements" within the meaning of the
federal securities law. Generally, when we use terms such as "anticipate,"
"believe," "could," "estimate," "intend," "expect," "plan," "would" and similar
expressions we are making a "forward-looking statement." Certain statements
contained in this prospectus that are not historical facts, or that concern
expected financial performance, on-going business strategies and possible future
action which we intend to pursue are also "forward-looking statements." Factors
which might cause actual results to differ from the "forward-looking statements"
include the following:

- adverse weather conditions, fluctuations in the investment markets,
changes in the retail marketplace or fluctuations in interest rates;

- changes in our business tactics or strategies;

- changes in the laws or regulations affecting our operations;

- acquisitions of assets or of new or complementary operations, or the
sale of any segment of our existing operations;

- changing market forces or litigation which necessitate, in the opinion
of our management, changes in our plans, strategies or tactics; and

- other factors that we discuss in the section of this prospectus entitled
"Risk Factors" on page 7.

Any forward-looking statements are our expectations on the date we make
them. We will not update any forward-looking statements to reflect events or
circumstances arising after the date on which we made them. Actual results,
performance or achievements can differ materially from results suggested by
these forward-looking statements because of a variety of factors including those
described in the section of this prospectus entitled "Risk Factors" on page 7.
---------------------

For North Carolina residents: the Commissioner of Insurance of the State of
North Carolina has not approved or disapproved this offering nor has the
Commissioner passed upon the accuracy or adequacy of this prospectus.
---------------------

The laws of various states prohibit any person or entity from directly or
indirectly acquiring 10% or more (5% or more in Alabama and Florida) of the
voting control of any domestic insurance holding company without approval of
such states' respective Commissioner of Insurance.

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PROSPECTUS SUMMARY

This summary highlights some of the information contained in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully.

In this prospectus, when we refer to "Midland," "we" or "our," we are
referring to The Midland Company and all of its subsidiaries. When we refer to
AMIG, we are referring to our subsidiary, American Modern Insurance Group, and
its insurance company subsidiaries. AMIG is the holding company for our
insurance operations. When we refer to M/G Transport, we are referring to our
two transportation subsidiaries, M/G Transport Services, Inc. and MGT Services
Inc.

THE COMPANY

Midland is a holding company which, through its operating subsidiaries,
provides specialty insurance products and river transportation services.
American Modern Insurance Group or AMIG, Midland's insurance subsidiary, is a
leading provider of specialty property and casualty insurance products to the
manufactured housing market. AMIG's revenues accounted for more than 90% of
Midland's revenues in 1998. M/G Transport, Midland's transportation operation,
brokers freight and charters barges to move commodities on the inland waters of
the United States, primarily on the lower Mississippi River and its tributaries.
At March 31, 1999, we had total assets of approximately $822.4 million and
shareholders' equity of approximately $251.0 million.

AMIG is one of the largest specialty providers of property and casualty
insurance to the manufactured housing market in the United States. During 1998,
$330.6 million of AMIG's $458.5 million of direct and assumed written premium
related to the manufactured housing market. In recent years, AMIG's knowledge of
the manufactured housing, retail dealership and consumer finance markets has
enabled it to develop and distribute a number of related specialty insurance
products and services to these markets. AMIG, through one or more subsidiaries,
is licensed in all 50 states and the District of Columbia. A.M. Best Company, an
independent company that rates insurance companies, has given a group rating of
"A (Excellent)" to AMIG and its property and casualty subsidiaries.

The core strategy for AMIG's insurance operations is to target specialty
insurance markets in which we believe AMIG can create a sustainable competitive
advantage through its knowledge of products, customers and channels of
distribution. AMIG seeks to differentiate itself in its selected markets by
designing products tailored to meet the specific needs of its customers and by
providing higher levels of customer service than its competitors. The principal
elements of AMIG's strategy are as follows:

Focus on Specialty Markets. AMIG's primary focus is the manufactured
housing market in which we believe that AMIG has developed unique expertise
in evaluating, pricing and servicing risk. This expertise has led AMIG to
introduce additional specialty products in related markets.

Diversified Distribution Channels. AMIG distributes its specialty
insurance products through a wide variety of channels including retail and
wholesale insurance agents, manufactured housing dealers, consumer finance
companies and banks. AMIG
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believes that this broad distribution network provides it with a
competitive advantage because it diversifies AMIG's exposure to risk while
allowing AMIG to target its insurance products to specific markets.

Disciplined Underwriting. AMIG designs and prices its insurance
products to produce an underwriting profit. AMIG reviews the pricing of
each of its products in each of its markets every 12 to 24 months to insure
products are performing as planned.

Claims Management Expertise. AMIG strives to provide its policyholders
with timely and accurate claims handling. To accomplish this goal, AMIG has
over 145 in-house claims adjusters located strategically throughout the
United States. AMIG believes that its internal claims-handling capabilities
result in greater customer satisfaction and improved underwriting results.

Catastrophe Management. AMIG, like other property and casualty
insurers, cannot avoid catastrophic, weather-related losses. AMIG seeks to
diversify its insurance exposures geographically and has purchased a series
of reinsurance policies. Under these reinsurance policies, a reinsurance
company agrees to pay some of the catastrophic losses AMIG suffers after
those losses reach a certain level.

Development of Fee-Based Income Opportunities. AMIG believes that its
insurance expertise and its relationships with financial institutions allow
it to create additional opportunities to increase revenues by offering
fee-based services. The most significant example of this has been the
development of Ameritrac, AMIG's proprietary loan and lease tracking
service. Through Ameritrac, AMIG provides fee-based services to banks,
credit unions and finance companies. Such services enable AMIG to increase
its fee-based revenue and strengthen its relationships with key channels of
distribution while creating additional sources of growth.

Midland was founded in 1938 by the late J.P. Hayden and H.R. LaBar. Since
that time, members of the Hayden and LaBar families have been actively involved
in the management of our operations. Members of the Hayden and LaBar families
have a beneficial interest in approximately 62% of Midland's common stock before
the offering and will have a beneficial interest in approximately 50% of the
common stock after the offering. Members of the Hayden and LaBar families will
sell 550,000 shares of Midland common stock through the offering.

Midland's principal executive offices are located at 7000 Midland
Boulevard, Amelia, Ohio, 45102-2607, and our telephone number at that address is
(513) 943-7100.
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THE OFFERING

<TABLE>
<S> <C>
Total shares offered by this 1,750,000 shares
prospectus.........................
Offered by Midland.............. 1,170,000 shares
Offered by the selling 580,000 shares
shareholders..................

Shares outstanding at March 31, 9,515,249 shares (1)
1999...............................
Shares to be outstanding after the 10,685,249 shares (1)
offering...........................

Use of proceeds...................... We intend to use the proceeds to
increase the capital and surplus and
fund future growth of our insurance
subsidiaries, to repay a portion of
Midland's and AMIG's current debt and
for other general corporate purposes.
We may also use some of the proceeds
to make investments or acquisitions.
Midland will receive no proceeds from
the sale of shares by the selling
shareholders.

American Stock Exchange symbol(2).... MLA
</TABLE>

Unless otherwise stated, all information in this prospectus assumes that
the underwriters' over-allotment option is not exercised.

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(1) Excludes 1,128,500 shares of common stock authorized for future option
awards or stock grants at March 31, 1999. Also excludes 276,450 additional
shares of common stock reserved for issuance for stock options outstanding
at March 31, 1999.

(2) Midland has applied to list the common stock on the Nasdaq National Market
under the symbol "MLAN".
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SUMMARY FINANCIAL AND OPERATING DATA

OTHER DATA:
AMIG's Property and Casualty
Operations:
Direct and Assumed Written
Premium..................... $103,802 $100,529 $446,248 $423,964 $387,165 $376,330 $275,509
Net Written Premium........... 99,177 90,060 391,770 342,711 290,355 285,306 235,821

GAAP Ratios:
Loss and Loss Adjustment
Expense Ratio............... 49.4% 53.3% 56.1% 55.1% 61.8% 52.0% 55.0%
Underwriting Expense Ratio.... 45.1 41.9 40.8 40.7 42.5 45.2 43.5
-------- -------- -------- -------- -------- -------- --------
Combined Ratio................ 94.5% 95.2% 96.9% 95.8% 104.3% 97.2% 98.5%
Statutory Capital and
Surplus..................... $216,096 $175,467 $217,091 $164,128 $124,131 $113,189 $ 89,910
Net Written Premium to
Statutory Surplus........... -- -- 1.8x 2.1x 2.3x 2.5x 2.6x
</TABLE>

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(1) On September 29, 1997, our sportswear subsidiary sold substantially all of
its assets to Brazos, Inc., a subsidiary of Brazos Sportswear, Inc. These
assets were sold for approximately $13.3 million in cash resulting in an
after-tax loss on the disposal of approximately $3.3 million.

(2) Represents income from continuing operations excluding net realized
investment gains or losses, net of federal income taxes.
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RISK FACTORS

You should consider carefully the following risks before you decide to buy
our common stock. If any of the following risks actually occur, our business,
financial condition or results of operations would likely be adversely affected.

WE COULD INCUR SUBSTANTIAL LOSSES FROM CATASTROPHES AND WEATHER-RELATED EVENTS

Property and casualty insurers like AMIG have experienced, and will
experience in the future, catastrophe losses. Catastrophe losses can materially
affect AMIG's financial results. Major weather-related catastrophes that
affected AMIG in recent years included storms in the second and third quarters
of 1998 and Hurricanes Fran and Bertha in 1996. AMIG is particularly susceptible
to weather-related losses in the second and third quarters when hurricanes and
tornados occur most frequently. AMIG incurred approximately $5 million (pre-tax)
in weather-related losses as a result of the severe thunderstorms and tornados
occurring in Oklahoma, Kansas and parts of the southeastern United States in
early May 1999.

In 1998, approximately 61% of AMIG's property and casualty direct and
assumed written premium was derived from the southeastern United States, Texas
and Oklahoma. Because of this concentration of business, AMIG may be more
exposed to hurricanes, tornados and other weather-related losses than some of
its competitors. A single catastrophe loss, or a number of large catastrophe
losses in a short amount of time, could have a material adverse effect on our
financial condition or results. See the sections of this prospectus entitled
"Business -- Geographic Risk Management" on page 33 and
"Business -- Reinsurance" on page 35.

Historically, these factors have contributed to significant
quarter-to-quarter and year-to-year fluctuations in the underwriting results of
AMIG and our net earnings. Because of this fluctuation in underwriting results,
historical periodic results of operations may not be indicative of future
results of operations. Periodic fluctuations in our operating results could
affect the market price of our common stock. See the section of this prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 17.

AMIG'S RESULTS ARE DEPENDENT ON CONDITIONS IN THE MANUFACTURED HOUSING INDUSTRY

Level of Manufactured Housing Sales

A significant number of the insurance policies AMIG issues each year are
written in conjunction with the sale of a new manufactured home. A significant
or prolonged downturn in the level of manufactured housing sales may result in a
decline in AMIG's premium volume and income. Several factors may affect the
market for manufactured housing. These include general economic conditions,
interest rate levels and government regulations.

Consolidation in the Manufactured Housing Industry

The manufactured housing industry has experienced substantial consolidation
in recent years. This consolidation has included the purchase of independent
dealerships by larger dealer organizations and the purchase of dealerships by
manufacturers. Because manufactured housing dealerships are an important channel
of distribution for AMIG,

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continued consolidation that results in fewer manufactured housing dealers could
lead to a decrease of AMIG's revenues.

OUR INVESTMENT PORTFOLIO COULD LOSE VALUE

Market Volatility and Changes in Interest Rates

AMIG's investment portfolio primarily consists of fixed income securities
(such as investment grade, publicly-traded corporate debt securities and U.S.
government securities) and publicly-traded equity securities. At March 31, 1999,
approximately 76% of AMIG's investment portfolio was invested in fixed income
securities, approximately 23% was invested in equity securities and
approximately 1% represented accrued interest and dividends. AMIG's investment
portfolio is subject to general market risks. A decrease in the value of AMIG's
investment portfolio would cause a decrease in AMIG's capital and surplus which
in turn would limit AMIG's ability to write additional insurance. This could
have a material adverse effect on our financial condition or results. In
addition, the fixed income portion of the portfolio is subject to risks of loss
upon default and price volatility in reaction to changes in interest rates.

Concentration of Investments

At March 31, 1999, approximately 12% of AMIG's total portfolio, or
approximately $70 million in market value, was invested in the common stock of
Firstar Corporation. A material decrease in the price of common stock of Firstar
Corporation would cause the value of AMIG's investment portfolio to decline and
would result in a decrease in AMIG's capital and surplus.

ONE SIGNIFICANT CUSTOMER ACCOUNTS FOR A SIGNIFICANT PORTION OF OUR REVENUES

Revenues from one source, Green Tree Financial Corporation, accounted for
approximately 14% of our revenues during 1998 and approximately 15% for the
first three months of 1999. No other single customer or producer accounted for
more than 3% of our revenues during these periods. The loss of all or a
significant part of AMIG's business with Green Tree Financial Corporation could
have a material adverse effect on our financial condition or results.

IT WOULD BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE MIDLAND

Controlling Shareholders

Members of the Hayden and LaBar families have a beneficial interest in
approximately 62% of Midland's common stock. Members of these families serve as
executive officers and directors of Midland. See the section of this prospectus
entitled "Management -- Executive Officers and Directors" on page 46. Through
their ownership of common stock and their positions with Midland, these families
effectively control Midland. They have the practical ability to elect a majority
of directors, approve or disapprove mergers or similar transactions and amend
our Articles of Incorporation without having to secure the votes of other
shareholders. A third party would need the approval of a large portion of the
members of these families to gain control of Midland.

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Anti-Takeover Considerations

Certain provisions of Midland's Articles of Incorporation and Code of
Regulations and of Ohio law make it difficult for a third party to acquire
control of Midland without the consent of the board of directors, even if a
change in control would be beneficial to shareholders. The Articles of
Incorporation allow Midland to issue preferred stock without shareholder
approval. Any series of preferred stock will likely be senior to the common
stock regarding the payment of dividends and the rights of shareholders upon the
dissolution of Midland. Issuances of preferred stock could make it more
difficult for a third party to acquire Midland. See the section of this
prospectus entitled "Description of Capital Stock" on page 51.

OUR SUBSIDIARIES MAY BE UNABLE TO PAY DIVIDENDS

Midland and AMIG are organized as holding companies. Almost all of their
operations are conducted by subsidiaries. For Midland to pay dividends to its
shareholders and meet its other obligations Midland must receive management fees
and dividends from AMIG and its other subsidiaries. In order for AMIG to pay
dividends and management fees to Midland and meet its other obligations, AMIG
must receive dividends and management fees from its subsidiaries.

Payments of dividends by our insurance subsidiaries is regulated under
state insurance laws. The regulations in the states where each insurance company
subsidiary is domiciled limit the amount of dividends that can be paid without
prior approval from state insurance regulators. Without regulatory approval, the
maximum amount of dividends that can be paid in 1999 to AMIG is approximately
$21 million. The maximum dividend permitted by law does not necessarily indicate
an insurer's actual ability to pay dividends. The actual ability to pay
dividends may be further constrained by business and regulatory considerations,
such as the impact of dividends on surplus, that could affect an insurer's
ratings, competitive position, the amount of premium that can be written and its
ability to pay future dividends. In addition, state regulators have broad
discretion to limit the payment of dividends by insurance companies. A
prolonged, significant decline in insurance subsidiary profits or regulatory
action limiting dividends could subject us to shortages of cash because our
subsidiaries will not be able to pay us dividends.

WE MAY BE UNABLE TO REINSURE INSURANCE RISKS

AMIG uses reinsurance to attempt to limit the risks associated with its
insurance products. The availability and cost of reinsurance are subject to
prevailing market conditions. Poor conditions in the reinsurance market could
cause AMIG to reduce its volume of business and impact its profitability. If any
of AMIG's reinsurers can not pay their reinsurance obligations, AMIG will still
have to pay losses to its insureds.

OUR LOSS RESERVES MAY BE INADEQUATE

AMIG's insurance subsidiaries regularly establish reserves to cover their
estimated liabilities for losses and loss adjustment expenses for both reported
and unreported claims. These reserves do not represent an exact calculation of
liabilities. Rather, these reserves are management's estimates of the cost to
settle and administer claims. These expectations are based on facts and
circumstances known at the time, predictions of future events, estimates of
future trends in the severity and frequency of claims and judicial theories of

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liability and inflation. Actual losses for a particular period significantly in
excess of AMIG's reserves for the period could have a material adverse effect on
our financial condition or results.

REGULATORY ACTIONS COULD IMPAIR OUR BUSINESS

AMIG's insurance subsidiaries are subject to regulation under the insurance
laws of states in which they operate. These laws provide safeguards for
policyowners. They are not intended to protect the interests of shareholders.
Regulation and supervision of each insurance subsidiary is administered by a
state insurance commissioner. State insurance commissioners have broad statutory
powers to grant and revoke licenses, approve premium rates, forms of insurance
contracts and types and amounts of business which an insurance company may
conduct in light of its statutory capital and surplus. The statutes of most
states provide for filing premium rate schedules and other information with the
insurance commissioner, either directly or through rating organizations.
Insurance commissioners generally have the authority to disapprove filings.
Insurance commissioners can also make changes to rates if rates are found to be
excessive, inadequate or unfairly discriminatory. The determination of rates is
based on various factors, including loss and loss adjustment expense experience.
The failure to obtain, or delay in obtaining, the required approvals from
applicable departments of insurance could have a material adverse effect on the
operations of AMIG's insurance subsidiaries.

The National Association of Insurance Commissioners has adopted a number of
model laws and regulations which apply to both life and property and casualty
insurance companies. One model law attempts to ensure that all insurance
companies have acceptably low expectations of becoming financially impaired. The
model law provides for increasing levels of regulatory intervention as the ratio
of an insurer's total adjusted capital and surplus decreases relative to its
capital which is at risk. A state insurance department can take control of an
insurance company domiciled in that state if the ratio is too low. Based on 1998
results, all of AMIG's insurance subsidiaries exceed the minimum applicable
risk-based capital calculations.

AMIG'S INSURANCE RATINGS MAY BE DOWNGRADED

Insurance companies are rated based on their ability to pay claims and on
their financial strength. Ratings have become an increasingly important factor
in establishing the competitive position of insurance companies. Ratings are
based upon factors relevant to policyholders. Ratings are not directed toward
protecting shareholders. Rating agencies periodically review their ratings.
There can be no assurance that current ratings will be maintained in the future.
A.M. Best has given a group rating of "A (Excellent)" to AMIG and its property
and casualty insurance subsidiaries and has given ratings of "B++ (Very Good)"
to AMIG's credit life insurance companies. In particular, financial
institutions, including banks and credit unions, are sensitive to ratings and
may discontinue using an insurance company if the insurance company is
downgraded. Downgrades in the ratings of AMIG's insurance company subsidiaries
could have a material adverse effect on our financial condition or results.

OUR INDUSTRY IS HIGHLY COMPETITIVE

The specialty insurance lines operated by AMIG are highly competitive. AMIG
competes with national and regional insurers, many of whom have greater
financial and

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marketing resources than AMIG. The types of insurance coverages that AMIG sells
are often a relatively small portion of the business placed by some of AMIG's
competitors. Competition in the insurance industry has intensified in recent
years as the industry has consolidated. Continuing consolidation in the
insurance industry could cause those seeking insurance to choose companies other
than AMIG and its subsidiaries which may have a material adverse effect on our
financial condition or results.

WE, OR SOME OF OUR BUSINESS PARTNERS, MAY FAIL TO BECOME YEAR 2000 COMPLIANT

Much computer hardware and software was designed with a two digit field to
represent the year. Some of this hardware and software may not recognize the
designation "00" as the designation for the year 2000. This could cause
computers to calculate erroneous data or shutdown entirely. In 1998, we
established a work plan to deal with the Year 2000 issue. We have, generally,
met the schedule established by that work plan. The financial impact to us in
connection with Year 2000 issues has not, and is not anticipated, to affect
materially our results of operations. However, our failure, or our distributors'
or vendors' failure, to become Year 2000 compliant may have a material adverse
effect on our financial condition or results. See the section of this prospectus
entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" on page 24.

IMPLEMENTATION OF PENDING LEGISLATION COULD AFFECT OUR RESULTS

The Banking Committees of the U.S. Senate and House of Representatives
recently have approved different versions of bills that would modernize the
financial services industry. If either bill or similar proposals become law,
banking and securities firms would be allowed to affiliate with insurance
companies. The bills also address the possible sale of insurance by banks. Such
changes in the insurance industry could have a material adverse impact on our
financial condition or results.

WE ARE SUBJECT TO VARIOUS LITIGATION

AMIG's insurance subsidiaries are routinely involved in litigation which
arises in the ordinary course of business. It is possible that a court could
impose significant punitive, bad faith, extra-contractual or other extraordinary
damages against AMIG or one of its subsidiaries. This could have a material
adverse effect on our financial condition or results.

In addition, a substantial number of civil jury verdicts have been returned
against insurance companies in several jurisdictions in the United States,
including jurisdictions in which we do business. Some of these verdicts have
resulted from suits which allege improper sales practices, agent misconduct,
failure to properly supervise agents and other matters. Increasingly these
lawsuits have resulted in the award of substantial judgments against insurance
companies. Some of these judgments have included punitive damages that are
disproportionate to the actual damages.

M/G Transport Services, Inc. was subject to a nine-count criminal
indictment in February, 1995 alleging violations of certain environmental laws.
M/G Transport Services, Inc. was, initially, found guilty on eight of the nine
counts. As a result of the guilty verdicts against it, M/G Transport Services,
Inc. could have been fined up to $3.7 million. M/G Transport Services, Inc.
filed a motion to dismiss those eight counts. The court dismissed six of the
eight counts against M/G Transport Services, Inc. In October 1997,

11
<PAGE> 13

M/G Transport Services, Inc. was fined $250,000 and placed on two years'
probation on the two remaining counts. The United States appealed the dismissal
of the six counts, and on April 22, 1999, a three judge panel of the Sixth
Circuit Court of Appeals issued an opinion which reversed the earlier ruling of
the trial court which had dismissed six of the eight counts against M/G
Transport Services, Inc. and several counts against individual defendants
formerly employed by M/G Transport Services, Inc. All of the verdicts against
M/G Transport Services, Inc. on the six counts which had been dismissed by the
trial court were reinstated by the Court of Appeals. Although we do not believe
that any resulting penalties could have a material adverse effect on our
financial condition or results, there can be no such assurance. See the section
of this prospectus entitled "Business -- Legal Proceedings" on page 45.

USE OF PROCEEDS

Midland is selling 1,170,000 shares of common stock. Midland would receive
net proceeds of approximately $ million (approximately $ if the
underwriters' over-allotment option is exercised in full) based on an offering
price of $ per share of common stock. These proceeds are calculated by
deducting the underwriting discount and estimated offering expenses. Midland
expects to use the proceeds to increase the capital and surplus and fund future
growth of its insurance subsidiaries, to repay a portion of Midland's and AMIG's
current debt and for other general corporate purposes which may include
investments or acquisitions in Midland's current lines of business or extensions
of Midland's current lines of business. AMIG expects to repay approximately $10
million of the $20 million currently outstanding under a revolving credit
facility which bears a weighted average interest rate at March 31, 1999 of
approximately 6.03%. Midland also expects to repay approximately $7 million of
unsecured, short-term borrowings bearing a weighted average interest rate of
5.34%. Although Midland routinely seeks and discusses potential acquisitions
that would complement its existing business, Midland is not currently engaged in
negotiations related to material investments or acquisitions.

Midland will not receive any proceeds from the sale of common stock by the
selling shareholders.

12
<PAGE> 14

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The common stock is listed on the American Stock Exchange under the symbol
"MLA." Midland has applied to list the common stock on the Nasdaq National
Market under the symbol "MLAN." The following table sets forth the high and low
sales prices for the common stock as reported on the American Stock Exchange for
the periods indicated and reflects the 3-for-1 split of the common stock which
occurred on May 21, 1998:

<TABLE>
<CAPTION>
HIGH LOW CASH DIVIDENDS
------ ------ --------------
<S> <C> <C> <C>
1997:
First quarter............................... $14.75 $12.42 $0.0583
Second quarter.............................. 16.67 12.67 0.0583
Third quarter............................... 19.17 16.42 0.0583
Fourth quarter.............................. 21.50 19.04 0.0583
1998:
First quarter............................... 27.13 19.42 0.0625
Second quarter.............................. 31.67 22.88 0.0625
Third quarter............................... 30.75 22.50 0.0625
Fourth quarter.............................. 22.50 20.00 0.0625
1999:
First quarter............................... 27.75 22.38 0.0675
Second quarter (through May ).............
</TABLE>

On May , 1999, the last reported sale price of the common stock on the
American Stock Exchange was $ per share.

Midland's Board of Directors has historically followed a policy of
declaring quarterly cash dividends on each share of the common stock. For 1997,
Midland paid quarterly cash dividends of $0.0583 per share, and in 1998 Midland
paid a quarterly dividend of $0.0625 per share. On January 28, 1999, Midland
increased its quarterly dividend to $0.0675 per share. On April 29, 1999,
Midland declared a $0.0675 per share dividend payable on July 6, 1999, to
shareholders of record on June 18, 1999.

Holders of common stock are entitled to receive dividends declared by
Midland's Board of Directors. Midland currently intends to continue to pay
quarterly cash dividends on its common stock. However, Midland cannot assure you
that it will not change its dividend policy after the offering. Whether Midland
declares and pays dividends after the offering will depend upon business
conditions, operating results, capital and reserve requirements and the Board of
Directors' consideration of other relevant factors. Midland is a legal entity
separate and distinct from its subsidiaries and its revenues depend in
significant part on the payment of dividends and fees from its subsidiaries.
AMIG's insurance company subsidiaries are subject to certain legal restrictions
on the amount of dividends they are permitted to pay. See the section of this
prospectus entitled "Risk Factors -- Our Subsidiaries May Be Unable to Pay
Dividends" on page 9.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of Midland as of March
31, 1999 on an actual basis and on an as adjusted basis to reflect the issuance
of the 1,170,000 shares of common stock to be sold by Midland in this offering,
after deducting underwriting discounts and commissions and estimated offering
expenses. You should read this table in conjunction with Midland's consolidated
financial statements and notes included elsewhere in this prospectus. Also, see
the sections of this prospectus entitled "Selected Financial Data" on page 15
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 17.

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable within one year:
Banks................................................. $ 7,000 $
Commercial paper...................................... 6,742
-------- --------
Total......................................... 13,742
--------
Long-term debt:
Insurance obligations................................. 20,000
Real estate obligations............................... 26,472
Equipment obligations................................. 7,121
Obligations under capital leases...................... 113
-------- --------
Total......................................... 53,706
--------
Shareholders' equity:
Preferred stock; 500,000 shares authorized; no shares
issued or outstanding.............................. -- --
Common stock, 20,000,000 shares authorized; 9,515,249
shares issued and outstanding; 10,685,249 shares
issued and outstanding, as adjusted(1)............. 911
Additional paid-in capital............................ 17,385
Accumulated other comprehensive income................ 66,217
Retained earnings..................................... 185,615
Unvested restricted stock awards...................... (4,027)
Treasury stock, at cost............................... (15,097)
-------- --------
Total shareholders' equity....................... 251,004
-------- --------
Total capitalization.......................... $318,452 $
======== ========
</TABLE>

- ---------------

(1) Excludes 1,128,500 shares of common stock authorized for future option
awards or stock options at March 31, 1999. Also excludes 276,450 additional
shares of common stock reserved for issuance for stock options outstanding
at March 31, 1999.

14
<PAGE> 16

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data of
Midland at and for the year ended December 31, 1994 through 1998 and at and for
the quarter ended March 31, 1998 and 1999. The financial data for 1994 through
1998 are derived from financial statements audited by Deloitte & Touche LLP,
independent certified public accountants. The selected consolidated statement of
operations data for the quarters ended March 31, 1998 and 1999 and the balance
sheet data at March 31, 1998 and 1999 are derived from unaudited financial
statements and include adjustments, consisting only of normal recurring
adjustments, that Midland considers necessary for a fair presentation of the
financial information for these periods. Revenues and operating results for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. You should read this table
with the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 17. This
table is a summary and is qualified by reference to the consolidated financial
statements and notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AT AND FOR THE
QUARTER ENDED
MARCH 31, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Insurance:
Premiums earned...................... $ 98,137 $ 90,479 $375,478 $311,159 $280,614 $263,006 $206,339
Net investment income................ 6,071 5,842 23,908 21,332 18,269 16,107 10,090
Net realized investment gains........ 1,070 1,039 6,354 4,170 2,690 2,373 2,189
Other insurance income............... 746 485 2,508 1,557 1,602 618 844
Transportation(1)...................... 7,927 9,237 33,059 34,933 34,064 30,371 53,163
Other.................................. 133 155 1,055 617 499 752 858
-------- -------- -------- -------- -------- -------- --------
Total............................ 114,084 107,237 442,362 373,768 337,738 313,227 273,483
Costs and Expenses:
Insurance:
Losses and loss adjustment
expenses........................... 48,382 48,121 210,015 171,163 172,426 136,211 113,096
Commissions and other policy
acquisition costs.................. 30,005 25,513 103,169 79,518 81,533 80,520 64,557
Operating and administrative
expenses........................... 14,867 14,855 54,309 49,118 41,355 39,475 26,103
Transportation operating expenses(1)... 7,688 8,150 28,287 30,079 31,163 28,033 47,820
Interest expense....................... 1,062 1,257 4,991 4,983 4,829 3,037 3,800
Other operating and administrative
expenses............................. 995 757 4,064 4,204 3,115 3,462 2,807
-------- -------- -------- -------- -------- -------- --------
Total............................ 102,999 98,653 404,835 339,065 334,421 290,738 258,183
-------- -------- -------- -------- -------- -------- --------
Income from Continuing Operations before
Federal Income Tax..................... 11,085 8,584 37,527 34,703 3,317 22,489 15,300
Provision (Credit) for Federal Income
Tax.................................... 3,225 2,544 10,595 10,336 (426) 6,441 3,663
-------- -------- -------- -------- -------- -------- --------
Income from Continuing Operations........ 7,860 6,040 26,932 24,367 3,743 16,048 11,637
Loss from Discontinued Operations(2)..... -- -- -- (6,817) (2,675) (6,496) (2,218)
-------- -------- -------- -------- -------- -------- --------
Net Income............................... $ 7,860 $ 6,040 $ 26,932 $ 17,550 $ 1,068 $ 9,552 $ 9,419
======== ======== ======== ======== ======== ======== ========
Basic Earnings (Loss) per Share:
Continuing Operations.................. $ 0.86 $ 0.67 $ 2.99 $ 2.72 $ 0.42 $ 1.81 $ 1.31
Discontinued Operations................ -- -- -- (0.76) (0.30) (0.73) (0.25)
-------- -------- -------- -------- -------- -------- --------
Total............................ $ 0.86 $ 0.67 $ 2.99 $ 1.96 $ 0.12 $ 1.08 $ 1.06
======== ======== ======== ======== ======== ======== ========
Diluted Earnings (Loss) per Share:
Continuing Operations.................. $ 0.83 $ 0.64 $ 2.86 $ 2.63 $ 0.41 $ 1.74 $ 1.27
Discontinued Operations................ -- -- -- (0.74) (0.29) (0.70) (0.24)
-------- -------- -------- -------- -------- -------- --------
Total............................ $ 0.83 $ 0.64 $ 2.86 $ 1.89 $ 0.12 $ 1.04 $ 1.03
======== ======== ======== ======== ======== ======== ========
Cash Dividends per Share................. $ 0.07 $ 0.06 $ 0.25 $ 0.23 $ 0.22 $ 0.21 $ 0.19
</TABLE>

15
<PAGE> 17

BALANCE SHEET DATA:

Total Invested Assets.................... $576,317 $496,615 $593,857 $504,106 $403,804 $373,275 $282,116
Total Assets............................. 822,430 747,669 837,220 760,463 655,979 600,905 479,497
Total Debt............................... 67,448 71,691 76,085 92,309 95,170 101,076 74,637
Unearned Premiums........................ 259,054 236,309 255,115 240,340 208,417 190,948 158,316
Loss Reserves............................ 125,893 126,733 125,496 120,134 95,830 68,347 57,715
Shareholders' Equity..................... 251,004 206,081 248,832 197,026 159,688 156,595 132,437

Book Value Per Share..................... $ 26.38 $ 22.16 $ 26.61 $ 21.11 $ 17.50 $ 17.28 $ 14.73
Common Shares Outstanding................ 9,515 9,301 9,352 9,334 9,126 9,060 8,991

OTHER DATA:
AMIG'S PROPERTY AND CASUALTY OPERATIONS:
Direct and Assumed Written Premium....... $103,802 $100,529 $446,248 $423,964 $387,165 $376,330 $275,509
Net Written Premium...................... 99,177 90,060 391,770 342,711 290,355 285,306 235,821

GAAP Ratios:
Loss and Loss Adjustment Expense Ratio... 49.4% 53.3% 56.1% 55.1% 61.8% 52.0% 55.0%
Underwriting Expense Ratio............... 45.1 41.9 40.8 40.7 42.5 45.2 43.5
-------- -------- -------- -------- -------- -------- --------
Combined Ratio........................... 94.5% 95.2% 96.9% 95.8% 104.3% 97.2% 98.5%
Statutory Capital and Surplus............ $216,096 $175,467 $217,091 $164,128 $124,131 $113,189 $ 89,910
Net Written Premium to Statutory Surplus
Ratio.................................. -- -- 1.8x 2.1x 2.3x 2.5x 2.6x

AMIG'S CREDIT LIFE OPERATIONS:
Direct and Assumed Written Premium....... $ 2,806 $ 2,730 $ 12,294 $ 10,996 $ 11,939 $ 12,444 $ 8,976
Net Written Premium...................... 2,046 2,027 8,757 6,509 5,740 6,502 4,527

Statutory Capital and Surplus............ 10,930 9,537 10,556 9,272 8,145 7,635 7,500

M/G TRANSPORT'S TRANSPORTATION
OPERATIONS(1):
Net Revenues............................. $ 7,927 $ 9,237 $ 33,059 $ 34,933 $ 34,064 $ 30,371 $ 53,163
Net Income............................... 110 828 2,994 3,126 1,938 1,585 2,000
Total Assets............................. 35,462 41,409 41,576 44,544 41,458 48,375 52,534
Shareholders' Equity..................... 19,185 18,830 19,075 19,081 15,658 34,219 32,736
</TABLE>

- ---------------

(1) M/G Transport sold approximately 66% of its assets in December 1994.

(2) On September 29, 1997, Midland's sportswear subsidiary sold substantially
all of its assets to Brazos, Inc., a subsidiary of Brazos Sportswear, Inc.
These assets were sold for approximately $13.3 million in cash resulting in
an after-tax loss on the disposal of approximately $3.3 million.

(3) Represents income from continuing operations excluding net realized
investment gains or losses, net of federal income taxes.

16
<PAGE> 18

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

LINES OF BUSINESS AND REPORTABLE SEGMENTS

The discussions of Results of Operations and Liquidity and Capital
Resources are grouped according to Midland's two primary lines of business
(insurance and
transportation) and three reportable segments (manufactured housing insurance,
other insurance and transportation). A description of the operations of each of
these lines, along with a brief discussion of Discontinued Operations, is
included below.

INSURANCE

Midland's specialty insurance operations are conducted through AMIG, a
wholly owned subsidiary of Midland and a holding company for six property and
casualty insurance companies, two credit life insurance companies and two
licensed insurance agencies. Other subsidiaries of AMIG offer warranty products
and operate Ameritrac, AMIG's proprietary loan and lease tracking service. AMIG
is licensed, through its subsidiaries, to write insurance in all 50 states and
the District of Columbia. The majority of AMIG's business relates to physical
damage insurance and related coverages on manufactured homes, generally written
for a term of 12 months with coverages similar to conventional homeowner's
insurance policies. Other insurance products include lower valued homes,
dwelling fire, homeowners, mortgage fire, collateral protection, watercraft,
long-haul truck, commercial park and dealer, excess and surplus lines, specialty
auto and extended service contracts.

TRANSPORTATION

M/G Transport operates a barge chartering and freight brokerage business.
M/G Transport arranges for the movement of dry bulk commodities such as
petroleum coke, ores, barite, fertilizers, sugar and other dry cargos primarily
on the Gulf Coast and the lower Mississippi River and its tributaries.

DISCONTINUED OPERATIONS

On September 29, 1997, Midland's sportswear subsidiary sold substantially
all of its assets to Brazos, Inc., a subsidiary of Brazos Sportswear, Inc. These
assets were sold for approximately $13.3 million in cash resulting in an
after-tax loss on the disposal of approximately $3.3 million. The cash proceeds
from this transaction were primarily used to reduce Midland's short-term bank
borrowings. The results of operations and the related loss on disposal for these
operations are categorized in the consolidated financial statements as
"Discontinued Operations" and are reported separately from continuing
operations. Management does not expect any future activity in regard to this
subsidiary to have a material impact on the consolidated financial results of
Midland and there have been no financial results reported from this discontinued
subsidiary since the date of sale.

17
<PAGE> 19

QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998

INSURANCE

Insurance Premiums

Direct and assumed written premiums generated from AMIG's property and
casualty and life insurance subsidiaries increased 3.2% in the first quarter to
$106.6 million from $103.3 million for the same quarter of 1998. Net earned
premiums for the first quarter increased 8.5% to $98.1 million from $90.5
million for the comparable quarter in 1998. The primary factor contributing to
the growth in direct and assumed written premiums was continued volume increases
in manufactured home and related coverages insurance premium. Manufactured home
direct and assumed written premium increased 2.4% to $70.4 million from $68.7
million for the same quarter of 1998. The increase in net earned premiums is
primarily the result of both the growth in written premium and Midland's
decision to cede less written business to reinsurers.

Investment Income and Realized Capital Gains

AMIG's net investment income (before taxes and excluding capital gains)
increased by approximately 3.9% to $6.1 million in the first quarter of 1999
from $5.8 million for the first quarter of 1998. The increase in investment
income was primarily the result of the continued growth of AMIG's investment
portfolio which resulted, in part, from the investment of positive cash flow
from underwriting activities.

AMIG's after-tax net realized capital gains were approximately $0.7
million, or $0.07 per share (diluted) for the first quarters of 1999 and 1998.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses were $48.4 million in the first quarter
of 1999 and $48.1 million in the first quarter of 1998. These expenses were
consistent from year-to-year primarily because of fewer losses due to
weather-related catastrophes in 1999, which were $4.2 million on a pre-tax
basis, compared to 1998, which were $5.9 million on a pre-tax basis. Excluding
catastrophe losses, the property and casualty combined ratio for the first
quarter was 90.2% compared to 88.5% for the first quarter of 1998.

Commissions, Other Policy Acquisition Costs and Operating and Administration
Expenses

Commissions, other policy acquisitions costs and other operating and
administrative expenses for the first quarter increased 11.1% to $44.9 million
from $40.4 million for the first quarter of 1998. These increases are due
primarily to the continued growth in net earned premiums including the effects
of less offsets for ceded commission income as a result of the decision to cede
less insurance premiums to reinsurers.

Property and Casualty Underwriting Results

AMIG's property and casualty operations generated a pre-tax underwriting
income of $5.3 million for the first quarter of 1999 compared to a pre-tax
underwriting income of $4.2 million for the same quarter in 1998. For the
quarter, AMIG's combined ratio (ratio of losses and expenses as a percent of
earned premiums) for its property and casualty business was 94.5% as compared to
95.2% a year ago.

18
<PAGE> 20

TRANSPORTATION

M/G Transport reported pre-tax revenue of $7.9 million in the first quarter
of 1999 compared with $9.2 million in the first quarter of 1998, and pre-tax
operating profits of $0.2 million as compared to $1.2 million. These decreases
are the result of lower prices for petroleum products which have affected
shipping patterns. Management anticipates that these factors will continue to
adversely impact M/G Transport's operating profit for the balance of 1999. Net
income from M/G Transport contributed $0.1 million, or $0.01 per share
(diluted), in the first quarter of 1999, compared with $0.8 million, or $0.09
per share (diluted), in the first quarter of 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

INSURANCE

Insurance Premiums

Direct and assumed written premiums generated from AMIG's property and
casualty and life insurance subsidiaries for the year ended December 31, 1998
increased 5.4% to $458.5 million from $435.0 million in 1997. Net earned
premiums for the year increased 20.7% to $375.5 million from $311.2 million in
1997. The difference in growth rates between the direct and assumed written
premiums and net earned premiums was due primarily to AMIG's decision to cede
less written business to its reinsurers in 1998 compared to 1997.

The growth in direct and assumed written premiums is primarily the result
of volume increases in manufactured home and related coverages. Manufactured
home and related coverages direct and assumed written premium increased 13.2% to
$297.3 million in 1998 from $262.7 million in 1997. Direct and assumed written
premiums of all other specialty insurance products collectively decreased by
6.4% to $161.2 million in 1998 from $172.3 million in 1997 due, in part, to
AMIG's strategy to exit certain commercial lines programs. Premium rate
increases also contributed to AMIG's overall direct and assumed premium growth,
but to a lesser degree than the aforementioned volume increases.

Investment Income and Realized Capital Gains

AMIG's net investment income (before taxes and excluding net realized
capital gains) increased 12.2% to $23.9 million in 1998 from $21.3 million in
1997. The increase in investment income was primarily the result of the positive
cash flow generated by underwriting activities coupled with the continued growth
of AMIG's investment portfolio. AMIG's investment portfolio increased by $91.5
million to $587 million in market value at December 31, 1998. The portfolio
increase was due primarily to three factors: (1) cash flow from underwriting
activities, (2) investment income and net realized capital gains generated from
the portfolio and (3) unrealized appreciation in the market value of the
securities held. This increase was driven by the relatively strong stock market
in 1998 which caused a significant increase in the value of AMIG's equity
investments, including its investment in the common stock of Firstar Corporation
that increased in market value from $44.6 million at December 31, 1997 to
approximately $72.4 million at December 31, 1998. After-tax net realized capital
gains increased to $4.1 million, $0.44 per share (diluted), in 1998 from $2.7
million, $0.30 per share (diluted), in 1997.

19
<PAGE> 21

Losses and Loss Adjustment Expenses

Insurance losses and loss adjustments expenses increased 22.7% to $210.0
million in 1998 from $171.2 million in 1997. This increase was due primarily to
an increase in the level of weather-related catastrophe losses in 1998 compared
to the prior year and AMIG's decision to cede less written business to its
reinsurers in 1998. Weather-related catastrophe losses amounted to $33.9
million, on a pre-tax basis, representing approximately 9.2 percentage points of
the 96.9% combined ratio (ratio of losses and expenses as a percent of earned
premiums) for the property and casualty operations in 1998. This compares to
weather-related catastrophe losses in 1997 totaling $13.8 million, on a pre-tax
basis, representing approximately 4.5 percentage points of the 95.8% combined
ratio for the property and casualty operations.

Commissions, Other Policy Acquisition Costs and Operating and Administration
Expenses

Commissions, other policy acquisition costs and other operating and
administrative expenses increased 22.5% to $157.5 million in 1998 from $128.6
million in 1997. This increase is due primarily to the continued growth in net
earned premiums.

Property and Casualty Underwriting Results

AMIG's property and casualty operations generated pre-tax underwriting
income of $11.4 million in 1998 compared to $12.9 million in 1997. This equates
to a combined ratio of 96.9% in 1998 compared to 95.8% in 1997.

TRANSPORTATION

Transportation revenues decreased 5.2% to $33.1 million in 1998 from $34.9
million in 1997. This fluctuation was due primarily to decreases in the loadings
of barite, a drilling mud used by the oil industry to lubricate drilling.
Transportation's pre-tax profits amounted to $4.4 million in both 1998 and 1997.
The transportation operations in 1998 generated a 15.7% return on beginning
equity. This compares to a return on beginning equity in 1997 of 19.8%.

DISCONTINUED OPERATIONS

On September 29, 1997, Midland's sportswear subsidiary sold substantially
all of its assets to Brazos, Inc., a subsidiary of Brazos Sportswear, Inc. The
after-tax operating losses and loss on disposal from the discontinued operations
for 1997 amounted to $6.8 million, $0.74 per share (diluted). There have been no
financial results reported from this discontinued subsidiary since the date of
sale.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

INSURANCE

Insurance Premiums

Direct and assumed written premium generated from AMIG's property and
casualty and life insurance operations for the year ended December 31, 1997
increased 9.0% to $435.0 million from $399.1 million in 1996. Net earned
premiums for the year increased by 10.9% to $311.2 million from $280.6 million
in 1996. This premium growth was

20
<PAGE> 22

primarily the result of a volume increase in the premiums for manufactured homes
and related coverages. Manufactured home and related coverages direct and
assumed written premium increased 20.6% to $262.7 million in 1997 from $217.8
million in 1996. Direct and assumed written premium of all other specialty
insurance products collectively decreased by 5.0% to $172.3 million in 1997 from
$181.3 million in 1996 due, in part, to the implementation of AMIG's strategy to
exit certain commercial lines programs. Premium rate increases also contributed
to AMIG's overall direct and assumed premium growth, but to a lesser degree than
the aforementioned volume increases.

Investment Income and Realized Capital Gains

AMIG's net investment income (before taxes and excluding net realized
capital gains) increased by approximately 16.4% to $21.3 million in 1997 from
$18.3 million in 1996. This increase was primarily the result of the growth in
AMIG's investment portfolio. AMIG's investment portfolio increased by $95.6
million to $495.5 million in market value at December 31, 1997. After-tax net
realized capital gains increased to $2.7 million, $0.30 per share (diluted), in
1997 from $1.7 million, $0.19 per share (diluted), in 1996.

Losses and Loss Adjustment Expenses

AMIG's losses and loss adjustments expenses decreased 0.7% to $171.2
million in 1997 from $172.4 million in 1996. Losses decreased (even though net
earned premiums increased by nearly 11%) due to the existence of more favorable
weather patterns throughout the United States in 1997 compared to 1996. Weather
related catastrophe losses represented 4.5 percentage points of the 95.8%
property and casualty combined ratio in 1997 compared to 8.4 percentage points
of the 104.3% property and casualty combined ratio in 1996. The 1996 losses and
loss adjustments expenses were negatively impacted by numerous catastrophic
weather related losses ranging from severe winter storm systems and flooding
during the first part of the year to Hurricanes Fran and Bertha which caused
heavy damage along the eastern United States during the third quarter of 1996.

The decrease in weather related catastrophe losses, however, was partially
offset by loss and loss adjustments expenses reserve strengthening by AMIG in
1997. This strengthening included $5.2 million in loss reserve provisions
related to prior years' reserve development and was in addition to reserves
established for losses in the normal course of business. Such loss reserve
strengthening was deemed necessary as a result of an unfavorable loss
development trend attributable to the commercial lines business. The commercial
lines operation (including both continuing and discontinued programs) incurred
approximately $17.7 million in underwriting losses in 1997 compared to $10.3
million of underwriting losses in 1996. Based on the underwriting results
generated by the commercial products, AMIG made the decision to refocus the
commercial lines division in 1997. As a result, AMIG discontinued numerous
commercial programs and the remaining programs were redesigned in an effort to
improve underwriting profitability and build on synergies between the commercial
and personal lines operations.

Commissions, Other Policy Acquisition Costs and Operating and Administration
Expenses

While the growth in AMIG's written premium resulted in a $5.7 million
increase in underwriting expenses (commission, other policy acquisition and
operating and administrative expenses), the property and casualty underwriting
expense ratio (ratio of underwriting

21
<PAGE> 23

expenses to earned premiums) actually decreased to 40.7% in 1997 from 42.5% in
1996. This improvement was due, in part, to a decrease in litigation related
expenses resulting from the settlement of class action lawsuits in Alabama and
Mississippi. Also contributing to the decrease in the property and casualty
underwriting expense ratio was the fact that commission expenses remained flat
in 1997 compared to 1996, despite the increase in earned premium. This was due
to increases in ceding commissions received by AMIG in 1997 (which are included
in the consolidated financial statements as offsets to commission expenses).

Property and Casualty Underwriting Results

AMIG's property and casualty operations generated pre-tax underwriting
income of $12.9 million in 1997 compared to a pre-tax loss of $11.8 million in
1996. The property and casualty companies' combined ratio improved to 95.8% in
1997 from 104.3% in 1996. As discussed in Losses and Loss Adjustment Expenses
above, the improved underwriting results were primarily the result of favorable
weather patterns in 1997 compared to 1996.

TRANSPORTATION

M/G Transport's revenues increased 2.3% to $34.9 million in 1997 from $34.1
million in 1996. Transportation operating expenses decreased in 1997 compared to
1996 due primarily to a $3.6 million decrease in litigation related expenses.
M/G Transport's net profits improved 63.2% to $3.1 million in 1997 from $1.9
million in 1996.

LIQUIDITY AND CAPITAL RESOURCES

Holding Company Operations

Midland and AMIG are holding companies which rely primarily on dividends
and management fees from their subsidiaries to assist in servicing their debt,
paying their operating expenses and paying dividends to their respective
shareholders. The payment of dividends to these holding companies from AMIG's
insurance subsidiaries is restricted by state regulatory agencies and/or
covenants contained in debt agreements. Such restrictions, however, have not
had, and are not expected to have, a significant impact on the company's or
AMIG's liquidity or their ability to meet their long or short-term operating,
financing or capital obligations.

Midland issues commercial paper, generally below the bank prime borrowing
rates and as of March 31, 1999 has $50 million of conventional short-term credit
lines available at costs generally not exceeding prime borrowing rates.
Additional short-term borrowing lines are available at the discretion of various
lending institutions with comparable rates. Outstanding interest bearing debt,
not allocable to either the insurance or transportation operations, as of March
31, 1999 amounted to approximately $41.3 million. The March 31, 1999 balance of
outstanding interest bearing debt consisted of short-term borrowings on
conventional lines of credit of $7.0 million, $6.7 million in commercial paper
payable to external investors, $1.1 million related to a collateralized
equipment obligation and $26.5 million in mortgage obligations. Any intercompany
investment in parent company commercial paper is eliminated in consolidation.

Cash flows from sales and maturities of marketable securities were used to
decrease the Midland's short-term borrowings from year-end 1998. Shareholders'
equity increased to $251.0 million at March 31, 1999 from $248.8 million at
year-end 1998. This is due to the

22
<PAGE> 24

net income generated in the first quarter of 1999 offset by the decrease in the
accumulated other comprehensive income resulting from a decrease in the market
value of the Midland's investment portfolio. The changes in funds held under
reinsurance agreements and reinsurance payables and deferred insurance policy
acquisition costs are due to changes in the amounts of insurance premiums ceded
to reinsurers under certain reinsurance treaties and the continued growth in
written premiums. The decrease in accumulated other comprehensive income (net
unrealized gains) also resulted in a decrease in deferred federal income tax.

Management expects that cash and other liquid investments, coupled with
future operating cash flows, will be readily available to satisfy Midland's
operating cash requirements for the next twelve months. Midland declared $0.6
million in dividends to its shareholders during the first quarter of 1999. On
April 29, 1999, Midland declared a $0.0675 per share dividend payable on July 6,
1999, to shareholders of record on June 18, 1999.

Capital expenditures, other than for barge acquisitions discussed below,
amounted to $4.9 million in 1998, $7.6 million in 1997 and $4.4 million in 1996.
Midland currently estimates that the level of capital expenditures for 1999 will
be in the range of prior years.

Insurance

AMIG generates cash inflows primarily from insurance premiums, investment
income and proceeds from sales of marketable securities and maturities of fixed
income investment securities. The principal cash outflows for the insurance
operations relate to the payment of claims, commissions, premium taxes,
operating expenses, income taxes and the purchase of marketable securities. In
each of the years presented, funds generated from the insurance operating
activities were used primarily to purchase investment grade marketable
securities, accounting for the majority of the cash used in investing
activities. The insurance products written by AMIG's insurance subsidiaries are
primarily property-related coverages that result in relatively rapid claim
payments. The average maturity and duration of AMIG's fixed income investment
portfolio are approximately 4.6 and 3.8 years, respectively, which management
believes provide adequate asset/liability matching. The gross unrealized
appreciation on AMIG's marketable securities decreased to $91.5 million at March
31, 1999 from $98.0 million at December 31, 1998. AMIG also has a $40 million
long-term credit facility available on a revolving basis at various rates. As of
March 31, 1999, $20 million was outstanding on this credit facility. Cash flow
from the insurance operations is expected to remain sufficient to meet AMIG's
future operating requirements and to provide for reasonable dividends to
Midland. As of December 31, 1998, AMIG's property and casualty statutory surplus
was $217.1 million resulting in a premium to surplus ratio of 1.8 for the year
ended December 31, 1998.

Transportation

M/G Transport generates its cash inflows primarily from affreightment
revenue. The primary outflows of cash relate to the payment of barge charter
costs, debt service obligations, operating expenses, income taxes and the
acquisition of capital equipment. Like the insurance operations, cash flow from
the transportation operations is expected to remain sufficient to meet future
operating requirements while providing for reasonable dividends to Midland.

23
<PAGE> 25

The transportation subsidiaries acquired 41 barges in 1997 and 25 barges in
1996. The total collective cost of these 66 barges was approximately $18.1
million. As consideration for these acquisitions, M/G Transport exchanged four
of its towboats in 1996 and paid $11.9 million in 1997. These acquisitions were
financed primarily with internally generated capital and short-term bank
borrowings. There were no barge acquisitions during 1998. M/G Transport has
committed to acquiring 20 new steel roll-top barges to be delivered in the third
quarter of 1999. The total cost of these barges will be approximately $6.1
million. This acquisition, along with any additional acquisitions, will likely
be accomplished through a combination of internally financed funds, external
borrowings or lease transactions. As of March 31, 1999, the transportation
subsidiaries had $6.2 million of collateralized equipment obligations
outstanding.

YEAR 2000 COMPLIANCE

The Year 2000 Issue

The Year 2000 issue arises from the common computer programming convention
of using a two digit shorthand to represent a calendar year (i.e., "99" means
1999). Some computer systems and embedded chips may not recognize the entry "00"
as the two digit shorthand for calendar year 2000. This could lead to erroneous
results or, in the worst case, to system shutdowns.

Status of Midland's Response to the Year 2000 Issue

Midland's information systems staff began preparing for the Year 2000 issue
as early as 1992. Since that time, Midland has been upgrading and replacing its
computer hardware and software systems. These upgrades and replacements have
been driven by non-Year 2000 related business requirements. Midland believes
that all of its mission-critical, internal computer hardware and software
systems are now Year 2000 compliant.

Midland has developed a comprehensive Year 2000 work plan to deal with the
Year 2000 issue. As of March 31, 1999, Midland, with minor exceptions, had met
the schedule established in its Year 2000 work plan.

Midland's Year 2000 work plan consists of five phases: (1) awareness,
(2) assessment, (3) remediation, (4) testing and (5) implementation. The
awareness and assessment phases of its Year 2000 work plan are ongoing but have
been substantially completed. Remediation, testing and implementation have been
completed for all of Midland's internal mission-critical systems.

During the awareness phase, Midland formed a multi-disciplinary task force
to address the Year 2000 issue, defined the Year 2000 issue, obtained executive
level support, and educated Midland personnel, customers, suppliers and
policyholders concerning the Year 2000 issue and its potential effects on
Midland. Education efforts are ongoing.

During the assessment phase Midland collected a comprehensive list of
internal items (e.g., computer hardware and software, other equipment with
embedded chips, services and products provided by others to Midland, etc.) that
might be affected by Year 2000 issues. Midland also identified critical business
relationships that might be affected by the Year 2000 issue (e.g., customers,
vendors, suppliers, etc.). Midland then evaluated these items and business
relationships to determine whether they faced Year 2000 Issues and

24
<PAGE> 26

what effect they would have on Midland if they failed due to Year 2000 issues.
Midland continues to try to identify potential Year 2000 issues.

During the remediation phase Midland analyzed the items that are affected
by Year 2000 issues, identified problem areas and remediated those items.
Similarly, during the remediation phase, Midland continues to communicate and
work with its critical business relationships to help them understand and
remediate their Year 2000 issues.

During the testing phase Midland thoroughly tested all installed
remediation to critical internal systems. Testing included present and forward
date testing which simulated critical dates in the Year 2000. Midland believes
it has successfully tested all of its critical internal systems and will attempt
to verify Year 2000 compliance of its critical business relationships.

During the implementation phase Midland placed all items that had been
remediated and successfully tested into use.

Successful completion of Midland's Year 2000 work plan is expected to
significantly reduce Midland's level of uncertainty about Year 2000 issues, and,
in particular, about the Year 2000 compliance and readiness of its material
business relationships. Midland believes that with the implementation of its new
computer hardware and software and completion of its Year 2000 work plan as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.

Risks

Midland believes that its internal mission critical computer hardware and
software and other mission critical equipment is substantially Year 2000
compliant. Midland believes, based on responses it has received to date, that
its significant business partners, including vendors, suppliers (including
suppliers of utilities) and customers, will be Year 2000 compliant before
December 31, 1999. If Midland's Year 2000 work plan has failed to identify or
correct Year 2000 issues in Midland's mission critical computer hardware and
software or other equipment, Midland might not be able to communicate with
and/or provide services to suppliers, customers and policyholders until
corrective measures have been taken. Under such a worst case scenario, Midland
might not be able to process policy applications and collect premium revenue or
conduct normal operations for some period of time. If corrective actions cannot
be taken in a timely fashion, this could have a material adverse affect on
Midland's financial condition or results of operations.

Sustained Year 2000 failures by certain of Midland's vendors and suppliers
(especially suppliers of utility services such as electric and telephone) could
have similar consequences for Midland. Midland cannot currently predict the
impact of the Year 2000 issue on its customers. However, sustained Year 2000
failures by customers which, in the aggregate, provide a material portion of
Midland's revenues could materially reduce cash flow available to Midland. This,
in turn, could have a material adverse affect on Midland's financial condition
or results of operations.

Contingency Plans

Midland has prepared internal Year 2000 contingency plans to deal with
business failures in its operations brought about by Year 2000 issues.
Contingency planning includes plans for alternative processing of business from
customers who experience disruptions due

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<PAGE> 27

to the Year 2000 issue. Midland's internal contingency plan involves invoking
existing disaster recovery plans where appropriate. Midland is currently
discussing contingency planning with significant customers.

Cost of the Year 2000 Issue

Based upon currently available information, Midland estimates that the
total cost of implementing its Year 2000 work plan will be less than $1.0
million. This estimate does not include costs associated with converting
Midland's mainframe operating system but does include an allocation of internal
costs (i.e. salaries) dedicated to the Year 2000 work plan. As discussed above,
the migration to Midland's new mainframe system was made, primarily, to address
specific business needs rather than to address the Year 2000 issue. The cost
estimate, however, does include all activities undertaken on Year 2000 related
matters across Midland including activities pursued as part of all five phases
of Midland's Year 2000 work plan. Through March 31, 1999, Midland had expended
approximately $0.7 million on the Year 2000 work plan. The majority of the
remaining costs are expected to be directed primarily towards testing and
contingency planning activities. These costs have been, and will continue to be,
funded through operating cash flow and are expensed generally in the period in
which they are incurred.

IMPACT OF INFLATION

Management does not consider the impact of the change in prices due to
inflation to be material in the analysis of Midland's overall operations.

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<PAGE> 28

BUSINESS

GENERAL

Midland, through its operating subsidiaries, provides specialty insurance
products and river transportation services. American Modern Insurance Group or
AMIG, is a leading provider of specialty property and casualty insurance
products to the manufactured housing market. AMIG's revenues accounted for more
than 90% of Midland's revenues in 1998. AMIG is a holding company for six
property and casualty insurance companies, two credit life insurance companies
and two licensed insurance agencies. Midland also provides transportation
services through M/G Transport which operates a fleet of approximately 350 dry
hopper barges and brokers freight for the movement of commodities along the
lower Mississippi River. At March 31, 1999, Midland had total assets of
approximately $822.4 million and shareholders' equity of approximately $251.0
million.

AMIG is one of the largest specialty providers of property and casualty
insurance products to the manufactured housing market. During 1998, AMIG had
direct and assumed written premiums of $458.5 million, of which $330.6 million
related to the manufactured housing market. AMIG's 30 years of experience
providing insurance coverage to the manufactured housing market, and Midland's
prior experience as a vertically integrated manufacturer, retailer and financier
of manufactured homes, provides it with in-depth knowledge and expertise in this
market. In recent years, AMIG has introduced a number of new products that are
supported by this knowledge of the manufactured housing, retail dealership and
consumer finance markets. AMIG, through one or more of its insurance company
subsidiaries, is currently licensed in all 50 states and the District of
Columbia. A.M. Best has given a group rating of "A (Excellent)" to AMIG and its
property and casualty insurance subsidiaries and has given ratings of "B++ (Very
Good)" to AMIG's credit life insurance subsidiaries. As of March 31, 1999, AMIG
had approximately 964,000 policies in force.

During the past five years, Midland has taken a series of steps to focus
its operations on certain core insurance markets where Midland believes it has a
competitive advantage.

<TABLE>
<S> <C>
- DECEMBER 1994: Midland restructured its transportation operations to
focus on a select niche within the river
transportation market.
- 1995 TO 1998: Midland strengthened the management team at AMIG. AMIG
added seven individuals to its senior management team.
The 13 members of AMIG's executive committee now have
over 350 years of combined experience in the insurance
industry.
- SEPTEMBER 1997: Midland exited the sportswear industry by selling
substantially all of the assets of its sportswear
subsidiary for $13.3 million in cash. From 1995 to
1997, this subsidiary produced aggregate after-tax
losses, including loss on disposal, of approximately
$16 million.
- 1997 TO 1998: AMIG exited certain commercial insurance lines that
failed to meet its profitability targets.
</TABLE>

Midland was founded in 1938 by the late J.P. Hayden and H.R. LaBar. Since
that time, members of the Hayden and LaBar families have been actively involved
in the management of Midland's operations. Members of the Hayden and LaBar
families have a

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<PAGE> 29

beneficial interest in approximately 62% of Midland's common stock before the
offering and will have a beneficial interest in approximately 50% of the common
stock after the offering. Members of the Hayden and LaBar families will sell
550,000 shares of Midland common stock through the offering.

INSURANCE COMPANY OPERATIONS

OPERATING STRATEGY

AMIG's strategy is to focus on selected specialty insurance markets in
which it believes it can create a sustainable competitive advantage through its
in-depth knowledge of the products, customers and channels of distribution
within such markets. AMIG seeks to differentiate itself within its selected
markets by designing products tailored to the specific needs of its targeted
customer base and by providing higher levels of customer service than its
competitors. As part of this strategy, AMIG also seeks to develop long-term
relationships with its agents and other distributors by offering value-added
products and highly responsive service. Management believes that by targeting
selected specialty insurance markets, AMIG can achieve consistent growth while
achieving above-average underwriting profits. The principal elements of AMIG's
operating strategy are as follows:

Focus on Specialty Markets. AMIG focuses on specialized lines of
insurance in which AMIG expects that its particular expertise in
evaluating, pricing and servicing risks will give it a competitive
advantage. AMIG has traditionally focused on providing physical damage
property insurance to the manufactured housing market. AMIG believes that
Midland's past experience in manufacturing, retailing and financing
manufactured housing, as well as its thirty-year history of providing
insurance to the manufactured housing industry, provide it with a
significant competitive advantage in this niche market. In recent years,
AMIG sought to leverage its knowledge of the manufactured housing, retail
dealership and consumer finance markets by introducing additional specialty
products that targeted these markets and which can be distributed through
AMIG's existing distribution channels. Such products include commercial
coverage for manufactured housing dealerships and parks, property coverage
for lower-valued dwellings and watercraft, extended warranty and service
contracts for manufactured housing, and collateral protection and mortgage
fire products sold to financial institutions and their customers.

Diversified Distribution Channels. An important element of AMIG's
strategy is its ability to employ multiple channels of distribution in
marketing its specialty insurance products. AMIG's current sources of
premium production include the lender channel, the dealer channel, the
wholesale agency channel, the retail agency channel, the commercial agency
channel and the bank and credit union channel. For more information see the
section of this prospectus entitled "-- Channels of Distribution" on page
31. AMIG believes its use of multiple distribution channels gives it a
competitive advantage by offering a greater diversification of risk
exposure and by allowing AMIG to segment its markets and design products
targeted to selected risk classes within each market.

Disciplined Underwriting. AMIG employs a highly disciplined approach
to underwriting. AMIG designs and prices its products with the goal of
achieving consistently profitable underwriting results. AMIG reviews
pricing on product-by-product and state-by-state bases every twelve to
twenty-four months to ensure

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<PAGE> 30

products are meeting AMIG's targeted profitability levels. AMIG also
employs a multiple company structure that allows it to develop products for
specific markets sold by individual insurance companies. AMIG's
underwriting experience has produced a combined ratio averaging 97.7% over
the past ten calendar years.

Claims Management Expertise. A key component of AMIG's strategy is to
provide policyholders with timely and accurate claims handling. To
accomplish this goal, AMIG has developed a claims management infrastructure
that includes over 145 in-house claims adjusters located strategically
throughout the United States. For its personal lines claims, AMIG seeks to
settle 85% of property claims within 30 days. AMIG believes that its
internal claims handling capabilities result in greater customer
satisfaction and improved underwriting results.

Catastrophe Management. AMIG employs a variety of practices to monitor
and manage its exposure to weather-related catastrophe losses. AMIG seeks
to geographically diversify its insurance exposures in order to spread the
financial risk and impact of major weather-related catastrophes. Currently,
only one state accounts for more than 10% of net written premium volume. In
addition, AMIG carefully monitors risks in ocean front, gulf coast and
adjacent counties. In accordance with standard industry practices for
exposure management, AMIG utilizes modeling techniques to monitor the
location of its outstanding policies on a monthly basis and utilizes
reinsurance programs to minimize the impact of large catastrophic events.

Development of Fee-Based Income Opportunities. AMIG believes it can
leverage its insurance expertise and relationships with financial
institutions to create additional fee-based revenue opportunities. The most
significant example of this has been the development of Ameritrac, AMIG's
proprietary loan and lease tracking service. Through Ameritrac, AMIG
provides fee-based services to banks, credit unions and finance companies.
Such services enable AMIG to increase its fee-based revenue and strengthen
its relationships with key channels of distribution while creating
additional sources of growth.

INSURANCE PRODUCTS

AMIG targets specialty lines of property and casualty insurance that have
high-frequency, low-severity characteristics. AMIG has established itself as one
of the leading providers of property and casualty insurance to the manufactured
housing market and continually seeks new product opportunities to draw upon its
experience and knowledge. In recent years, AMIG has introduced a number of new
products that leverage AMIG's knowledge of the manufactured housing, retail
dealership and consumer finance markets.

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<PAGE> 31

DIRECT AND ASSUMED WRITTEN PREMIUM
(net of cancellations, but prior to reinsurance ceded)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PROPERTY AND CASUALTY
Manufactured Housing.......................... $297,309 $262,717 $212,227
Commercial Park and Dealer.................... 33,371 39,539 33,666
Site Built Dwelling........................... 29,053 32,647 34,040
Collateral Protection......................... 26,781 25,138 17,155
Watercraft.................................... 18,108 15,849 14,305
Mortgage Fire................................. 9,660 12,347 12,174
Long Haul Truck............................... 11,810 11,181 10,707
Warranty/Service Contracts.................... 7,571 6,503 7,419
Specialty Auto and Recreational Vehicle....... 8,049 5,459 3,903
Credit Property............................... 3,048 3,166 5,464
Discontinued and Other Lines.................. 1,488 9,418 36,105
-------- -------- --------
Total Property and Casualty Written
Premium................................ $446,248 $423,964 $387,165
Net Property and Casualty Written Premium
(net of reinsurance ceded)............. $391,770 $342,711 $290,355
======== ======== ========
CREDIT LIFE
Total Credit Life Written Premium........ $ 12,294 $ 10,996 $ 11,939
Net Credit Life Written Premium
(net of reinsurance ceded.............. $ 8,757 $ 6,510 $ 5,740
======== ======== ========
</TABLE>

The following is a description of AMIG's insurance products:

- - MANUFACTURED HOUSING -- Policies that are designed for individual owners of
manufactured homes and provide general liability coverage and also provide
coverage for damage to the manufactured homes and their contents resulting
from a broad range of perils including fire, wind, hail, lightning, floods and
theft. These policies are generally written for 12-month terms but can be
written for 36 to 60 month terms.

- - COMMERCIAL PARK AND DEALER -- Commercial policies designed for manufactured
housing dealerships and manufactured housing parks. These policies provide
coverage for damage to a dealership's or park operator's inventory of
manufactured homes resulting from fire, wind, hail, lightning, floods, theft
or vandalism. These policies also provide general liability coverage for
personal injury or property loss to third parties resulting from an accident
occurring on the insured's premises.

- - SITE BUILT DWELLING -- Policies insuring lower value housing. Coverage is
similar to those contained in traditional homeowners policies.

- - COLLATERAL PROTECTION -- Policies placed through financial institutions and
written to cover physical damage coverage on uninsured manufactured housing
units, automobiles or other collateral. Under the terms of loan documents, the
lender generally has the

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<PAGE> 32

right to place insurance on its collateral at the cost of the borrower if the
borrower fails to maintain the required insurance.

- - WATERCRAFT -- Policies which provide property damage and liability coverages
on boats and personal watercraft.

- - MORTGAGE FIRE -- Policies which provide protection to lenders against fire
damage on otherwise uninsured homes and buildings.

- - LONG-HAUL TRUCK -- Policies which provide physical damage coverage for
long-haul trucks. These policies protect only against damage to the insured
vehicle and do not insure against liability claims or insure the property of
persons other than the insured.

- - WARRANTY/SERVICE CONTRACTS -- Warranty and service contracts on manufactured
homes or electrical and other household products. These policies often cover
the structure and the electric and plumbing systems and may cover appliances
within the manufactured home.

- - SPECIALTY AUTO AND RECREATIONAL VEHICLES -- Specialty auto policies provide
primary property damage and liability coverages on antique or collectible
automobiles. Recreational vehicle policies provide general liability coverage
as well as coverage similar to traditional automobile insurance.

- - CREDIT LIFE AND OTHER CREDIT PRODUCTS -- Policies which provide credit
insurance to consumers who finance the purchase of personal property.
Available coverages include Credit Life, Credit Accident & Health, Credit
Involuntary Unemployment and Credit Property. Each coverage provides either a
total payoff of, or a monthly payment towards, an insured's current loan
balance.

- - DISCONTINUED LINES AND OTHER LINES -- Principally includes commercial and
general liability policies previously issued by AMIG on such programs as
security guards and amateur athletics.

FEE BASED PRODUCTS

Through Ameritrac, AMIG provides fee-based services that include the
monitoring of loan and lease portfolios to ensure evidence of insurance,
regulatory or flood determinations and direct marketing through banks, credit
unions and finance companies. Ameritrac currently provides services to more than
80 financial institutions for over 1.6 million loan accounts. In addition to the
fees it generates, Ameritrac also creates business opportunities for AMIG
including the placement of insurance on loan collateral that is not properly
insured.

AMIG has also established American Modern Home Service Company to market
additional products and services to its base of manufactured housing insurance
customers. American Modern Home Service Company principally markets extended
service contracts covering a broad range of products from manufactured homes to
appliances. AMIG is considering other fee-based products and expects to offer
additional products and services in the future.

CHANNELS OF DISTRIBUTION

AMIG currently markets its insurance products through several channels of
distribution which AMIG groups as the lender channel, dealer channel, wholesale
agency

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<PAGE> 33

channel, retail agency channel, commercial agency channel and bank and credit
union channel. Credit life and other credit products are sold through various
channels. These channels are designed to maximize the exposure of AMIG's
products to prospective customers. AMIG's property and casualty direct and
assumed written premiums (net of returns and cancellations, but prior to
reinsurance ceded) by AMIG's channels of distribution for 1998, 1997 and 1996
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Lender Channel..................... $135,468 29.5% $113,730 26.1% $ 71,227 17.8%
Dealer Channel..................... 101,703 22.2 93,792 21.6 88,502 22.2
Wholesale Agency Channel........... 66,733 14.6 66,717 15.3 83,316 20.9
Retail Agency Channel.............. 63,624 13.9 62,090 14.3 53,644 13.4
Commercial Agency Channel.......... 44,578 9.7 56,479 13.0 64,802 16.2
Bank and Credit Union Channel...... 34,142 7.4 31,156 7.2 25,674 6.4
-------- ----- -------- ----- -------- -----
Property and Casualty Total... 446,248 97.3 423,964 97.5 387,165 97.0

Credit Life and Other Credit
Products......................... 12,294 2.7 10,996 2.5 11,939 3.0
-------- ----- -------- ----- -------- -----
Total......................... $458,542 100.0% $434,960 100.0% $399,104 100.0%
======== ===== ======== ===== ======== =====
</TABLE>

Lender Channel: AMIG markets its insurance products through financial
institutions that regularly provide financing for products which AMIG
insures. These financial institutions, which include finance companies and
banks, typically own insurance agencies which, as a convenience to
consumers, sell AMIG products as part of the overall lending process. The
lender channel data includes premiums from insurance sold through these
lender-owned agencies.

Dealer Channel: AMIG markets its insurance products through
manufactured housing dealers which offer insurance to purchasers of
manufactured homes at the time of sale. AMIG believes that it enjoys a
competitive advantage in dealer distribution. Many purchasers of
manufactured homes are attracted to dealers who can also arrange for the
purchaser's financing and insurance. These dealers prefer those business
partners who have extensive experience in training programs for the
dealers. AMIG has been able to develop close working relationships with
many dealers in part as a result of its ability to provide such training
and its ability to meet other insurance needs of these dealers.

Wholesale Agency Channel: AMIG also markets its personal lines
products through wholesale insurance agents. These wholesale agents develop
their business through their own networks of retail insurance agents.

Retail Agency Channel: AMIG markets its personal lines products
through retail insurance agents. These retail agents write insurance
policies directly with policyholders. AMIG's retail agents market to
customers who are purchasing insurance independent of any other product or
service. This channel allows AMIG to market its products to every person
who owns a manufactured home, regardless of

32
<PAGE> 34

who sold them the home and who provided the financing. The retail agency
channel also provides a distribution network for many of AMIG's other
products.

Commercial Agency Channel: AMIG markets its commercial lines products
through a network of retail agents who specialize in the sale of insurance
products to commercial customers. AMIG's commercial lines products,
long-haul trucking and commercial park and dealer coverages are primarily
sold through commercial agents.

Bank and Credit Union Channel: Banks and credit unions purchase
insurance products to insure collateral which secures mortgage loans and
automobile loans when the borrower allows their insurance coverage to
lapse. If the borrower does not insure the collateral, in most
circumstances, the lender has the right to secure insurance for the
collateral and add the cost of the insurance to the loan balance. Policies
sold through this channel are not sold in connection with the origination
of a mortgage loan or automobile loan. AMIG also markets a blanket
collateral protection policy to banks and credit unions to cover any
unidentified lapses in coverage in their loan portfolio. AMIG markets its
collateral protection products to banks and credit unions through agents
who specialize in this type of business.

GEOGRAPHIC RISK MANAGEMENT

Since the majority of AMIG's specialty insurance business is related to
physical damage exposures, weather, and in particular, weather-related
catastrophes, can materially impact AMIG's financial results on a quarterly and
annual basis. This was the case for AMIG in 1989 (Hurricane Hugo), 1996
(Hurricanes Fran and Bertha) and 1998 (severe weather systems that occurred in
the second and third quarters). AMIG incurred approximately $5 million (pre-tax)
in weather-related losses as a result of the severe thunderstorms and tornados
occurring in Oklahoma, Kansas and parts of the southeastern United States in
early May 1999. As is customary in the property and casualty insurance industry,
AMIG employs a variety of practices to monitor and manage its exposure to
weather-related losses. AMIG seeks to diversify its insurance exposures
geographically in order to spread the risk and impact of weather related
catastrophic losses. AMIG carefully monitors its aggregate exposure in areas
where catastrophic losses from hurricanes and other severe weather events have,
historically, occurred more frequently, including certain states and ocean
front, gulf coast and adjacent counties. AMIG utilizes computer modeling
techniques to monitor the concentration of its outstanding policies by county
and zip code on a monthly basis. As aggregate exposure increases in a given
area, AMIG may take steps to attempt to slow the level of future business
written in that area. Where regulations prevent AMIG from issuing products
designed to manage exposures at premium levels calculated to provide a fair
return for the risk assumed, AMIG will take steps to control the concentration
of business it writes in this region rather than accepting risks which create
unacceptable variances to AMIG's actuarial and underwriting analyses and
policies.

33
<PAGE> 35

Presented below for the year ended December 31, 1998 is a summary by state
of AMIG's property and casualty direct and assumed written premium (net of
cancellations, but prior to reinsurance ceded):

<TABLE>
<CAPTION>
STATE WRITTEN PREMIUM PERCENT OF TOTAL PREMIUM
- ---------------------- --------------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Texas................. $ 54,831 12.3%
South Carolina........ 35,586 8.0
Georgia............... 31,990 7.2
North Carolina........ 26,243 5.9
Alabama............... 25,601 5.7
Louisiana............. 21,045 4.7
Mississippi........... 17,413 3.9
Oklahoma.............. 17,383 3.9
Tennessee............. 16,364 3.7
California............ 15,857 3.6
Ohio.................. 13,826 3.1
Missouri.............. 12,670 2.8
Florida............... 12,516 2.8
Arkansas.............. 11,750 2.6
Kentucky.............. 11,468 2.6
Michigan.............. 10,984 2.5
New York.............. 9,606 2.2
Indiana............... 9,524 2.1
New Mexico............ 9,021 2.0
Washington............ 8,744 2.0
All Other............. 73,824 16.4
-------- -----
Total............ $446,248 100.0%
======== =====
</TABLE>

UNDERWRITING

AMIG employs a disciplined approach to underwriting and the design and
pricing of its products in an attempt to achieve consistently profitable
underwriting results, even at the expense of premium growth. AMIG reviews
pricing on a state-by-state and product-by-product basis every 12 to 24 months
to insure products are meeting targeted profitability levels. AMIG has 17
underwriters for its personal lines products and nine commercial underwriters.
These underwriters have an average of more than nine years of underwriting
experience. The experience of these underwriters, especially in the manufactured
housing industry, provides AMIG with an in-depth understanding of its markets.

34
<PAGE> 36

AMIG's underwriting policies are designed to achieve an underwriting
profit. AMIG's underwriting experience has produced a combined ratio of losses
and operating expenses to premiums earned of less than 100% in eight of the past
10 years as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, LOSS RATIO COMBINED RATIO
----------------------- ---------- --------------
<S> <C> <C>
1989............................... 58.7% 100.9%
1990............................... 54.9 97.5
1991............................... 53.1 96.9
1992............................... 49.2 94.6
1993............................... 51.7 94.0
1994............................... 55.0 98.5
1995............................... 52.0 97.2
1996............................... 61.8 104.3
1997............................... 55.1 95.8
1998............................... 56.1 96.9
---- -----
10 year average.................... 54.8% 97.7%
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
<S> <C> <C>
1996............................... 68.2% 111.3%
1997............................... 55.4 98.2
1998............................... 53.3 95.2
1999............................... 49.4 94.5
</TABLE>

CLAIMS SERVICING

AMIG has invested substantial resources in its claims management
infrastructure and believes that its internal claims handling capabilities
result in greater customer satisfaction and improved underwriting results. AMIG
currently has over 250 full-time employees in its claims department, including
more than 145 in-house claims adjusters located strategically throughout the
United States. AMIG also uses third-party adjusters to supplement its internal
claims staff. Currently, in excess of 80% of AMIG's claims are settled by AMIG's
internal claims staff. AMIG believes that its in-house staff settles claims more
efficiently than outside adjusters who have not specialized in manufactured
housing.

AMIG believes that timely and accurate claims handling is critical to its
success. For its personal lines claims, AMIG seeks to settle 85% of property
claims within 30 days and 90% of liability claims within 90 days.

REINSURANCE

AMIG follows the customary industry practice of reinsuring a portion of its
risks. Insurance is ceded principally to reduce AMIG's exposure on large
individual risks and to provide protection against large losses, including
catastrophe losses. Although reinsurance does not legally discharge the ceding
insurer from its primary obligation to pay the full amount of losses incurred
under policies reinsured, it does render the reinsurer liable to the insurer to
the extent provided by the terms of the reinsurance treaty. As part of its
internal procedures, AMIG evaluates the financial condition of each prospective
reinsurer before it cedes business to that carrier. Based on AMIG's review of
its reinsurers' financial condition and reputation in the marketplace, AMIG
believes its reinsurers are financially

35
<PAGE> 37

sound and that they can meet their obligations to AMIG under the terms of the
reinsurance treaties.

Catastrophe reinsurance serves to protect the ceding insurer from
significant aggregate losses arising from a single event (or a series of related
events occurring within a short period), such as a hurricane, earthquake,
windstorm, hail, tornado or other such extraordinary occurrence. If the coverage
is exhausted, additional catastrophe coverage under the treaty may be purchased
as a matter of right to reinstate original coverage by paying an additional,
contractually defined premium. The number of reinstatements that the reinsurer
is required to grant is limited by the terms of the treaty. AMIG's property
catastrophe reinsurance program for 1999 provides protection of $104,500,000 in
excess of a $5,500,000 retention per occurrence. AMIG, generally, retains 5% of
all losses covered under the reinsurance program in excess of the deductible.

AMIG also maintains excess loss reinsurance on its insurance products.
Casualty claims above $100,000, up to $1.5 million per occurrence, are
reinsured. Property lines are covered on a per risk basis above $200,000 up to
$2.0 million. Facultative reinsurance is purchased on specific commercial
liability risks. Such liability risks are covered on a per risk basis above
$200,000 up to $3.0 million. AMIG also cedes a portion of its premium and
related risks on a quota share basis.

PROPERTY AND CASUALTY LOSS RESERVES

AMIG's consolidated financial statements include the estimated liability,
or reserves, for unpaid losses and loss adjustment expenses of its property and
casualty insurance subsidiaries. The liability is presented net of amounts
recoverable from salvage and subrogation and includes amounts recoverable from
reinsurance for which receivables are recognized.

AMIG establishes reserves for losses that have been reported to AMIG and
certain legal expenses on the "case basis" method. AMIG estimates claims
incurred but not reported and other adjustment expenses using statistical
procedures. AMIG accrues salvage and subrogation recoveries using the "case
basis" method for large claims and statistical procedures for smaller claims.

AMIG's objective is to set reserves that are adequate; that is, the amounts
originally recorded as reserves should at least equal the amounts ultimately
expected to be required to settle losses. AMIG's reserves reflect its best
estimates of the total ultimate cost of claims that have been incurred but have
not yet been paid. The estimates are based on past claims experience and reflect
current claims trends as well as social, legal and economic conditions,
including inflation. The reserves are not discounted.

AMIG reviews its loss and loss adjustment expense reserve development on a
regular basis to determine whether the reserving assumptions and methods are
appropriate. Reserves initially determined are compared to the amounts
ultimately paid. AMIG regularly makes statistical estimates of the projected
amounts necessary to settle outstanding claims, compares these estimates to the
recorded reserves and adjusts the reserves as necessary. The adjustments are
reflected in current operations.

There are no material differences between the loss and loss adjustment
expense liability reported in Midland's consolidated financial statements in
accordance with

36
<PAGE> 38

generally accepted accounting principles and that reported in the annual
statements filed with state insurance departments in accordance with statutory
accounting practices.

The following table provides an analysis of changes in AMIG's loss and loss
adjustment expense reserves for 1998, 1997 and 1996, net of reinsurance amounts.
Based on the information available during and at the end of 1998, operations
were credited $2,120,000 in 1998 as a result of a decrease in the estimated
amounts needed to settle prior years' claims. Based upon the information
available during and at the end of 1997 and 1996, operations were charged
$5,230,000 in 1997 and $3,771,000 in 1996 as a result of an increase in such
estimates. Such reserve adjustments, which affected results of current
operations during each of the years, resulted from developed losses from prior
years being different than were anticipated when the liability for losses and
loss adjustment expense were originally estimated. Those development trends have
been considered in establishing the current year liabilities.

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1........................... $108,334 $ 88,992 $61,497
Less reinsurance recoverables................ 26,433 24,208 13,785
-------- -------- -------
Net balance at January 1....................... 81,901 64,784 47,712
-------- -------- -------
Incurred related to:
Current year................................. 208,811 163,035 166,554
Prior years.................................. (2,120) 5,230 3,771
-------- -------- -------
Total incurred....................... 206,691 168,265 170,325
-------- -------- -------
Paid related to:
Current year................................. 157,530 113,841 121,782
Prior years.................................. 42,795 37,307 31,471
-------- -------- -------
Total paid........................... 200,325 151,148 153,253
-------- -------- -------
Net balance at:
December 31.................................. 88,267 81,901 64,784
Plus reinsurance recoverables................ 20,430 26,433 24,208
-------- -------- -------
Balance at December 31......................... $108,697 $108,334 $88,992
======== ======== =======
</TABLE>

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT

The next table presents the development of the estimated liability for the
ten years prior to 1998. The top line of the table illustrates the estimated
liability for unpaid losses and loss adjustment expense recorded at the balance
sheet date at the end of each of the indicated years. This liability represents
the estimated amount of losses and loss adjustment expense for claims arising in
all prior years that were unpaid at the balance sheet date, including losses
that had been incurred but not yet reported to AMIG.

The upper portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate was increased or decreased as more information
became known about the frequency and severity of claims for individual years.
Conditions and trends that have affected development of the liability in the
past may not necessarily occur in the future.

37
<PAGE> 39

Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies based on this table.

The table shows the cumulative redundancy (deficiency) developed with
respect to the previously recorded liability for all years as of the end of
1998. For example, AMIG's 1990 reserve of $16,570,000 has been re-estimated as
of year-end 1998 to be $13,579,000, indicating a redundancy of $2,991,000.

The lower section of the table shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. For example, as of December 31, 1998, AMIG had paid $13,574,000 of the
currently estimated $13,579,000 of losses and loss adjustment expense that have
been incurred as of the end of 1990; thus an estimated $5,000 of losses incurred
as of the end of 1990 remain unpaid as of the current financial statement date.

In using this information, it should be noted that this table does not
present accident or policy year development data which readers may be more
accustomed to analyzing. Each amount in each column includes amounts applicable
to the year over the column and all prior years. For example, the amounts
included in the 1993 column include amounts related to 1993 and all prior years.

AMIG's reserve development was unfavorable for 1995 and 1996 due to AMIG's
expansion into certain areas of commercial lines insurance. However, reserve
development was favorable for 1997 due to a reduction AMIG's commercial lines
business combined with a strengthening of the commercial lines reserves in 1997.

38
<PAGE> 40

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for Unpaid Losses, Net
of Reinsurance.............. $12,464 $15,732 $16,570 $19,089 $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901
Net Reserve Re-estimated as
of:
One Year Later.............. 11,609 15,167 15,492 17,160 18,425 25,668 30,134 51,483 70,014 79,781
Two Years Later............. 11,534 15,043 14,859 15,699 18,451 22,686 32,074 53,467 67,310
Three Years Later........... 11,292 14,397 13,841 15,202 16,871 21,154 31,880 52,418
Four Years Later............ 11,024 13,773 13,929 14,497 16,616 20,966 31,734
Five Years Later............ 10,886 13,758 13,663 14,393 16,505 20,688
Six Years Later............. 10,926 13,754 13,598 14,373 16,445
Seven Years Later........... 10,962 13,722 13,589 14,361
Eight Years Later........... 10,948 13,741 13,579
Nine Years Later............ 10,967 13,732
Ten Years Later............. 10,929
Net Cumulative Redundancy
(Deficiency)................ $ 1,535 $ 2,000 $ 2,991 $ 4,728 $ 3,960 $ 7,056 $ 5,747 $(4,706) $(2,526) $ 2,120
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
Net Cumulative Amount of
Reserve Paid Through:
One Year Later.............. $ 8,659 $11,210 $11,117 $10,937 $11,730 $ 9,684 $19,040 $31,471 $37,307 $ 42,795
Two Years Later............. 9,644 12,902 12,488 12,685 14,397 18,445 26,471 41,785 51,461
Three Years Later........... 10,461 13,355 12,965 13,588 15,923 19,930 29,237 47,434
Four Years Later............ 10,668 13,465 13,208 14,171 16,312 20,427 30,425
Five Years Later............ 10,739 13,595 13,471 14,307 16,381 20,558
Six Years Later............. 10,825 13,689 13,530 14,331 16,420
Seven Years Later........... 10,915 13,704 13,550 14,356
Eight Years Later........... 10,930 13,703 13,574
Nine Years Later............ 10,929 13,727
Ten Years Later............. 10,929
Net Reserve -- December 31.... $20,405 $27,744 $37,481 $47,712 $64,784 $ 81,901
Reinsurance Recoverables...... 2,780 6,220 14,597 13,785 24,208 26,433
------- ------- ------- ------- ------- --------
Gross Reserve -- December
31.......................... $23,185 $33,964 $52,078 $61,497 $88,992 $108,334
======= ======= ======= ======= ======= ========
Net Re-estimated Reserve...... $16,445 $20,688 $31,734 $52,418 $67,310 $ 79,781
Re-estimated Reinsurance...... 2,240 4,638 12,359 15,145 25,152 25,742
------- ------- ------- ------- ------- --------
Gross Re-estimated Reserve.... $18,685 $25,326 $44,093 $67,563 $92,462 $105,523
======= ======= ======= ======= ======= ========
Gross Cumulative Redundancy
(Deficiency)................ $ 4,500 $ 8,638 $ 7,985 $(6,066) $(3,470) $ 2,811
======= ======= ======= ======= ======= ========

<CAPTION>
YEAR ENDED DECEMBER 31 1998
---------------------- --------
<S> <C>
Reserve for Unpaid Losses, Net
of Reinsurance.............. $ 88,267
Net Reserve Re-estimated as
of:
One Year Later..............
Two Years Later.............
Three Years Later...........
Four Years Later............
Five Years Later............
Six Years Later.............
Seven Years Later...........
Eight Years Later...........
Nine Years Later............
Ten Years Later.............
Net Cumulative Redundancy
(Deficiency)................
Net Cumulative Amount of
Reserve Paid Through:
One Year Later..............
Two Years Later.............
Three Years Later...........
Four Years Later............
Five Years Later............
Six Years Later.............
Seven Years Later...........
Eight Years Later...........
Nine Years Later............
Ten Years Later.............
Net Reserve -- December 31.... $ 88,267
Reinsurance Recoverables...... 20,430
--------
Gross Reserve -- December
31.......................... $108,697
========
Net Re-estimated Reserve......
Re-estimated Reinsurance......
Gross Re-estimated Reserve....
Gross Cumulative Redundancy
(Deficiency)................
</TABLE>

INVESTMENT PORTFOLIO

AMIG pursues a total return strategy for its investment portfolio which
seeks an attractive level of current income combined with long-term capital
appreciation. In addition, AMIG seeks to balance safety and liquidity while
maintaining portfolio diversification.

AMIG categorizes marketable securities as debt securities (cash
equivalents, debt instruments and preferred stocks having scheduled redemption
provisions) and equity securities (common stocks and preferred stocks which do
not have mandatory redemption provisions). AMIG classifies all debt and equity
securities as available-for-sale and carries such investments at market value.
Unrealized gains or losses on investments, net of related income taxes, are
included in shareholders' equity. Realized gains and losses on sales of
investments are recognized in income on a specific identification basis.

39
<PAGE> 41

The following table details the carrying value of AMIG's portfolio at March
31, 1999:

<TABLE>
<CAPTION>
FAIR MARKET VALUE PERCENT
---------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed income securities:
U.S. government................................ $124,897 21.7%
Tax-exempt municipal........................... 169,125 29.4
Corporate and other............................ 75,502 13.1
Mortgage-backed and asset-backed............... 46,881 8.1
Short-term investments......................... 22,025 3.8
Equity securities................................ 132,130 22.9
Accrued interest and dividends................... 5,962 1.0
-------- -----
Total..................................... $576,522 100.0%
======== =====
</TABLE>

The table set forth below reflects the ratings assigned to AMIG's fixed
income securities and short-term investments as of March 31, 1999:

<TABLE>
<CAPTION>
RATING(1) FAIR MARKET VALUE PERCENT
--------- ---------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AAA/Aaa.......................................... $319,604 72.9%
AA/Aa............................................ 56,492 12.9
A/A.............................................. 48,615 11.1
BBB/Baa.......................................... 13,719 3.1
-------- -----
Total fixed income securities and short-term
investments............................... $438,430 100.0%
======== =====
</TABLE>

- ---------------

(1) Ratings are assigned by either Standard & Poor's Corporation or by Moody's
Investor Service, Inc.

The following table shows the fair market value, average life, duration,
book yield based on cost, and average pre-tax equivalent yield based on cost of
AMIG's fixed income securities and short-term investments portfolio as of March
31, 1999:

<TABLE>
<CAPTION>
AVERAGE
AVERAGE PRE-TAX
FAIR MARKET LIFE DURATION BOOK EQUIVALENT
VALUE (YEARS) (YEARS) YIELD YIELD
---------------------- ------- -------- ----- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed income securities:
U.S. government............... $124,897 3.3 2.8 5.8% 5.8%
Tax-exempt municipal.......... 169,125 6.5 5.4 4.7 6.9
Corporate and other........... 75,502 4.6 3.9 6.2 6.2
Mortgage-backed and
asset-backed................ 46,881 3.7 2.2 6.9 6.9
Short-term investments........ 22,025 -- -- 4.5 4.5
--------
Total fixed income
securities and short-term
investments............... $438,430
========
</TABLE>

40
<PAGE> 42

The table set forth below indicates the scheduled maturity distribution of
AMIG's fixed income securities and short-term investments as of March 31, 1999:

<TABLE>
<CAPTION>
COST OR FAIR MARKET
AMORTIZED COST VALUE PERCENT
-------------- ----------- ----------------------
(DOLLARS IN THOUSANDS) (OF FAIR MARKET VALUE)
<S> <C> <C> <C>
One year or less............ $ 50,651 $ 50,805 11.6%
One year to five years...... 207,406 209,444 47.8
Five years to ten years..... 159,505 161,781 36.9
Due after ten years......... 15,961 16,400 3.7
-------- -------- -----
Total fixed income
securities and
short-term
investments.......... $433,523 $438,430 100.0%
======== ======== =====
</TABLE>

The table set forth below reflects the average market value of the fixed
income portfolio and short-term investments, income earned and the average yield
thereon for the quarter ended March 31, 1999 and the years ended December 31,
1998, 1997 and 1996, respectively:

<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------
1999 1998 1997 1996
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average fixed income
investments(1)................ $440,233 $413,264 $352,338 $314,010
Net investment income(2)........ 5,901 23,250 20,860 17,930
Average yield................... 5.4%(3) 5.6% 5.9% 5.7%
Average tax equivalent yield.... 6.3%(3) 6.3% 6.4% 6.4%
</TABLE>

- ---------------

(1) Average of the aggregate monthly invested amounts stated at amortized cost.

(2) Net investment income excludes dividend income, is net of all investment
expenses and does not include net realized gains.

(3) Annualized.

AMIG's current investment policy allows for the market value of its equity
investment portfolio to be between 15 and 25 percent of the market value of
AMIG's total portfolio. As of March 31, 1999, equity investments represented
22.9% of the total market value of AMIG's investment portfolio. AMIG has
maintained a significant investment in the common stock of Firstar Corporation
since the 1970's. This holding is valued at $69,648,900 as of March 31, 1999. In
April 1999, a subsidiary of AMIG purchased from Firstar Corporation a 21%
interest of Firstar Corporation's wholly-owned subsidiary, Elan Life Insurance
Company, for $2.6 million. Firstar Corporation continues to own the remaining
79% of Elan Life Insurance Company. The balance of AMIG's equity investment
portfolio is diversified primarily among domestic growth, domestic value and
domestic small capitalization holdings and includes a limited exposure to
international equities (less than 2% of the total AMIG investment portfolio).

41
<PAGE> 43

The table set forth below reflects the annualized total return (taking into
account both interest income and dividends plus the change in market value) of
AMIG's investment portfolio for the one, three and five year periods ending
March 31, 1999:

<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31, 1999
-----------------------------------
ONE THREE FIVE
YEAR YEAR YEAR
-------- ---------- ---------
<S> <C> <C> <C>
Equities:
Equity Portfolio excluding Firstar Corporation
Common Stock................................ 14.2% 23.6% 23.4%
Firstar Corporation Common Stock Holding....... 53.1 63.9 52.7
S&P 500 Index.................................. 18.5 28.1 26.3
Russell 2000 Index............................. (16.3) 7.7 11.2
Fixed Income:
AMIG Before Tax................................ 6.4 6.8 6.8
AMIG After Tax................................. 4.6 4.8 4.8
After Tax Lehman Brothers Intermediate
Government/Corporate Index.................. 4.3 4.5 4.5
</TABLE>

GOVERNMENT REGULATION

AMIG's insurance subsidiaries are subject to regulation and supervision by
state insurance regulatory agencies in all jurisdictions in which they transact
insurance business. Such regulation and supervision relates to, among other
things, capital and surplus requirements, solvency standards, payments of
dividends to shareholders, licensing to permit the transaction of business,
licensing of agents, policy form and rate regulation, deposits of securities,
methods of computing reserves and investment standards and diversification.
These regulations are intended primarily to protect policyholders rather than
shareholders. AMIG's subsidiaries also are required to file detailed annual and
other reports with the regulatory agencies in each of the states in which they
do business and their business and accounts are subject to examination at any
time by such agencies. Under insurance statutes and procedures established by
the National Association of Insurance Commissioners, AMIG's insurance
subsidiaries are examined periodically by one or more state supervisory agencies
for both financial condition and market conduct practices. AMIG has instituted
comprehensive compliance programs with the goal of minimizing enforcement
activity by state insurance regulatory agencies. Over the past five years, the
aggregate total of all fines and penalties assessed by state insurance
regulatory agencies against AMIG's insurance subsidiaries as a result of the
market conduct of those subsidiaries has not had a material effect on the
operating results or financial condition of Midland.

The insurance laws of most states generally provide that all property and
casualty insurance companies which do business in these states must belong to a
statutory property and casualty guaranty association. The purpose of these
guaranty associations is to protect policyholders by requiring solvent property
and casualty insurance companies to pay certain insurance claims of insolvent
insurers. The rules of such guaranty associations assess insurers
proportionately to such insurer's share of voluntary premiums written in the
given state in order to pay these claims. While most guaranty associations
provide a procedure for recoupment of assessments through rate increases, rate
surcharges or premium tax credits, there is no assurance that insurers will
recover these assessments, and the time

42
<PAGE> 44

value of money becomes a cost to the insurer assessed. AMIG's share of these
assessments is not expected to have a material impact on the business of AMIG's
insurance subsidiaries.

Many states have formed statutory residual market associations or plans to
write certain higher risk property and casualty insurance. These associations
cover such risks as wind and water in coastal areas and assigned risk for
automobile. By statute, each private insurer writing voluntary business of the
type written under the residual market plans in the state must be a member of
these associations and, depending on the plan, may be required to accept certain
of these risks and also may be required to participate in the profit or loss of
the association or plan. Exposures under these plans are higher than voluntary
writings because the plans accept higher risk business and rates charged for
this business are often lower than actuarially required due to political
influence of the governmental agency operating these plans.

Insurers also are required by the states to provide coverage to insureds
who would not otherwise be considered eligible by the insurers. Each state
dictates the types of insurance and the level of coverage which must be provided
to such involuntary risks. The rules of the programs in each state govern how
involuntary risks are shared by companies who operate voluntarily in those
states. Generally, the involuntary risks are shared on a pro rata basis by the
companies who underwrite similar risks voluntarily in the applicable state.

In recent years, increased scrutiny of state-regulated insurer solvency
requirements by certain members of the United States Congress resulted in the
National Association of Insurance Commissioners developing industry minimum
risk-based capital requirements, and establishing a formal state accreditation
process designed to more closely regulate solvency, minimize the diversity of
approved statutory accounting and actuarial practices and increase the annual
statutory statement disclosure requirements. Risk-based capital formulas are
designed to identify an insurer's minimum capital requirements based upon the
inherent risks (e.g., asset default, credit and underwriting) of its operations.
In addition to the minimum capital requirements, risk-based capital formula and
related regulations identify various levels of the capital adequacy and
corresponding actions that the state insurance departments should initiate.
Based on 1998 results, all of AMIG's insurance subsidiaries exceed the minimum
applicable risk-based capital calculations.

Various states have enacted laws which require registration and periodic
reporting by insurance companies which are members of holding company systems.
Midland's insurance subsidiaries are subject to such legislation and are
registered under such statutes where required. Typically this legislation
requires (1) disclosure of all material members of the holding company system,
(2) approval by the appropriate insurance commissioner of certain acquisitions
and mergers, (3) disclosure and regulation of certain intra-system transactions
which also are subject to certain standards, and (4) advance notice of proposed
extraordinary dividends or other large distributions which also are subject to
disapproval by the appropriate insurance commissioner. Under the terms of
applicable state insurance statutes, any person or entity desiring to purchase
more than a specified percentage (commonly 10%) of Midland's outstanding voting
securities would be required to obtain prior regulatory approval.

The federal government also has the power to regulate the insurance
industry if the various states fail to regulate it. Except in a few limited
areas, the federal government has not exercised its power. The United States
Congress has considered the issue of federal

43
<PAGE> 45

regulation of certain aspects of the insurance industry and it is possible that
it may adopt federal legislation in the future. Although Congress has not passed
laws regarding the regulation of insurance, fair housing activists, including
private advocacy groups, the United States Department of Housing and Urban
Development, the Office of Fair Housing and Equal Opportunity and the United
States Department of Justice, have taken steps to limit or attack the use of
certain risk-based methods for underwriting and pricing homeowners insurance
under the Federal Fair Housing Act, even though the act does not apply to
insurers by its terms. Such activity has increased over the past several years.
Recent efforts to challenge risk-based insurance practices have been facilitated
through the legal concept of "disparate impact' which asserts that a policy or
practice based on race-neutral criteria may nevertheless constitute illegal
discrimination if it has a disproportionate adverse impact on minorities. If
fair housing activities and the executive branch of the federal government
succeed in challenging certain underwriting and pricing practices, insurers may
have to abandon certain practices that, while based on risk-based criteria, may
yield a disparate racial impact. This could result in less variation in rates
according to individual risks and a higher average premium for most risks to
subsidize high loss groups of customers. Despite activists' efforts, the United
States Congress, in its 1997 and 1998 Appropriations Bill, included a statement
reaffirming that regulating property insurance was not intended to be covered by
the Fair Housing Act, prohibited the Department of Housing and Urban Development
from using funds for insurance regulatory activities and also limited the funds
that could be used for grants to private advocacy groups for actions under the
Fair Housing Act.

TRANSPORTATION OPERATIONS

M/G Transport charters barges and broker freight for the movement of
commodities on the inland waterways of the United States, primarily on the lower
Mississippi River and its tributaries. The products carried vary depending on
customer demand but generally include petroleum coke, ores, barite, fertilizers,
sugar and other dry cargos.

Historically, M/G Transport had owned and operated a fleet of barges and
tow boats to haul freight along the Ohio and Mississippi Rivers and their
tributaries. M/G Transport recognized that the traditional barge line was a
mature industry with little opportunity for sustained growth. This situation, in
the export-driven traditional barge line market, was further worsened by
alternative suppliers to the world grain market and decreasing export demand for
domestic coal. On this basis, in 1994 M/G Transport elected to exit the
traditional barge line industry. M/G Transport's towboat fleet and approximately
half of its barge fleet were sold in December 1994. The remaining 279 barges
were retained to service the gulf coast niche market. This operation relies
exclusively on readily available hired towing which creates a great deal of
flexibility while eliminating the operational concerns associated with owning a
tow boat fleet. At March 31, 1999, M/G Transport operated a fleet of 357 barges
which includes 259 owned barges. Of these 259 barges, 126 are covered and the
remaining 133 are open. The average age of the owned barges is approximately 12
years.

44
<PAGE> 46

EMPLOYEES

At March 31, 1999, Midland had 897 employees. None of Midland's employees
are covered by a collective bargaining agreement. Midland has never experienced
any work stoppages or slowdowns in its current businesses, and Midland considers
its relationship with its employees to be good.

FACILITIES

Midland owns its 275,000 square foot headquarters facility in Amelia, Ohio,
located east of Cincinnati. Midland's insurance subsidiaries also lease office
space in Montgomery, Alabama, St. Louis, Missouri and Clearwater, Florida, and
Midland's transportation subsidiaries lease offices in Metairie, Louisiana.
Midland owns a 292,000 square foot manufacturing, warehouse and office facility
which it leases to a non-affiliated third party.

LEGAL PROCEEDINGS

A grand jury returned a nine count indictment against M/G Transport
Services, Inc. in February, 1995, alleging violations of certain environmental
laws. Seven former M/G Transport Services, Inc. employees were also indicted.
The indictments alleged that M/G Transport Services, Inc. employees had, over a
period of years, discharged, or permitted the discharge of, bilge water, ash and
other refuse in the inland waterways. Midland no longer conducts the activities
which gave rise to these charges. The case, United States of America vs. M/G
Transport Services, Inc. et. al., went to trial in 1995. M/G Transport Services,
Inc. was found guilty on eight of the nine counts in the indictments, and three
of M/G Transport Services, Inc.'s former employees were also found guilty on
various counts. As a result of the guilty verdicts against it, M/G Transport
Services, Inc. could have been fined up to $3.7 million. In July 1997, upon
motion by the Defendants, six of the remaining eight counts against M/G
Transport Services, Inc., four of the six remaining counts against one former
employee and all of the remaining counts against two former employees were
dismissed. On October 31, 1997, M/G Transport Services, Inc. was fined $250,000
and placed on two years' probation on the two remaining counts. The United
States appealed the dismissal of these counts, and on April 22, 1999, a three
judge panel of the Sixth Circuit Court of Appeals issued an opinion which
reversed the earlier ruling of the trial court which had dismissed six of the
eight counts against M/G Transport Services, Inc. and several counts against
individual defendants formerly employed by M/G Transport Services, Inc. All of
the verdicts against M/G Transport Services, Inc. on the six counts which had
been dismissed by the trial court were reinstated by the Court of Appeals. The
trial court has not yet set a date for sentencing on the reinstated verdicts.
However, during the sentencing phase of the original trial, the probation
department recommended total fines of $1,000,000 against M/G Transport Services,
Inc. for all eight verdicts. M/G Transport Services, Inc. has already paid
$250,000 in fines on the two counts the trial court did not dismiss. Midland
believes that based upon the original fines proposed by the probation
department, it has established and maintained adequate accruals related to any
additional fines which may be imposed by the trial court and believes that any
such fines will not have a material adverse affect on the financial condition or
results of operations of Midland.

45
<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information concerning Midland's directors
and executive officers as of April 30, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. P. Hayden, III(1)........ 46 Chairman of the Board and Chief Operating Officer
John W. Hayden(1)........... 41 President, Chief Executive Officer and a Director
J. P. Hayden, Jr.(1)........ 69 Chairman of the Executive Committee of the Board
of Directors
Michael J. Conaton(1)....... 65 Vice Chairman of Midland and
Vice Chairman of the Board
John I. Von Lehman.......... 46 Executive Vice President, Chief Financial
Officer, Secretary and a Director
Kurt R. Schwamberger........ 52 Senior Vice President
Paul T. Brizzolara.......... 41 Senior Vice President and Chief Legal Officer
W. Todd Gray................ 31 Treasurer
George R. Baker............. 69 Director
James E. Bushman(3)......... 54 Director
James H. Carey(2)(3)........ 65 Director
Jerry A. Grundhofer......... 53 Director
Robert W. Hayden............ 60 Director
William T. Hayden........... 45 Director
William J. Keating(1)(2).... 71 Director
John R. LaBar............... 67 Director
David B. O'Maley(2)......... 52 Director
John M. O'Mara(3)........... 71 Director
Glenn E. Schembechler(3).... 69 Director
</TABLE>

- ---------------

(1) Executive Committee Member

(2) Compensation Committee Member

(3) Audit Committee Member

J. P. Hayden, III has served as a Director of Midland since 1989. Mr.
Hayden is currently Chairman of the Board of Directors and Chief Operating
Officer of Midland. Mr. Hayden also serves as Chairman and Chief Executive
Officer of M/G Transport. Mr. Hayden has served in various capacities for
Midland and its subsidiaries since 1975.

John W. Hayden has served as a Director of Midland since 1991. He is
currently the Chief Executive Officer and President of Midland. In addition, Mr.
Hayden serves as the Chairman of AMIG. Before assuming his current
responsibilities, Mr. Hayden served as a Senior Executive Vice President of
Midland and Vice Chairman of AMIG. Mr. Hayden has served in various capacities
for Midland and its subsidiaries since 1981.

J. P. Hayden, Jr. has served as a Director of Midland since 1961. Mr.
Hayden is currently Chairman of the Executive Committee of the Board of
Directors of Midland.

46
<PAGE> 48

From 1980 through April 1998, Mr. Hayden served as Chairman of the Board and the
Chief Executive Officer of Midland and from 1960 through 1979 he served as
President of Midland. Mr. Hayden has served Midland and its subsidiaries in
various capacities since 1950.

Michael J. Conaton has served as a Director of Midland since 1969. Mr.
Conaton is currently Vice Chairman of Midland and Vice Chairman of the Board of
Directors. Mr. Conaton served as President of Midland from 1988 until April
1998. Mr. Conaton has served Midland in various capacities since 1961.

John I. Von Lehman has served as a Director of Midland since 1991. Mr. Von
Lehman is currently Executive Vice President, Chief Financial Officer and
Secretary of Midland. Mr. Von Lehman has served Midland in various capacities
since 1980.

Kurt R. Schwamberger was elected Senior Vice President of Midland in
December, 1998. Prior to that he was President of AMIG. Mr. Schwamberger joined
AMIG in 1996.

Paul T. Brizzolara was elected Senior Vice President and Chief Legal
Officer of Midland in December, 1998. Prior to that he was Assistant Vice
President and Assistant Chief Counsel of Midland. Mr. Brizzolara joined Midland
in 1979 after graduation from the University of Cincinnati College of Law.

W. Todd Gray was elected Treasurer of Midland effective January 1998. Prior
to that he was Assistant Treasurer of Midland. He joined Midland in 1994 and
prior to that worked for a national accounting firm.

George R. Baker has served as a Director of Midland since 1971. Mr. Baker
has been self-employed as a corporate director and advisor for over five years.
He is a Director of Reliance Group Holdings, Inc., Reliance Insurance Co. and
W.W. Grainger, Inc.

James E. Bushman has served as a Director of Midland since 1997. Mr.
Bushman is the President and Chief Executive Officer of Cast-Fab Technologies,
Inc. and has served in that capacity for over ten years.

James H. Carey has served as a Director of Midland since 1971. Mr. Carey
currently serves as a corporate director and advisor and has served as the
managing director of Briarcliff Financial Associates since 1991. Mr. Carey
currently serves as a Director of Airborne Freight Corporation, Nantucket
Industries, Inc. and S.G. Cowan Group of Mutual Funds. Mr. Carey formerly served
as the Chief Executive Officer of National Capital Benefits Corporation and the
President and Chief Executive Officer of Berkshire Bank.

Jerry A. Grundhofer has served as a Director of Midland since 1998. Mr.
Grundhofer currently serves as the President and Chief Executive Officer of
Firstar Corporation. Prior to its merger with Firstar Corporation, Mr.
Grundhofer served as the Chairman of the Board and Chief Executive Officer of
Star Bank, N.A. Firstar Corporation is a lender under Midland's revolving credit
facility and lends money to Midland from time to time on arms-length terms.

Robert W. Hayden has served as a Director of Midland since 1968. Mr. Hayden
retired, effective January 29, 1999, as a Vice President of Midland. Mr. Hayden
served Midland and its subsidiaries in various capacities from 1960 until 1999.

47
<PAGE> 49

William T. Hayden has served as a Director of Midland since 1994. Mr.
Hayden has been an attorney in private practice for over five years and was
formerly a partner at the law firm of Cohen, Todd, Kite & Stanford in
Cincinnati, Ohio.

William J. Keating has served as a Director of Midland since 1991. Mr.
Keating is the retired Chairman, Publisher and Chief Executive Officer of The
Cincinnati Enquirer.

John R. LaBar has served as a Director of Midland since 1963. Mr. LaBar
retired as Vice President and Secretary of Midland effective December 31, 1998.
Mr. LaBar served Midland and its subsidiaries in various capacities from 1953
through 1998.

David B. O'Maley has served as a Director of Midland since 1998. Mr.
O'Maley is currently President and Chief Executive Officer of the Ohio National
Financial Services (Ohio National Life Insurance Company and Ohio National Life
Assurance Company) and has been in that position for over five years. Mr.
O'Maley is also Chairman and Director of the ON Equity Sales Company and Ohio
National Equities, Inc. Mr. O'Maley serves as a Director of Firstar Corporation
and Star Bank, N.A.

John M. O'Mara has served as a Director of Midland since 1983. Mr. O'Mara
is currently a financial consultant and provides general advice to corporations
and acts as a consultant to parties to leveraged buy-out transactions. Mr.
O'Mara has been acting as a financial consultant for over five years. Mr. O'Mara
is a Director of Baldwin & Lyons, Inc., Plantronics, Inc. and Glenoit, Inc. Mr.
O'Mara formerly served as Chairman of the Executive Committee of Quality Care
Systems.

Glenn E. Schembechler has served as a Director of Midland since 1981. Mr.
Schembechler is a Professor Emeritus at the University of Michigan. Mr.
Schembechler served as President of the Detroit Tigers Baseball Club and served
as Athletic Director and Head Football Coach at the University of Michigan. Mr.
Schembechler is a Director of Riddell Sports, Inc.

J. P. Hayden, Jr. and Robert W. Hayden are brothers. J. P. Hayden, III,
John W. Hayden and William T. Hayden are sons of J. P. Hayden, Jr.

48
<PAGE> 50

PRINCIPAL AND SELLING SHAREHOLDERS

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to Midland with
respect to beneficial ownership of Midland's common stock by members of the
Hayden and LaBar families and all other directors and executive officers as a
group as of April 30, 1999 and as adjusted to give effect to the sale of common
stock in the offering. For more information regarding the selling shareholders,
see the section of this prospectus entitled "-- Selling Shareholders" appearing
on the following page.

<TABLE>
<CAPTION>
SHARES OWNED
--------------------------------------------------------
BEFORE OFFERING AFTER OFFERING
------------------- SHARES TO BE -------------------
NO. OF SOLD IN THE NO. OF
NAME SHARES PERCENT OFFERING SHARES PERCENT
---- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
HAYDEN FAMILY HOLDINGS
J.P. Hayden, Jr. Family(1).......... 2,816,422 29.6% 150,000 2,666,422 25.0%
Robert W. Hayden Family(2).......... 1,459,844 15.3 200,000 1,259,844 11.8
--------- ---- ------- --------- ----
TOTAL HAYDEN FAMILY............... 4,276,266 44.9 350,000 3,926,266 36.8
LABAR FAMILY HOLDINGS
John R. LaBar Family(3)............. 1,121,337 11.8 100,000 1,021,337 9.6
Mary L. Thul Family(4).............. 495,393 5.2 100,000 395,393 3.7
--------- ---- ------- --------- ----
TOTAL LABAR FAMILY................ 1,616,730 17.0 200,000 1,416,730 13.3
TOTAL HAYDEN & LABAR
FAMILIES..................... 5,892,996 61.9% 550,000 5,342,996 50.0%
========= ==== ======= ========= ====
All Directors and Executive Officers
as a group (excluding members of the
Hayden and LaBar Families)(5)....... 259,532 2.7% 30,000 229,532 2.1%
-------
Total Shares to be
Sold in the Offering......... 580,000
=======
</TABLE>

- ---------------

* Less than 1%

(1) Includes shares beneficially owned by J.P. Hayden, Jr. and shares
beneficially owned by his spouse, children, children's spouses and
grandchildren. Also includes trust beneficiary interests of such persons
(including the Hayden Family Trust). Does not include a total of 87,000
shares that may be acquired upon exercise of options within 60 days by such
persons.

(2) Includes shares beneficially owned by Robert W. Hayden and shares
beneficially owned by his spouse, children, children's spouses and
grandchildren. Also includes trust beneficiary interests of such persons.
Does not include a total of 3,000 shares that may be acquired upon exercise
of options within 60 days by such persons.

(3) Includes shares beneficially owned by John R. LaBar and shares beneficially
owned by his spouse, children, children's spouses and grandchildren. Also
includes trust beneficiary interests of such persons. Does not include a
total of 4,500 shares that may be acquired upon exercise of options within
60 days by such persons.

(4) Includes shares beneficially owned by Mary L. Thul and shares beneficially
owned by her spouse, children, children's spouses and grandchildren. Also
includes trust beneficiary interests of such persons.

(5) Does not include 21,000 shares that may be acquired through the exercise of
options within 60 days.

49
<PAGE> 51

SELLING SHAREHOLDERS

The following table sets forth certain information known to Midland with
respect to beneficial ownership of Midland's common stock by the selling
shareholders as of April 30, 1999 and as adjusted to give effect to the sale of
common stock in the offering by each selling shareholder. The selling
shareholders will bear none of the expenses of the offering other than the
underwriting commissions applicable to the shares to be sold by them. See the
section of this prospectus entitled "Management -- Executive Officers and
Directors" on page 46.

- ---------------

* Less than 1%

(1) The trustee of the Hayden Family Trust is William T. Hayden, a director of
Midland. The beneficiaries of the Hayden Family Trust are members of J.P.
Hayden, Jr.'s family.

(2) 160,019 of the shares to be sold are owned of record by the Robert W. Hayden
Trust u/a/d 12/9/91 of which William T. Hayden, a director of Midland,
Burgess L. Doan and William McD. Kite, a former director of Midland, serve
as co-trustees. 39,981 of the shares to be sold are owned of record by the
Robert W. Hayden Charitable Remainder Unitrust u/a/d 10/28/98 of which
William T. Hayden, a director of Midland, Burgess L. Doan and Mark E. Burke
serve as co-trustees. Mr. Hayden's shares do not include 3,000 shares that
may be acquired through the exercise of options within 60 days.

(3) Mr. LaBar's shares do not include 3,000 shares that may be acquired through
the exercise of options within 60 days.

(4) The 100,000 shares to be sold are held of record by the Mary L. Thul Trust
u/a/d 11/22/95 of which Mrs. Thul serves as sole trustee. Mary L. Thul is
John R. LaBar's sister.

(5) The 30,000 shares to be sold are held of record by the Margaret A. Conaton
Trust of which Mr. Conaton serves as sole trustee. Mr. Conaton's shares do
not include 21,000 shares that may be acquired through the exercise of
options within 60 days.

50
<PAGE> 52

DESCRIPTION OF CAPITAL STOCK

Midland's authorized capital stock consists of 20,000,000 shares of common
stock, without par value, and 500,000 shares of undesignated preferred stock.
The following description is a summary and is qualified in its entirety by the
provisions of Midland's Articles of Incorporation and Code of Regulations and by
provisions of Ohio law.

COMMON STOCK

As of March 31, 1999, Midland had 9,515,249 shares of common stock
outstanding, all of which are fully paid, validly issued and non-assessable.

Cumulative voting rights will be afforded to holders of Midland common
stock at any shareholders meeting held for the election of directors, if
properly requested by a shareholder. To request cumulative voting, a shareholder
must give a timely written notice to the President, a Vice President or the
Secretary of Midland that such shareholder desires that the voting for directors
at a particular meeting be cumulative. If Midland gives notice of the
shareholders meeting at least 10 days prior to the meeting, a shareholder's
notice of a desire for cumulative voting is timely if given at least 48 hours
before the time fixed for the shareholders meeting. If Midland gives notice of
the meeting less than 10 days in advance, a shareholder's cumulative voting
notice is timely if given within 24 hours of the time fixed for the meeting.
Cumulative voting will be afforded to the shareholders after the giving of such
notice, if announcement of the notice is announced by Midland's Chairman or
Secretary or by or on behalf of the requesting shareholder, at the time the
shareholders meeting is convened.

Subject to preferences granted to holders of preferred stock, holders of
common stock are entitled to share in such dividends as the Board of Directors,
in its discretion, may validly declare from funds legally available. See the
section of this prospectus entitled "Price Range of Common Stock and Dividends"
on page 13.

In the event of liquidation, each outstanding share of common stock
entitles its holder to participate ratably in the assets remaining after payment
of liabilities and any preferred stock liquidation preferences.

Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of
Midland.

There are no redemption or sinking fund provisions with regard to the
common stock.

The affirmative vote of a majority of all outstanding shares of common
stock is required to amend the Articles of Incorporation and to approve mergers,
consolidations and similar transactions except as discussed below under
"-- Provisions Affecting Business Combinations."

PREFERRED STOCK

Midland has authorized 500,000 shares of preferred stock which may be
issued from time to time in series having such designated preferences and
rights, qualifications and limitations as the Board of Directors may determine
without any approval of shareholders. Preferred stock could be given rights
which would adversely affect the equity of holders of common stock and could
have preference over common stock with respect to dividend and

51
<PAGE> 53

liquidation rights. The issuance of preferred stock could have the effect of
acting as an anti-takeover device to prevent a change of control of Midland.

PROVISIONS AFFECTING BUSINESS COMBINATIONS

Chapter 1704 of the Ohio Revised Code regulates business combinations and
other transactions involving "interested shareholders" of "issuing public
corporations." An interested shareholder under Chapter 1704 is, in general, a
person who directly or indirectly, whether alone or with others, may exercise or
direct the exercise of 10% of the voting power of the issuing public corporation
in the election of directors, after taking into account all of that person's
beneficially owned shares that are not currently outstanding. Midland is an
issuing public corporation under Chapter 1704. Chapter 1704 may be viewed as
having an anti-takeover effect. The statute, in general, prohibits an "issuing
public corporation" from entering into a Chapter 1704 Transaction with an
interested shareholder, or any entity which is or would be after the transaction
an affiliate of an interested shareholder, for at least three years following
the date on which the interested shareholder attains such 10% ownership without
the approval of the board of directors of the corporation. As a result, one
significant effect of Chapter 1704 is to cause a person or entity desiring to
become an interested shareholder to negotiate with the board of directors of a
corporation prior to becoming an interested shareholder. A "Chapter 1704
Transaction" is broadly defined to include, among other things, a merger or
consolidation with, a sale of substantial assets to, or the receipt of a loan,
guaranty or other financial benefit (which is not proportionately received by
all shareholders) by the interested shareholder. Following the expiration of
such three-year period, a Chapter 1704 Transaction with the interested
shareholder is permitted under certain circumstances.

Also, pursuant to Section 1701.831 of the Ohio Revised Code, the purchase
of certain levels of voting power of Midland (one-fifth or more, one-third or
more, or a majority) can be made only with the prior authorization of the
holders of at least a majority of the total voting power of Midland and the
separate prior authorization of the holders of at least a majority of the voting
power held by shareholders other than the proposed purchaser, officers of
Midland and Directors of Midland who are also employees.

Section 1707.043 of the Ohio Revised Code provides generally that any
profit realized from the disposition of any equity securities of an Ohio
corporation by a person who, within eighteen months before the disposition made
a proposal, or publicly disclosed the intention or possibility of making a
proposal to acquire control of the corporation, inures to and is recoverable by
the corporation. However, a corporation will have no rights to profits made by a
person who is determined by a court of competent jurisdiction to have made such
proposal or disclosure with the sole purpose of succeeding in acquiring control
of the corporation and having reasonable grounds for believing that such person
would acquire control of the corporation. In general, a corporation will also
have no rights to profits where the person was not acting with the purpose of
affecting market trading and the person's actions did not have a material effect
on the price or volume of market trading in the equity securities.

Midland's Code of Regulations provides that its Board of Directors consist
of not less than three members divided into three classes. Currently there are
16 members of the Board divided into three classes. Five directors will serve
until the annual meeting of 2002, five directors will serve until the annual
meeting of 2001 and six directors will serve until the annual meeting of 2000.

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<PAGE> 54

Special meetings of the shareholders may be called by the Chairman of the
Board, President or Vice President, a majority of the Board of Directors or by
the holders of at least 40% of Midland's voting shares.

While Midland believes that these provisions are in shareholders' best
interests, potential shareholders should be aware that such provisions could be
disadvantageous to them because their overall effect may be to render more
difficult the removal of incumbent directors and management or the assumption of
effective control by other persons.

LIABILITY OF DIRECTORS AND EXECUTIVE OFFICERS

Under Ohio law, shareholders are entitled to bring suit, generally in an
action on behalf of the corporation, to recover damages caused by breaches of
the duty of care and the duty of loyalty owed to a corporation and its
shareholders by directors and, to a certain extent, executive officers. Ohio law
has codified the traditional business judgement rule. Ohio law provides that the
business judgement presumption of good faith may only be overcome by clear and
convincing evidence, rather than the preponderance of the evidence standard
applicable in most states.

Further, Ohio law provides specific statutory authority for directors to
consider, in addition to the interests of the corporation's shareholders, other
factors such as the interests of the corporation's employees, suppliers,
creditors and customers; the economy of the state and the nation; community and
societal considerations; the long-term and short-term interests of the
corporation and the shareholders; and the possibility that these interests may
be best served by the continued independence of the corporation.

Directors of Ohio corporations are, unless the corporation's articles or
regulations otherwise provide, liable to the corporation for money damages for
actions taken or failed to be taken as a director only if it is proven by clear
and convincing evidence that the act or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
reckless disregard for the best interests of the corporation.

Midland's Code of Regulations provides that Midland shall indemnify
directors and officers to the fullest extent provided by applicable Ohio law as
currently exists or may be broadened by amendment and shall advance to officers
and directors, under certain circumstances, funds for expenses, liabilities and
loss actually and reasonably incurred or suffered in connection with defending
pending or threatened suits.

TRANSFER AGENT AND REGISTRAR

The registrar and transfer agent for Midland's common stock is The Fifth
Third Bank.

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<PAGE> 55

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom The Robinson-Humphrey Company, LLC, McDonald
Investments Inc. and J.J.B. Hilliard, W.L. Lyons, Inc. are acting as
representatives, have severally agreed to purchase from Midland and the selling
shareholders and Midland and the selling shareholders have agreed to sell to
each of the underwriters, the number of shares of common stock set forth
opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
The Robinson-Humphrey Company, LLC..........................
McDonald Investments Inc....................................
J.J.B. Hilliard, W.L. Lyons, Inc. ..........................
Total.............................................
========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to various other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.

The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
shares of common stock are released for sale to the public, the offering price
and other selling terms may be changed.

Midland has granted to the underwriters an option, exercisable by the
representatives for 30 days after the date of this prospectus, to purchase up to
an additional 262,500 shares of common stock at the public offering price less
the underwriting discount set forth on the cover page. The underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with the offering. To the extent that the representatives exercise
such option, each of the underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares of common stock to be purchased by each of them as shown in the
table above, bears to the 1,750,000 shares of common stock offered hereby.

In connection with the offering, Midland, Midland's executive officers and
directors and the selling shareholders have agreed that, during a period of
days from the date of this prospectus, they will not, without the prior
written consent of The Robinson-Humphrey Company, LLC, directly or indirectly,
issue, sell, or offer to sell, contract to sell, solicit on offer to buy, grant
any option, right or warrant for the purchase or sale of, assign, pledge,
hypothecate, distribute or otherwise transfer, dispose of, encumber or reduce
any risk of ownership (or make any announcement with respect to any of the
foregoing) any shares of common stock or any options, rights, warrants or other
securities convertible into or exercisable or exchangeable for common stock or
evidencing any right to purchase or subscribe for shares of common stock; except
that, Midland and the selling shareholders may issue and sell the shares of
common stock to be issued in the offering and Midland

54
<PAGE> 56

may grant options under Midland's stock option plans and issue shares of common
stock upon the exercise of Midland's stock options.

Midland and the selling shareholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect thereof.

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

[In connection with the offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-making
transactions in the common stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M, during the one business day prior to the price of
the offering before the commencement of offers or sales of the common stock. The
passive market-making transactions must comply with applicable volume and price
limitations and be identified as such. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security; however, if all independent bids are lowered below the passive market
maker's bid, such bid must then be lowered when certain purchase limits are
exceeded.]

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters to
bid for and purchase shares of common stock. As an exception to these rules, the
representatives are permitted to engage in certain transactions that stabilize
the price of the common stock. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
common stock. If the underwriters create a short position in the common stock in
connection with the offering (i.e., if they sell more shares of the common stock
than are set forth on the cover page of this prospectus), the representatives
may reduce the short position by purchasing the common stock in the open market.
The representatives may elect to reduce any short position by exercising all or
part of the over-allotment option described herein.

The representatives also may impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.

Neither Midland nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
Midland nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

55
<PAGE> 57

In December, 1997, Midland engaged The Robinson-Humphrey Company, LLC, one
of the representatives, on a consulting basis to assist Midland in assessing
potential business alternatives on behalf of Midland. The Robinson-Humphrey
Company, LLC made its recommendations to Midland in May 1998 and was paid
$75,000 in connection with such recommendations. From time to time in the
ordinary course of business, The Robinson-Humphrey Company, LLC may in the
future provide investment banking or other services to Midland.

LEGAL MATTERS

Certain legal matters in connection with the offering will be passed upon
for Midland and the selling shareholders by Keating, Muething & Klekamp, P.L.L.,
Cincinnati, Ohio. Certain legal matters related to the offering will be passed
upon for the underwriters by Alston & Bird LLP, Washington, D.C.

EXPERTS

The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from Midland's Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.

With respect to the unaudited interim financial information for the periods
ended March 31, 1999 and 1998 which is incorporated herein by reference,
Deloitte & Touche LLP have applied limited procedures in accordance with
professional standards for a review of such information. However, as stated in
their report included in Midland's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and incorporated by reference herein, they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act of 1933 for their reports on the unaudited interim
financial information because those reports are not "reports" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our common stock is also
listed on the American Stock Exchange, and you may inspect any document at its
offices located at Corporate Relations Department, 86 Trinity Place, New York,
New York 10006.

The SEC allows us to "incorporate by reference" the information we file
with them. This means that we can disclose important information to you by
referring you to

56
<PAGE> 58

documents we file with the SEC. The information incorporated by reference is an
important part of this prospectus. Information that we file later with the SEC
will automatically update and supersede information which we have previously
incorporated by reference until we sell all of the common stock described in
this prospectus. The following documents are incorporated by reference in this
prospectus:

The following documents are incorporated by reference in this prospectus:

<TABLE>
<CAPTION>
FILING PERIOD
------ ------
<S> <C>
Annual Report on Form 10-K..................... Year Ended December 31, 1998
Quarterly Report on Form 10-Q.................. Quarter Ended March 31, 1999
The description of common stock included in
Midland's registration statement on Form
8-C.......................................... June 16, 1969
</TABLE>

All documents filed by Midland under Section 13(a), 13(e), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this prospectus will be
deemed incorporated by reference into this prospectus and to be a part of this
prospectus from the date of filing of the documents.

We will provide you with a copy of any of these documents we are
incorporating by reference at no cost, by writing or telephoning us at the
following address or telephone number:

John I. Von Lehman
Executive Vice President, Chief Financial Officer
and Secretary
The Midland Company
7000 Midland Boulevard
Amelia, Ohio 45102-2607
(513) 943-7100

You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with any other information or any different information. We are not making an
offer of our common stock in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front of those documents.

57
<PAGE> 59

- ------------------------------------------------
- ------------------------------------------------

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.

------------------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary............... 3
Risk Factors..................... 7
Use of Proceeds.................. 12
Price Range of Common Stock and
Dividends...................... 13
Capitalization................... 14
Selected Financial Data.......... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 17
Business......................... 27
Management....................... 46
Principal and Selling
Shareholders................... 49
Description of Capital Stock..... 51
Underwriting..................... 54
Legal Matters.................... 56
Experts.......................... 56
Where You Can Find More
Information.................... 56
</TABLE>

------------------------

- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------

1,750,000 SHARES

THE MIDLAND COMPANY LOGO

THE MIDLAND COMPANY

COMMON STOCK

------------------------
PROSPECTUS
------------------------
THE ROBINSON-HUMPHREY COMPANY

MCDONALD INVESTMENTS INC.

J.J.B. HILLIARD, W.L. LYONS, INC.
, 1999

- ------------------------------------------------
- ------------------------------------------------
<PAGE> 60

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following estimated costs and expenses in connection with the issuance
and distribution of the securities being registered hereby are being paid by
Midland. Underwriting discounts and commissions are being paid by Midland and
the selling shareholders based on the number of shares sold by each.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $13,708
NASD filing fee............................................. 5,431
The American Stock Exchange listing fee.....................
Printing and engraving costs................................ 75,000
Legal fees and expenses..................................... 75,000
Accounting fees and expenses................................
Blue sky filing fees and expenses........................... 2,000
Transfer Agent and Registrar fees and expenses..............
Miscellaneous expenses......................................
-------
TOTAL............................................. $
=======
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by the Registrant to any person made or threatened to be made a
party to any proceedings, other than a proceeding by or in the right of the
Registrant, by reason of the fact that he is or was a director, officer,
employee or agent of the Registrant, against expenses, including judgments and
fines, if he acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Registrant and, with respect to
criminal actions, in which he had no reasonable cause to believe that his
conduct was unlawful. Similar provisions apply to actions brought by or in the
right of the Registrant, except that no indemnification shall be made in such
cases when the person shall have been adjudged to be liable for negligence or
misconduct to the Registrant unless determined by the court. The right to
indemnification is mandatory in the case of a director or officer who is
successful on the merits or otherwise in defense of any action, suit or
proceeding or any claim, issue or matter therein. Permissive indemnification is
to be made by a court of competent jurisdiction, the majority vote of a quorum
of disinterested directors, the written opinion of independent counsel or by the
shareholders.

The Registrant's Code of Regulations provides that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by law.
Under the Code of Regulations, each person who was or is made a party or is
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the Registrant or that, being or having been such a
Director or officer of the Registrant, he or she is or was serving at the
request of executive officer of the Registrant as a director, officer, partner,
employee or agent of another corporation, partnership, joint venture, trust,
limited liability company or other enterprise, including service with respect to
an employee benefit plan (hereinafter an "indemnitee"), whether the basis of
such

II-1
<PAGE> 61

proceeding is alleged action in an official capacity as such a director,
officer, partner, employee or agent, shall be indemnified and held harmless by
the Registrant to the fullest extent permitted by the General Corporation Law of
Ohio, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than permitted prior thereto), or by
other applicable law as then in effect, against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.

The Registrant maintains director and officer liability insurance which
provides coverage against certain liabilities.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
*1 Form of Underwriting Agreement
3.1 Articles of Incorporation (incorporated by reference to the
Registrant's Form 10-Q for the quarter ended June 30, 1998)
3.2 Amended and Restated Code of Regulations (incorporated by
reference to the Registrant's Form 10-Q for the quarter
ended March 31, 1999)
5 Opinion of Keating, Muething & Klekamp, P.L.L. as to
legality of the Common Stock
15 Letter regarding unaudited interim financial information
23.1 Consent of Independent Auditors
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (Contained on
Exhibit 5)
24 Powers of Attorney (contained on the signature page)
</TABLE>

- ---------------

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-2
<PAGE> 62

(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's Annual Report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(c) That: (1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective; and (2)
For the purpose of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-3
<PAGE> 63

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Amelia, State of Ohio, on the 12th day of May, 1999.

THE MIDLAND COMPANY

By: /s/ J. P. HAYDEN, III

-----------------------------------
J. P. Hayden, III
Chairman of the Board and
Chief Operating Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names appear with an
asterisk (*) below hereby designate J. P. Hayden III and John W. Hayden, or
either of them, as attorney-in-fact to sign all amendments including any
post-effective amendments to this Registration Statement as well as any related
registration statement (or amendment thereto) filed pursuant to Rule 462(b)
promulgated under the Securities Act of 1933.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ J.P. HAYDEN, III Chairman of the Board of Directors May 12, 1999
- ------------------------------------ and Chief Operating Officer
*J. P. Hayden, III (principal executive officer)

/s/ JOHN W. HAYDEN President, Chief Executive May 12, 1999
- ------------------------------------ Officer, and Director
*John W. Hayden

/s/ J.P. HAYDEN, JR. Chairman of the Executive May 12, 1999
- ------------------------------------ Committee of the Board and
*J. P. Hayden, Jr. Director

/s/ MICHAEL J. CONATON Vice Chairman of the Board and May 12, 1999
- ------------------------------------ Director
*Michael J. Conaton

/s/ JOHN I. VON LEHMAN Executive Vice President, Chief May 12, 1999
- ------------------------------------ Financial Officer, Secretary and
*John I. Von Lehman Director (principal financial and
accounting officer)

Director May , 1999
- ------------------------------------
*George R. Baker

/s/ JAMES E. BUSHMAN Director May 12, 1999
- ------------------------------------
*James E. Bushman

/s/ JAMES H. CAREY Director May 12, 1999
- ------------------------------------
*James H. Carey

Director May , 1999
- ------------------------------------
*Jerry A. Grundhofer
</TABLE>

II-4
<PAGE> 64

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ ROBERT W. HAYDEN Director May 12, 1999
- ------------------------------------
*Robert W. Hayden

/s/ WILLIAM T. HAYDEN Director May 12, 1999
- ------------------------------------
*William T. Hayden

/s/ WILLIAM J. KEATING Director May 12, 1999
- ------------------------------------
*William J. Keating

/s/ JOHN R. LABAR Director May 12, 1999
- ------------------------------------
*John R. LaBar

/s/ DAVID B. O'MALEY Director May 12, 1999
- ------------------------------------
*David B. O'Maley

/s/ JOHN M. O'MARA Director May 12, 1999
- ------------------------------------
*John M. O'Mara

/s/ GLENN E. SCHEMBECHLER Director May 12, 1999
- ------------------------------------
*Glenn E. Schembechler
</TABLE>

II-5

<PAGE> 1

Exhibit 5

KEATING, MUETHING & KLEKAMP, P.L.L.
One East Fourth Street
Cincinnati, Ohio 45202

PAUL V. MUETHING
Direct Dial: (513) 579-6417
Facsimile: (513) 579-6956
E-Mail: [email protected]

May 12, 1999

The Midland Company
7000 Midland Boulevard
Amelia, Ohio 45102

Ladies and Gentlemen:

We have acted as counsel to The Midland Company, an Ohio corporation
(the "Company"), in connection with the preparation of the Registration
Statement on Form S-3 of the Company, filed with the Securities and Exchange
Commission today (the "Registration Statement"), relating to the registration
under the Securities Act of 1933 of the offering by the Company of 1,170,000
shares of its common stock, no par value per share (the "Common Shares") plus up
to an additional 262,500 Common Shares to cover an over-allotment option granted
to the underwriters and by certain shareholders of the Company (the "Selling
Shareholders") of 580,000 Common Shares.

We have examined the Registration Statement and originals, or copies
certified or otherwise identified to our satisfaction, of such other documents
and corporate records as we have deemed necessary as a basis for the opinions
set forth herein. We have relied as to factual matters on certificates or other
documents furnished by the Company or its officers and by governmental
authorities and upon such other documents and data that we have deemed
appropriate. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of all persons executing such documents, the conformity to
original documents of all documents submitted to us as copies and the truth and
correctness of any representations and warranties contained therein.

<PAGE> 2

The Midland Company
May 12, 1999
Page 2

The opinion expressed below is limited to the Ohio General Corporation
Law. We express no opinion herein concerning any other law.

Based upon the foregoing, we are of the opinion that:

1. The Company has taken all necessary and required corporate action in
connection with the proposed issuance of the aforesaid 1,432,500 Common Shares
and that when, and if, issued, delivered and paid for, the aforesaid 1,432,500
Common Shares will be duly authorized, legally issued, fully paid and
non-assessable Common Shares of the Company free of any claim of pre-emptive
rights; and

2. The 580,000 Common Shares which are being sold by the Selling
Shareholders are duly authorized, legally issued, fully paid and non-assessable
Common Shares of the Company free of any claim of pre-emptive rights.

We hereby consent to the reference to our firm in the Registration
Statement. In providing this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Commission
promulgated thereunder.

Yours truly,

KEATING, MUETHING & KLEKAMP, P.L.L.

BY: /s/ Paul V. Muething
------------------------------------
Paul V. Muething

<PAGE> 1

Exhibit 15

Letter re: Unaudited Interim Financial Information

The Midland Company:

We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of The Midland Company and subsidiaries for the periods
ended March 31, 1999 and 1998, as indicated in our report dated April 12, 1999;
because we did not perform an audit, we expressed no opinion on that
information.

We are aware that our report referred to above, which was included in
your Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in this Registration Statement.

We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Cincinnati, Ohio

May 12, 1999

<PAGE> 1

Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration
Statement of The Midland Company on Form S-3 of our reports dated February 11,
1999 and March 5, 1999, appearing in and incorporated by reference in the Annual
Report on Form 10-K of The Midland Company for the year ended December 31, 1998
and to the references to us under the headings "Selected Financial Data" and
"Experts" in the Prospectus, which is a part of this Registration Statement.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Cincinnati, Ohio

May 12, 1999