MIDLAND CO - 10-Q Quarterly Report

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from		to


Commission file number		1-6026

The Midland Company

(Exact name of registrant as specified in its charter)


Ohio		31-0742526

(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)

7000 Midland Boulevard, Amelia, Ohio 45102-2607
(Address of principal executive offices)
(Zip Code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes _ü_. No ____.

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

PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000’s

THE MIDLAND COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
Amounts in 000’s

THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amounts in 000’s (except per share information)

THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amounts in 000’s

THE MIDLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Amount in 000’s

The accompanying unaudited condensed consolidated financial statements of The Midland Company and subsidiaries (Midland) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Financial information as of December 31, 2002 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the nine and three-month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2002 included in Midland’s Annual Report on Form 10-K.

Certain reclassifications have been made to the 2002 amounts to conform to 2003 classifications.

Earnings per share (EPS) of common stock amounts are computed by dividing net income by the weighted average number of shares outstanding during the period for basic EPS, plus the dilutive share equivalents for stock options and restricted stock awards for diluted EPS. Shares used for EPS calculations were as follows (000’s):

Potential diluted common shares of 576 were not included in computing diluted per share amounts for the three months ended September 30, 2002 because the effects were anti-dilutive.

The federal income tax provisions for the three and nine-month periods ended September 30, 2003 and 2002 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (000’s):

Since Midland’s annual report for 2002, there have been no changes in reportable segments or the manner in which Midland determines reportable segments or measures segment profit or loss. Summarized segment information for the interim periods for 2003 and 2002 is as follows (000’s):

Intersegment revenues are insignificant. Revenues reported above, by definition, exclude investment income and realized gains. Certain amounts are not allocated to segments (“n/a” above) by the Company.

Midland accounts for stock options under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. As such, no compensation cost has been recognized for the stock option plans. Had the Company accounted for stock based employee compensation under the fair value method (SFAS 123), the Company’s net income and earnings per share for the three and nine-months ended September 30, 2003 and 2002 would have been reduced to the pro forma amounts indicated below (amounts in 000’s, except per share data):

Compensation expense in the pro-forma disclosure is not indicative of future amounts as options vest over several years and additional grants are generally made each year.

Midland adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001, which established reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities in the consolidated balance sheet and measurement of those instruments at fair value. At September 30, 2003, Midland’s investment portfolio included approximately $46.2 million of convertible securities, some of which contain embedded derivatives. The embedded conversion options are valued separately, and the change in the market value on the embedded options is reported in net realized investment gains (losses). For the three and nine months periods ended September 30, 2003, Midland recorded pre-tax gains on these securities of $467,000 and $177,000, respectively. For the three and nine month periods ended September 30, 2002, Midland recorded pre-tax losses on these securities of $860,000 and $582,000, respectively.

During March 2002, Midland entered into a series of interest rate swap agreements to convert $30 million of its floating-rate debt to a fixed rate. The swaps qualify as cash flow hedges and are deemed to be 100% effective and thus the changes in the fair value of the swap agreements are recorded as a separate component of shareholders’ equity and have no income statement impact. At September 30, 2003 and 2002, the accumulated derivative income (loss) recorded in Other Comprehensive Income, net of deferred taxes, amounted to $117,000 and $(1,215,000), respectively. The swaps mature on December 1, 2005.

On January 1, 2002 Midland adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 changed the accounting for goodwill from an amortization method to the impairment approach. Upon the adoption of the statement, Midland ceased amortizing goodwill, including goodwill recorded from past business combinations. As a result of the impairment test, Midland recorded an impairment charge of $1,463,000 (net of tax), or $0.08 per share (diluted), in the quarter ended March 31, 2002. This charge is reported separately in Midland’s statement of operations as a Cumulative Effect of Change in Accounting Principle. The fair value of that reporting unit was estimated using the expected present value of future cash flows. There have been no additional impairment charges incurred since March 31, 2002. At September 30, 2003, Midland’s remaining goodwill balance, all of which is attributable to the Other Insurance segment, was $2,145,000.

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in April 2003 and SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, in May 2003. The adoption of SFAS Nos. 149 and 150 did not have a material impact on Midland’s consolidated financial position or results of operations.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” This interpretation requires variable interest entities to be consolidated by the primary beneficiary which represents the enterprise that will absorb the majority of the variable interest entities’ expected losses if they occur, receive a majority of the variable interest entities’ residual returns if they occur, or both. Midland has a synthetic lease arrangement for certain transportation equipment in which Midland was deemed to be the primary beneficiary as the registrant maintains the majority of the variable interests in this leased asset. In the third quarter of 2003, the company consolidated this operating lease asset by recording the leased asset and corresponding liability of $1.9 million.

During the first three weeks of October 2003, American Modern has experienced some level of losses from wildfires in California. We are currently assessing the potential impact of these losses.

ITEM 2. THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements made in this report are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include, but are not limited to certain discussions relating to future revenue, underwriting income, premium volume, investment income and other investment results, business strategies, profitability, liquidity, capital adequacy, anticipated capital expenditures and business relationships, as well as any other statements concerning the year 2003 and beyond. In some cases you can identify forward-looking statements by such terms as “may,” “will,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions or the negative versions of such expressions. The forward-looking statements involve risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Factors that might cause results to differ from those anticipated include, without limitation, adverse weather conditions, changes in underwriting results affected by adverse economic conditions, fluctuations in the investment markets, changes in the retail marketplace, changes in the laws or regulations affecting the operations of the company or its subsidiaries, changes in the business tactics or strategies of the company, its subsidiaries or its current or anticipated business partners, acquisitions or divestitures, changes in market forces, litigation and the other risk factors that have been identified in the company’s filings with the SEC, any one of which might materially affect the operations of the company or its subsidiaries. Any forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

The discussions of “Results of Operations” and “Liquidity, Capital Resources and Changes in Financial Condition” address our three reportable segments, which are manufactured housing insurance, all other insurance products and services and transportation. A summary description of the operations of each of these segments is included below.

Our specialty insurance operations are conducted through our wholly-owned subsidiary, American Modern Insurance Group, Inc. (American Modern) which controls six property and casualty insurance companies, two credit life insurance companies, three licensed insurance agencies and three service companies. American Modern is licensed, through its subsidiaries, to write insurance premiums in all 50 states and the District of Columbia. Approximately 50% of American Modern’s property and casualty and credit life gross written premium relates to physical damage insurance and related coverages on manufactured homes, generally written for a term of 12 months with many coverages similar to homeowner’s insurance policies. All other insurance products and services include other specialty insurance products such as site-built dwelling, motorcycle, watercraft, recreational vehicle, extended service contract, mortgage fire, collateral protection, credit life, long-haul truck physical damage, commercial, excess and surplus lines and also includes the results of our fee producing subsidiaries.

M/G Transport Services, Inc. and MGT Services, Inc. (collectively M/G Transport) operates a fleet of dry cargo barges for the movement of dry bulk commodities such as petroleum coke, ores, barite, sugar and other dry cargoes primarily on the lower Mississippi River and its tributaries.

In the second half of 2000, American Modern acquired the motorsport book (motorcycle and, to a lesser extent, snowmobile and watercraft) from GuideOne Insurance Company. As a result of this acquisition, motorcycle gross written premium contributed significantly to American Modern’s overall growth in 2001 and 2002 and this growth continued in 2003, although at a more modest rate. Management believes that the underwriting results of the motorcycle product have been less than expected, due partly to product positioning, inadequate rate levels and higher than expected losses. As a result, rate increases of 20-25% were sought in 2003 and more stringent underwriting was applied to the motorcycle product.

These rate increases have now been approved and are in the process of being implemented in the marketplace. The increased rates will have little impact on our underwriting results in 2003, but will begin to positively influence our underwriting results in 2004.

Motorcycle gross written premium in the third quarter and first nine months of 2003 was only moderately ahead of 2002 levels.

In the third quarter of 2003, motorcycle gross written premium increased 4.4% to $14.9 million from $14.2 million in the third quarter of 2002. Net earned premium related to the motorcycle product increased 16.8% to $15.5 million in the third quarter of 2003 from $13.3 million in the prior year’s third quarter. We originally projected a loss of approximately $0.21 per share (after-tax) related to the motorcycle product, reflecting the seasonality that is expected with this line business, as the peak usage occurs in the summer months. Our actual loss on the motorcycle line for the third quarter was approximately $0.28 per share (after-tax), up from $0.17 per share (after-tax) for the third quarter of 2002.

On a year-to-date basis, motorcycle gross premium written increased 2.5% to $52.1 million in the first nine months of 2003 from $50.9 million in the nine months of 2002. Net earned premium increased 28.8% to $44.4 million in the nine months of 2003 from $34.5 million in the prior year’s first nine months. From a profitability perspective, the net loss on the motorcycle product for the first nine months of 2003 totaled $0.45 per share (after-tax), up from $0.17 per share (after-tax) in the first nine months of 2002.

During the third quarter of 2002, American Modern de-emphasized its standard homeowner programs in favor of its dwelling fire programs which have more restrictive coverages. American Modern undertook a careful review of all of its site-built dwelling programs with the intent of targeting those properties that fell outside the parameters of the standard homeowner’s insurance market. As a result of these actions, American Modern is achieving positive growth from its dwelling fire programs while experiencing the intended decrease in homeowner programs. More specifically, dwelling fire gross written premium increased 56.8% to $21.2 million in the third quarter of 2003 from $13.5 million in the third quarter of 2002. On a year-to-date basis, the dwelling fire product increased 76.6% to $57.6 million in the first nine months of 2003 compared to $32.6 million in the prior year’s first nine months. Conversely, no homeowner premium was written in the third quarter of 2003 as compared to gross written premium of $11.2 million in this product in the prior year’s third quarter. On a year-to-date basis, homeowner gross written premium decreased 87.4% to $3.4 million from $26.8 million in the prior year’s first nine months.

Manufactured homes have historically represented approximately one out of every five new single family housing starts in the United States. The industry became over built during the period between 1997 and 1999 as credit became readily available. New manufactured home sales were slower than historical averages during 2002 and shipments in 2003 are expected to be approximately 10% below 2002 levels. As a result, during the past several years American Modern has experienced a decrease in its manufactured housing insurance premium volume due to a decline in the premium generated through its point of sale channel of distribution coupled with American Modern’s decision to terminate unprofitable business. American Modern was approved for rate increases in 2002 and 2003. As a result of these rate increases, the manufacturing housing gross written premium increased 7.8% to $88.6 million in the third quarter of 2003 from $82.2 million in the third quarter of 2002. On a year-to-date basis, gross written premium related to the manufacturing housing product increased 6.9% to $246.8 million in the first nine months of 2003 from $230.8 million in the first nine months of 2002.

Other products include watercraft, snowmobile, recreational vehicle, physical damage on long-haul trucks, extended service contracts, collateral protection, mortgage fire and excess and surplus lines. The growth in American Modern’s other property and casualty specialty insurance products has also contributed to American Modern’s overall growth in recent years as well as in 2003. During the third quarter of 2003, gross written premium from American Modern’s other property and casualty insurance products increased collectively 50.3% to $59.6 million in the third quarter of 2003 from $39.6 million during the prior year’s third quarter. On a year-to-date basis, gross written premium from other property and casualty insurance products collectively increased 36.2% to $150.6 million in the first nine months of 2003 from $110.5 million in the first nine months of 2002. The watercraft, mortgage fire, recreational vehicle and the excess and surplus lines products are primarily driving this growth. In the third quarter of 2003, these products

collectively increased 145.0% to $37.3 million from $15.2 million in the third quarter of 2002. On a year-to-date basis, the aforementioned four products collectively increased 84.1% to $90.0 million from $48.9 million in the 2002 nine-month period.

We have been approved for and are implementing nationwide rate increases in our manufactured housing products. These rate increases have averaged approximately three percent during 2003 and were approximately nine to ten percent in the prior year. We have also received approval for, and are implementing double digit rate increases in many of our other major product lines. As previously mentioned, rate increases of approximately 20% to 25% have been approved related to the motorcycle product, however, these rate increases are expected to have minimal impact on earned premium in 2003.

American Modern experienced higher than normal levels of losses caused by fire in its manufactured housing and site-built lines during the second half of 2000 and continuing through most of 2001 and 2002. It is American Modern’s experience that the fire loss ratio increases during economic downturns. In response to this trend, American Modern began aggressively pursuing rate increases in its manufactured housing products and site-built programs in 2002 and 2003 and these rate increases have now been approved. Beginning in the second quarter of 2003 and continuing into the third quarter of 2003, the manufactured housing and site-built fire loss ratios have decreased to normal levels.

Over the past 15-27 months, American Modern has experienced a significant increase in the percentage of its gross written premium generated through its agency channel driven by its growth in motorcycle and site-built dwelling premium and also due to American Modern’s successful conversion of agency books of business to American Modern from other insurance companies. Also during this time frame, American Modern’s premium volume generated by its lender and point of sale channels decreased as a result of the slowdown in new manufactured housing sales and the decision to terminate certain unprofitable books of business.

Manufactured housing sales have traditionally been financed as personal property through a financing transaction referred to as chattel financing. Over the last several years, several large chattel lenders have ceased, or substantially reduced, lending for manufactured housing. As a result, manufactured housing sales have slowed and there has been a shift to more traditional mortgage loan financing on manufactured homes. American Modern has or had relationships with several of the chattel lenders who reduced their lending or exited this market. This, coupled with American Modern’s decision to terminate certain unprofitable business in the lender channel, has resulted in a decrease in the amount of premium volume American Modern has generated through its lender channel.

For the third quarter, American Modern’s property and casualty combined ratio (losses and expenses as a percent of earned premium) was 104.7 percent, compared with 107.3 percent a year ago. Catastrophe losses during the third quarter of 2003 had a 4.9 point impact on the combined ratio, compared with a 3.0 point impact a year ago.

Our third quarter results were lower due to two primary reasons: weather related catastrophes and above normal losses in our motorcycle line.

Pre-tax weather related catastrophe losses in the current third quarter were $7.9 million, $0.29 per share diluted, as compared to $4.4 million, $0.16 per share diluted, in the prior year’s third quarter. A normal level of catastrophe losses in a third quarter would be approximately $5.9 million on a pre-tax basis. Hurricane Isabel was the single largest contributor to our catastrophe losses in the current quarter. Net after-tax losses from Hurricane Isabel were $2.3 million, or $0.13 per share diluted. The losses from Isabel were substantially reduced by our normal catastrophe reinsurance program plus a special “one time” second event cover which provided significant protection during the event of a second major catastrophe in 2003. While a similar second event coverage will not be available for the remainder of 2003, the normal catastrophe reinsurance program will continue to be in place.

American Modern experienced higher than expected losses from its motorcycle product during the third quarter of 2003. The actual loss from the motorcycle product for the third quarter was approximately $0.28 per share (after -tax), up from $0.17 per share (after-tax) for the third quarter of 2002.

American Modern charges a service fee to those policyholders who elect to pay their insurance premium in installments. Historically, American Modern treated these fees as a recovery of processing costs and accounted for the fees as an offset to the related operating expense. American Modern has reclassified these fees as revenues for reporting purposes. This change has no impact on net income, however, the change will add 1.3 percentage points to the year-to-date and quarterly combined ratio of the property and casualty operations. On a pre-tax basis, these fees amounted to $2.1 million and $1.9 million in the third quarter of 2003 and 2002, respectively, and $6.0 million and $5.1 million in the first nine months of 2003 and 2002, respectively. All prior period data have been reclassified to conform to the current method of presenting these policy service fees.

The following chart shows American Modern’s gross written premium, net written premium and net earned premium by business segment for the three and nine-month periods ended September 30, 2003 and 2002 ($000):

Although the manufactured housing industry continues to be depressed, American Modern’s gross written premium related to this product increased 7.8% and 6.9% in the third quarter and nine months, of 2003 compared to the comparable periods in 2002. These increases are primarily the result of rate increases approved in 2002, which were partially offset by a decline in in-force policies.

Losses and loss adjustment expenses are discussed further for the total insurance segment. Several other items, such as investment income, are allocated to product lines, but are more meaningfully discussed in total and have been included in the sections that follow.

Gross written premiums in American Modern’s other specialty property and casualty products (non-manufactured housing products) collectively increased 21.8% in the third quarter of 2003 compared to the prior year’s third quarter. On a year-to-date basis, American Modern’s other specialty property and casualty products collectively increased 19.4% compared to the first nine months of 2002. The primary drivers of this growth in the third quarter and first nine months of 2003 were the watercraft, mortgage fire, recreational vehicle and excess and surplus lines products.

The decrease in the credit life gross written premium is due to industry regulatory actions which mandate a monthly pay product on real estate secured loans rather than a single premium. This change affects gross written premium, which decreased 58.7% and 75.0% during the third quarter and first nine months of 2003, respectively. The change is expected to have little impact on net earned premium. During the third quarter and first nine months of 2003, credit life net earned premium actually increased 15.5% and 15.3%, respectively. A large percentage of our credit life business is ultimately ceded back to an insurance affiliate of the producing agent.

Other insurance income increased $0.1 million and $0.8 million in the third quarter and first nine months, respectively, of 2003 compared to the comparable periods in 2002. These increases were due to the increases in fee income related to property and casualty installment premium payments.

American Modern’s net investment income decreased $0.5 million to $8.2 million in the third quarter of 2003 from $8.7 million in the third quarter of 2002. On a year-to-date basis, net investment income decreased $1.5 million to $24.6 million in the first nine months of 2003 from $26.1 million in the first nine months of 2002. These decreases are due to lower reinvestment rates relative to American Modern’s fixed income portfolio. The annualized pre-tax investment yield, on a cost basis, of American Modern’s fixed income portfolio was 5.5% in the first nine months of 2003 compared to 6.5% during the first nine months of 2002.

Our realized investment gains and losses are comprised of three items; embedded derivatives, other-than-temporary impairments and capital gains and losses from the sale of securities.

After-tax income from embedded derivatives which are included (on a pre-tax basis) in net realized capital gains (losses) amounted to $0.3 million, $0.02 per share (diluted), during the third quarter of 2003 compared to a loss of $(0.6) million, $(0.03) per share (diluted), in the prior year’s third quarter. On year-to-date basis, after-tax income from embedded derivatives was $0.1 million, $0.01 per share (diluted), during the first nine months of 2003 compared to a loss of $(0.4) million, $(0.02) per share (diluted) during the comparable period in 2002.

Also included in net realized capital gains (losses) in the first nine months of 2003 were after-tax losses of $(1.2) million, $(0.07) per share (diluted), resulting from the write-down (other-than-temporary impairment) of several lower rated securities in American Modern’s investment portfolio. There were no impairment losses in the third quarter of 2003. There were after-tax impairment losses of $(2.4) million, $(0.13) per share (diluted), in the third quarter and first nine months of 2002.

Excluding the impact of derivative and impairment losses, American Modern’s after-tax net realized capital gains increased to $0.5 million, $0.03 per share (diluted), in the third quarter of 2003 from a loss of $(0.7) million, $(0.04) per share (diluted), in the third quarter of 2002. On a year-to-date basis, after-tax realized capital gains increased to $2.6 million, $0.14 per share (diluted), from a loss of $(1.8) million, $(0.10) per share (diluted), in the first nine months of 2002.

American Modern’s losses and loss adjustment expenses in the third quarter of 2003 increased 6.8% to $105.1 million from $98.5 million in the prior year’s third quarter. This increase was due to significant increases in catastrophe losses coupled with premium growth and increased losses from the motorcycle product. Catastrophe losses on a pre-tax basis increased $3.5 million in the third quarter of 2003 to $7.9 million from $4.4 million in the third quarter of 2002. These losses were primarily from Hurricane Isabel, which struck the United States in September, 2003. Pre-tax losses from the motorcycle product increased to $17.3 million in the third quarter of 2003 from $13.3 million in the year ago third quarter.

On a year-to-date basis, American Modern’s losses and loss adjustment expenses increased 18.6% from $250.7 million in 2002 to $297.2 million in 2003. This increase was driven by premium growth plus significant increases in catastrophe losses, motorcycle losses and losses associated with the commercial lines product which American Modern exited in 2001. Catastrophe losses on a pre-tax basis increased $15.8 million from $15.8 million in the first nine months of 2002 to $31.6 million in the current period. These catastrophe losses added 6.8 percentage points to the combined ratio compared to 3.8 percentage points in the year ago period. A normal level of catastrophe losses for the first nine months would be approximately $26.4 million on a pre-tax basis.

Insurance Commissions, Other Policy Acquisition Costs and Operating and Administrative Expenses

American Modern’s commissions and other policy acquisition costs and operating and administrative expenses increased 8.4% to $66.6 million in the third quarter of 2003 from $61.4 million in the year ago third quarter.

On a year-to-date basis, commissions and other policy acquisition costs and operating and administrative expenses increased 5.5% to $197.0 million in the first nine months of 2003 from $186.7 million in the comparable year ago period.

These increases in both the three and nine-month periods were primarily due to the increase in net earned premium offset by a decrease in the commission rate, and, in legal, incentive and system development costs.

M/G Transport, Midland’s transportation subsidiary, reported revenues for the third quarter of 2003 of $6.9 million compared to $5.4 million in the third quarter of 2002. Pre-tax income increased to $0.5 million in the third quarter of 2003 from $0.2 million in the prior year’s third quarter.

M/G Transport’s year-to-date revenues increased to $19.7 million in the first nine months of 2003 from $16.8 million in the year ago first nine months. Pre-tax income improved to a profit of $0.8 million in the nine months of 2003 compared to a break-even situation in the prior year’s first nine months.

We have certain obligations and commitments to make future payments under contracts. As of September 30, 2003, the aggregate obligations on a consolidated basis were (amounts in 000’s):


				Payments Due by Period

				Less than		2-5		After 5
		Total		1 Year		Years		Years

Long-term debt		$	55,447	$	1,623	$	53,824	$	—
Other notes payable			22,267		22,267		—		—
Annual commitments under non-cancelable leases			6,538		627		2,738		3,173

	Total	$	84,252	$	24,517	$	56,562	$	3,173

Other than the annual commitments under non-cancelable leases noted above, there are no other material off-balance sheet obligations or guarantees.

On January 25, 2001 our Board of Directors approved an increase in the number of shares authorized under our share repurchase program from 1,000,000 shares to 2,000,000 shares on a post split basis. Ten thousand shares were repurchased in the open market under our share repurchase program during the first nine months of 2003 and a total of 586,000 shares remain authorized for repurchase under terms of this authority. There were additional stock repurchase transactions consummated in connection with our associate stock incentive programs during the first nine months of 2003. On April 25, 2002, our Board of Directors approved a two-year extension to the share repurchase program that will run through the date of the Board’s second quarterly meeting in 2004. The resolution does not require us to repurchase our shares, but rather gives management discretion to make purchases based on market conditions and our capital requirements.

We paid dividends to our shareholders of $2.4 million during the first nine months of 2003, and $2.3 million during the first nine months of 2002.

We expect that cash and other liquid investments, coupled with future operating cash flows and our short-term borrowing capacity, will be readily available to meet our operating cash requirements for the next 12 months.

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

Midland has a commercial paper program under which qualified purchasers may invest in the short-term unsecured notes of Midland. As of September 30, 2003, we had $3.3 million of commercial paper debt outstanding, $2.6 million of which represented notes held either directly or indirectly by our executive officers and directors. The effective annual yield paid to all participants in this program was 1.1% as of September 30, 2003, a rate that is considered to be competitive with the market rates offered for similar instruments. As of September 30, 2003, Midland also had $75.0 million of conventional short-term credit lines available at costs not exceeding prime borrowing rates, of which $19.0 million was outstanding. These lines of credit contain minimal covenants and are typically drawn and repaid over periods ranging from two weeks to three months. Additional short-term borrowing lines are available at the discretion of various lending institutions with comparable rates and terms. These short-term borrowings decreased $20.0 million from $39.0 million since December 31, 2002. Proceeds derived from the reduction in marketable securities were used to reduce these short-term borrowings. We also have a mortgage obligation related to the financing of our corporate headquarters building. As of September 30, 2003, the outstanding balance of this mortgage was $15.9 million. This mortgage obligation includes normal and customary debt covenants for instruments of this type. Monthly principal and interest payments are required until maturity in December 2005. The effective interest rate on this obligation is 6.8%.

On October 21, 2003 Midland filed a “universal shelf registration statement” with the Securities and Exchange Commission. A shelf registration, or delayed offering, of securities allows companies to register securities under the Securities Act of 1933 for future sale, thereby avoiding potential time-consuming delays inherent in the registration process. Under this process, companies are permitted to register securities in advance of their expected sale date and “put them on the shelf” for future use. This registration statement will allow the company to offer from time to time up to $150 million in various types of securities, including debt, preferred stock and common stock.

American Modern generates cash inflows primarily from insurance premium, investment income, proceeds from the sale of marketable securities and maturities of debt security investments. The principal cash outflows for the insurance operations relate to the payment of claims, commissions, premium taxes, operating expenses, capital expenditures, income taxes, dividends and inter-company borrowings to us and the purchase of marketable securities. In each of the periods 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 market value of Midland’s consolidated investment portfolio (comprised primarily of the investment holdings of American Modern) increased 7.2% from $739.8 million at December 31, 2002, to $792.7 million at September 30, 2003. This increase was due to positive cash flow from operations in the nine months of 2003 plus a $20.2 million increase in the unrealized appreciation in the market value of securities held. The increase in the unrealized appreciation was due to a $1.9 million increase in unrealized appreciation related to the fixed income portfolio plus a $18.3 million increase in the unrealized appreciation related to the equity portfolio. Midland’s largest equity holding, 2.5 million shares of U.S. Bancorp, increased to $59.0 million as of September 30, 2003 from $52.2 million as of December 31, 2002.

Securities with unrealized gains and losses by category (equity and debt) and by time frame are summarized in the chart below:

Based on the above valuations and the application of our other-than-temporary impairment policy criteria, which is more fully discussed in the Critical Accounting Policies section below, we believe the declines in fair value are temporary at September 30, 2003. However, the facts and circumstances related to these securities may change in future periods, which would result in “other-than-temporary” impairment in future periods.

The average duration of American Modern’s debt security investment portfolio as of September 30, 2003 was 4.0 years which management believes provides adequate asset/liability matching.

The amounts expended for the development costs capitalized in connection with the development of modernLINK®, our proprietary information systems and web enablement initiative, amounted to $1.8 million for the first nine months of 2003. The initiative is being designed, developed and implemented in periodic phases to ensure its cost effectiveness and functionality. This project may involve future cash expenditures of $7.0 million to $10.0 million annually over the next two to three years, with additional spending thereafter to expand system compatibility and functionality. A portion of such expenditures will be capitalized and amortized over the useful life. However, actual costs may be more or less than what we estimate. The cost of the development and implementation is expected to be funded out of operating cash flow. Significant changes to the technology interface between American Modern and its distribution channel participants and

policyholders, while unlikely, could significantly disrupt or alter its distribution channel relationships. If the new information systems are ultimately deemed ineffective, it could result in an impairment charge to our capitalized costs.

American Modern has a $60.0 million long-term credit facility available on a revolving basis at various rates. As of September 30, 2003, there was $30.0 million outstanding under these facilities.

During the first quarter of 2002, American Modern entered into an interest rate swap agreement with a consortium of three banks. Under the terms of this agreement, the floating interest rate related to $30.0 million outstanding under American Modern’s long-term credit facility has been effectively fixed at 5.6% until December 1, 2005, the maturity date. The fair value of this agreement as of September 30, 2003 was $(1.8) million and is included in other payables and accruals.

Accounts receivable is primarily comprised of premium due from both policyholders and agents. In the case of receivables due directly from policyholders, policies are cancelable in the event of non-payment and thus offer minimal credit exposure. Approximately 78% of American Modern’s accounts receivables relate to premium due directly from policyholders as of September 30, 2003. In the case of receivables due from agents, American Modern has extended payment terms that are customary and normal in the insurance industry. Management monitors its credit exposure with its agents and related concentrations on a regular basis. However, as collectibility of such receivables is dependent upon the financial stability of the agent, American Modern cannot assure collections in full. Where management believes appropriate, American Modern has provided a reserve for such exposures. Since December 31, 2002, American Modern’s accounts receivable has increased $4.8 million to $84.4 million as of September 30, 2003 due to the continued growth in insurance premiums written. American Modern’s receivable balance from its largest customer, GreenTree (formerly Conseco Agency, Inc.), decreased from $11.1 million as of December 31, 2002 to $7.5 million as of September 30, 2003. Conseco Agency filed for Chapter 11 bankruptcy on January 31, 2003, following the Chapter 11 filing of its parent company on December 18, 2002. Conseco Agency and the assets and certain liabilities including those to American Modern of Conseco Finance Company were part of an auction that was completed in March 2003. GreenTree continued to generate insurance premiums from policy renewals in the nine months of 2003 and American Modern continues to do “business as usual” with respect to these insurance premiums. The GreenTree receivable is current at September 30, 2003 and we anticipate collecting this receivable in its entirety. If American Modern were unable to collect the amounts due from GreenTree, our financial condition and results would be negatively impacted.

Reinsurance recoverables and prepaid reinsurance premium decreased to $74.3 million at September 30, 2003 from $76.6 million at December 31, 2002. Of the $74.3 million, $8.4 million was currently due from reinsurers for claims paid and for which a contractual obligation to collect from a reinsurer exists. This decrease was primarily due to a $9.5 million decrease in ceded unearned premium. This fluctuation was due to a $15.2 million decrease in ceded unearned premium related to American Modern’s life operations which resulted from the transition to a monthly pay premium from a single pay premium and was offset by a $5.7 million increase in ceded unearned premium related to American Modern’s property and casualty operations. As previously discussed, a large percentage of the life business is ultimately ceded back to an insurance affiliate of the producing agent.

The increase in property, plant and equipment — net was due to the acquisition of 30 new barges by M/G Transport at a cost of $7.5 million plus M/G Transport’s recording of certain transportation equipment valued at $1.9 million which had previously been accounted for as a synthetic operating lease agreement.

The increase in insurance loss reserves since December 31, 2002 is attributable to the increase in gross written premium plus the catastrophe losses caused by Hurricane Isabel, which struck the East Coast of the United States in September, 2003.

The $7.1 million increase in deferred federal income tax since December 31, 2002 is due to the increase in the unrealized gain on marketable securities.

Cash flow from the insurance operations is expected to remain sufficiently positive to meet American Modern’s future operating requirements and to provide for reasonable dividends to Midland.

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

The transportation subsidiaries entered into a fifteen-year lease in 1999 for transportation equipment. Aggregate rental payments under this operating lease over the next eleven years will approximate $6.3 million. M/G Transport acquired 30 new barges during the second and third quarters of 2003 at a total cost of $7.5 million. These acquisitions were financed with $7.5 million in conventional long-term debt. M/G Transport has certain transportation equipment that was financed through a synthetic lease arrangement. This equipment was recorded in the third quarter of 2003 at a value of $1.9 million with a corresponding $1.9 million recorded as a liability. As of September 30, 2003, the transportation subsidiaries had $9.6 million of collateralized equipment obligations outstanding.

The only differences between our net income and comprehensive income is the net after-tax change in unrealized gains on marketable securities and the after-tax change in the fair value of the interest rate swap agreement. For the three and nine-month periods ended September 30, 2003 and 2002, such changes increased or (decreased), net of related income tax effects, by the following amounts (amounts in 000’s):

For the nine months ended September 30, 2003 and 2002, net unrealized gains (net of income tax effects) in equity securities increased (decreased) by $11.9 million and $(15.1) million, respectively. For fixed income securities, the net unrealized gains increased by $1.2 million and $10.9 million, respectively, for the same time periods.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, revenues and expenses and related disclosures of contingent assets and liabilities. We regularly evaluate our critical accounting policies, assumptions and estimates, including those related to insurance revenue and expense recognition, loss reserves, reinsurance levels and valuation and impairment of intangible assets such as goodwill. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. This process forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements.

Premium for physical damage and other property and casualty related coverages, net of premium ceded to reinsurers, are recognized as income on a pro-rata basis over the lives of the policies. Credit accident and health and credit life premiums are recognized as income over the lives of the policies in proportion to the amount of insurance protection provided. American Modern generally does not consider anticipated investment income in determining premium deficiencies (if any) on short-term contracts. Policy acquisition costs, primarily commission expenses and premium taxes, are capitalized and expensed over the terms of the related policies on the same basis as the related premiums are earned. Selling and administrative expenses that are not primarily related to premium written are expensed as incurred.

American Modern’s reserve for insurance losses is based on past experience of settling known claims as well as estimating those not yet reported. While management believes the amounts are fairly stated, the ultimate liability, once fully developed, may be more than or less than that provided. Management and its actuaries, both internal and external, regularly review these liabilities and adjustments are made as necessary in the current period. Management does not foresee any significant change in the manner in which it records its reserve for insurance losses.

By reinsuring certain levels and types of insurable risk with other insurance companies, American Modern limits its exposure to losses to that portion of the insurable risk it retains. However, if the reinsurer fails to honor its obligations, American Modern could suffer additional losses as the reinsurance contracts do not relieve American Modern of its obligations to policyholders. American Modern regularly evaluates the financial condition of its reinsurers to minimize its exposure to losses from reinsurer insolvencies. In addition, American Modern may require reinsurers to establish trust funds and maintain letters of credit to further minimize American Modern’s exposure. We do not believe there is any significant concentration of credit risk arising from any single reinsurer. We expect that American Modern’s reinsurers will satisfy their obligations. As of September 30, 2003, American Modern was owed $8.4 million from reinsurers for claims that have been paid and for which a contractual obligation to collect from a reinsurer exists.

American Modern invests in various securities including U.S. Government securities, corporate debt securities, and corporate stocks. Investment securities in general are exposed to various risks such as interest rate, credit, and overall market volatility. Due to the level of risk associated with these securities, it is reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could be material.

In order to evaluate for other-than-temporary impairment, we conduct quarterly comprehensive reviews of individual portfolio holdings that have a market value less than their respective carrying costs. As part of our review for other-than-temporary impairment, we track the respective cost and market values for all individual portfolio holdings with an unrealized loss. For securities where the market value is less than 80% of cost, we more closely monitor for signs of other-than- temporary impairment. We, with the assistance of our external professional money managers, apply both quantitative and qualitative criteria in our evaluation, including facts specific to each individual investment such as, but not limited to, the length of time the fair value has been below the cost, the extent of the decline, our intent to sell or hold the security, the expectation for each individual security’s performance, the credit worthiness and related liquidity of the issuer and the issuer’s business sector.

The evaluation for other-than-temporary impairment requires a significant amount of judgement. As such, there are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if a decline is other-than-temporary. These risks and uncertainties include the risks that:

1. The economic outlook is worse than anticipated and has a greater adverse impact on a particular issuer than anticipated.

2. Our assessment of a particular issuer’s ability to meet all of its contractual obligations changes based on changes in the facts and circumstances related to the issuer.

3. New information is obtained or facts and circumstances change that cause a change in our ability or intent to hold a security to maturity or until it recovers in value.

When a security is considered other-than-temporarily impaired, we monitor trends or circumstances that may impact other material investments in our portfolio. For example, we review any other securities that are held in the portfolio from the same issuer and also consider any circumstances that may impact other securities of issuers in the same industry. At September 30, 2003, we had no significant concentration of unrealized losses in any one issuer, industry or sector.

For fixed income and equity securities, we consider the following factors, among others, to determine if a security is other-than-temporarily impaired:

•		the extent and duration to which market value is less than cost
•		historical operating performance
•		issuer news releases, including those disclosing that the issuer has committed an event of default (missed payment beyond grace period, bankruptcy filing, loss of principle customer or supplier, debt downgrade, disposal of segment, etc.
•		near term prospects for improvement of the issuer and/or its industry to include relevant industry conditions and trends
•		industry research and communications with industry specialists
•		third party research reports
•		credit rating reports
•		financial models and expectations
•		discussions with issuer’s management by investment manager
•		our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery
•		time to conversion with respect to a mandatory convertible security

•		whether the unrealized loss is credit-driven or is a result of changes in market interest rates
•		the recoverability of principle and interest
•		the issuer’s ability to continue to obligated payments to security holders

The investment portfolio is comprised of various asset classes which are independently managed by external professional portfolio managers under the oversight and guidelines established by our investment committee. We evaluate the performance of the portfolio managers relative to benchmarks we believe appropriate given the asset class. Investment managers will manage the portfolio under these guidelines to maximize the return on their investment class. As part of their investment strategy, the investment managers will buy and sell securities based on changes in the availability of, and the yield on, alternative investments. Investment managers may also buy and sell investments to diversify risk, attain a specific characteristic such as duration or credit quality, rebalance or reposition the portfolio or for a variety of other reasons.

It is our intent, and thus the intent of our investment managers, to hold securities that have an unrealized gain or loss. For the securities with an unrealized loss, which in our judgement we believe to be temporary, it is our intent to hold the security for a period of time that will allow the security to recover in value. However, if the investment managers believe returns would be enhanced by reallocating the capital from the security, the manager may sell the security and reallocate the capital, in which case the unrealized gain or loss will be recognized as a realized gain or loss. As part of our comprehensive quarterly review for other than temporary impairment, the investment managers identify any securities in which they have the intent to sell in the near term. In the case where investment managers have indicated their intent to sell a security in the near term and there is an unrealized loss, we record an other than temporary impairment at the balance sheet date, if such date it prior to the sale of the security. At September 30, 2003, we had no securities with an unrealized loss for which a decision was made to sell in the near term.

Midland maintains defined benefit pension plans for a limited number of active participants. The defined benefit pension plans are not open to employees hired after March 31, 2000. The pension expense is calculated based upon a number of actuarial assumptions, including an expected long-term rate of return and a discount rate. In determining our expected long-term rate of return and our discount rate, we evaluate input from our actuaries, asset allocations and long-term bond yields. If other assumptions were used, the amount recorded as pension expense would be different from our current estimate.

As required by SFAS No. 142, we ceased amortizing goodwill effective January 1, 2002. Based on the impairment test required by SFAS No. 142 in the quarter ended March 31, 2002, a non-recurring charge of $1.5 million after-tax was taken against income and is reported as cumulative effect of change in accounting principle in the income statement. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over a 10-year period. As of September 30, 2003, our remaining goodwill balance was $2.1 million and is included in other assets.

On July 1, 2003, Midland adopted the provisions of FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” This interpretation requires variable interest entities to be consolidated by the primary beneficiary which represents the enterprise that will absorb the majority of the variable interest entities’ expected losses if they occur, receive a majority of the variable interest entities’ residual returns if they occur, or both. Midland identified a synthetic lease arrangement for certain transportation equipment in which Midland is deemed to be the primary beneficiary as the registrant maintains the majority of the variable interests in this leased asset. In the third quarter of 2003, the company recorded this operating lease asset and a corresponding liability of $1.9 million.

During the first three weeks of October 2003, American Modern has experienced some level of losses from wildfires in California. We are currently assessing the potential impact of these losses.

We do not consider the impact of the change in prices due to inflation to be material in the analysis of our overall operations.

Market risk is the risk that we will incur investment losses due to adverse changes in market rates and prices. Our market risk exposures are substantially related to American Modern’s investment portfolio and changes in interest rates and equity prices. Each risk is defined in more detail as follows.

Interest rate risk is the risk that American Modern will incur economic losses due to adverse changes in interest rates. The risk arises from many of American Modern’s investment activities, as American Modern invests substantial funds in interest-sensitive assets. American Modern manages the interest rate risk inherent in its investment assets relative to the interest rate risk inherent in its liabilities. One of the measures American Modern uses to quantify this exposure is duration. By definition, duration is a measure of the sensitivity of the fair value of a fixed income portfolio to changes in interest rates. Based upon the 4.0 year duration of American Modern’s fixed income portfolio as of September 30, 2003, management estimates that a 100 basis point increase in interest rates would decrease the market value of its $662.3 million debt security portfolio by 4.0%, or $26.5 million.

Equity price risk is the risk that American Modern will incur economic losses due to adverse changes in a particular stock or stock index. American Modern’s equity exposure consists primarily of declines in the value of its equity security holdings. As of September 30, 2003, American Modern had $150.6 million in equity holdings, including $56.0 million of U.S. Bancorp common stock. A 10% decrease in the market value of U.S. Bancorp’s common stock would decrease the fair value of its equity portfolio by approximately $5.6 million. As of September 30, 2003, the remainder of American Modern’s portfolio of equity securities had a beta coefficient (a measure of stock price volatility) of 1.07. This means that, in general, if the S&P 500 Index decreases by 10%, management estimates that the fair value of the remaining equity portfolio will decrease by 10.7%.

The active management of market risk is integral to American Modern’s operations. American Modern has investment guidelines that define the overall framework for managing market and other investment risks, including the accountabilities and controls over these activities.

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

The Company maintains a system of internal control over financial reporting. There have been no change in the Company’s internal control over financial reporting that occurred during the company’s third fiscal quarter that has materially effected, or is reasonably likely to materially effect, the Company’s internal control over financial reporting.

We have reviewed the accompanying condensed consolidated balance sheet of The Midland Company and subsidiaries as of September 30, 2003, and the related condensed consolidated statements of operations for the three-months and nine-months periods ended September 30, 2003 and 2002 and of changes in shareholders’ equity and cash flows for the nine-month periods ended September 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of The Midland Company and subsidiaries as of December 31, 2002, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 6, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.

PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
SEPTEMBER 30, 2003

		Item 1. Legal Proceedings None

		Item 2. Changes in Securities and Use of Proceeds None

		Item 3. Defaults Upon Senior Securities None

		Item 4. Submission of Matters to a Vote of Security Holders None

		Item 5. Other Information None

		Item 6. Exhibits and Reports on Form 8-K

	a)		Exhibit 15 — Letter re: Unaudited Interim Financial Information

			Exhibit 31.1 — Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

			Exhibit 31.2 — Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

			Exhibit 32.1 — Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350

			Exhibit 32.2 — Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350

	b)		Reports on Form 8-K — None

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE MIDLAND COMPANY

Date	November 10, 2003	s/John I. Von Lehman

		John I. Von Lehman, Executive Vice President, Chief Financial Officer and Secretary


				(Unaudited)
				Sept. 30,		Dec. 31,
ASSETS				2003		2002

MARKETABLE SECURITIES AVAILABLE FOR SALE:
	Fixed income (cost, $608,998 at September 30, 2003 and $572,768 at December 31, 2002)			$	639,034	$	600,920
	Equity (cost, $87,740 at September 30, 2003 and $91,239 at December 31, 2002)				153,633		138,838

			Total		792,667		739,758

CASH					6,308		5,975

ACCOUNTS RECEIVABLE — NET					94,372		91,633

REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS					74,258		76,626

PROPERTY, PLANT AND EQUIPMENT — NET					69,410		61,510

DEFERRED INSURANCE POLICY ACQUISITION COSTS					93,936		96,396

OTHER ASSETS					18,445		18,776

		TOTAL ASSETS		$	1,149,396	$	1,090,674


			(Unaudited)
			Sept. 30,			Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY			2003			2002

UNEARNED INSURANCE PREMIUMS			$	405,838		$	406,311

INSURANCE LOSS RESERVES				198,159			164,717

INSURANCE COMMISSIONS PAYABLE				31,598			30,654

FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES				6,095			2,977

LONG-TERM DEBT				55,447			47,163

OTHER NOTES PAYABLE:
	Banks			19,000			39,000
	Commercial paper			3,267			4,238

		Total		22,267			43,238

DEFERRED FEDERAL INCOME TAX				42,775			35,642

OTHER PAYABLES AND ACCRUALS				53,280			51,064

COMMITMENTS AND CONTINGENCIES				—			—

SHAREHOLDERS’ EQUITY:
	Common stock (issued and outstanding: 17,626 shares at September 30, 2003 and 17,566 shares at December 31, 2002 after deducting treasury stock of 4,230 shares and 4,290 shares, respectively)			911			911
	Additional paid-in capital			23,200			22,516
	Retained earnings			290,636			279,826
	Accumulated other comprehensive income			60,798			47,573
	Treasury stock — at cost			(41,512	)		(41,605	)
	Unvested restricted stock awards			(96	)		(313	)

		Total		333,937			308,908

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,149,396		$	1,090,674


					Nine-Mos. Ended Sept. 30,					Three-Mos. Ended Sept. 30,

					2003		2002			2003		2002

REVENUES:
	Insurance:
			Premiums earned		$	474,770	$	425,794		$	164,290	$	148,417
			Net investment income			24,634		26,114			8,195		8,706
			Net realized investment gains (losses)			2,240		(6,968	)		1,190		(5,607	)
			Other insurance income			10,565		9,799			3,568		3,460
	Transportation					19,736		16,815			6,915		5,404
	Other					207		437			64		96

				Total		532,152		471,991			184,222		160,476

COSTS AND EXPENSES:
	Insurance:
			Losses and loss adjustment expenses			297,222		250,686			105,139		98,473
			Commissions and other policy acquisition costs			133,676		124,049			44,953		41,704
			Operating and administrative expenses			63,335		62,655			21,612		19,685
	Transportation operating expenses					18,756		16,666			6,339		5,118
	Interest expense					2,782		2,703			961		850

				Total		515,771		456,759			179,004		165,830

INCOME (LOSS) BEFORE FEDERAL INCOME TAX AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE						16,381		15,232			5,218		(5,354	)
PROVISION (CREDIT) FOR FEDERAL INCOME TAX						3,060		2,625			929		(2,739	)

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE						13,321		12,607			4,289		(2,615	)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE — NET						—		(1,463	)		—		—

				NET INCOME (LOSS)	$	13,321	$	11,144		$	4,289	$	(2,615	)

BASIC EARNINGS (LOSSES) PER SHARE OF COMMON STOCK:
		Income before change in accounting principle			$	0.77	$	0.72		$	0.25	$	(0.15	)
		Cumulative effect of change in accounting principle				—		(0.08	)		—		—

				Total	$	0.77	$	0.64		$	0.25	$	(0.15	)

DILUTED EARNINGS (LOSSES) PER SHARE OF COMMON STOCK:
		Income before change in accounting principle			$	0.74	$	0.70		$	0.23	$	(0.15	)
		Cumulative effect of change in accounting principle				—		(0.08	)		—		—

				Total	$	0.74	$	0.62		$	0.23	$	(0.15	)

CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK					$	.14250	$	.13125		$	0.04750	$	0.04375


													Accumulated						Unvested
							Additional						Other Com-						Restricted						Compre-
					Common		Paid-In			Retained			prehensive			Treasury			Stock						hensive
					Stock		Capital			Earnings			Income			Stock			Awards			Total			Income

BALANCE, DECEMBER 31, 2001					$	911	$	20,386		$	264,057		$	45,875		$	(38,698	)	$	(655	)	$	291,876
	Comprehensive income:
			Net income								11,144												11,144		$	11,144
			Decrease in unrealized gain on marketable securities, net of related income tax effect of $2,253											(4,366	)								(4,366	)		(4,366	)
		Other, net of federal income tax of $654												(1,215	)								(1,215	)		(1,215	)

				Total comprehensive income																					$	5,563

	Purchase of treasury stock																(3,593	)					(3,593	)
	Issuance of treasury stock for options exercised and employee savings plan							484									853						1,337
	Cash dividends declared										(2,304	)											(2,304	)
	Federal income tax benefit related to the exercise or granting of stock awards							1,561															1,561
	Amortization and cancellation of unvested restricted stock awards							(26	)								(27	)		249			196

BALANCE, SEPTEMBER 30, 2002					$	911	$	22,405		$	272,897		$	40,294		$	(41,465	)	$	(406	)	$	294,636

BALANCE, DECEMBER 31, 2002					$	911	$	22,516		$	279,826		$	47,573		$	(41,605	)	$	(313	)	$	308,908
	Comprehensive income:
			Net income								13,321												13,321		$	13,321
			Increase in unrealized gain on marketable securities, net of related income tax effect of $7,070											13,108									13,108			13,108
		Other, net of federal income tax of $63												117									117			117

				Total comprehensive income																					$	26,546

	Purchase of treasury stock																(944	)					(944	)
	Issuance of treasury stock for options exercised and employee savings plan							563									1,039						1,602
	Cash dividends declared										(2,511	)											(2,511	)
	Federal income tax benefit related to the exercise or granting of stock awards							123															123
	Amortization and cancellation of unvested restricted stock awards							(2	)								(2	)		217			213

BALANCE, SEPTEMBER 30, 2003					$	911	$	23,200		$	290,636		$	60,798		$	(41,512	)	$	(96	)	$	333,937


				2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	13,321		$	11,144
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			6,739			6,013
		Cumulative effect of change in accounting for goodwill			—			2,251
		Net realized investment losses (gains)			(2,063	)		6,386
		Increase in insurance loss reserves			33,442			11,404
		Increase in funds held under reinsurance agreements and reinsurance payables			3,118			44
		Increase in net accounts receivable			(2,739	)		(13,029	)
		Decrease (increase) in deferred insurance policy acquisition costs			2,460			(1,476	)
		Increase (decrease) in other accounts payable and accruals			2,449			(10,918	)
		Decrease (increase) in reinsurance recoverables and prepaid reinsurance premiums			2,368			(6,360	)
		Increase in insurance commissions payable			944			3,294
		Increase (decrease) in unearned insurance premiums			(473	)		26,294
		Decrease (increase) in other assets			(404	)		744
		Other-net			2,776			912

			Net cash provided by operating activities		61,938			36,703

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of marketable securities				(382,606	)		(209,125	)
	Sale of marketable securities				232,632			130,363
	Maturity of marketable securities				76,860			42,963
	Decrease in cash equivalent marketable securities				39,662			10,721
	Acquisition of property, plant and equipment				(12,049	)		(8,497	)
	Proceeds from sale of property, plant and equipment				280			159

			Net cash used in investing activities		(45,221	)		(33,416	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Decrease in net short-term borrowings				(20,971	)		(1,195	)
	Issuance of long term debt				7,497			—
	Dividends paid				(2,441	)		(2,245	)
	Issuance of treasury stock				1,602			1,337
	Repayment of long-term debt				(1,127	)		(1,086	)
	Purchase of treasury stock				(944	)		(3,593	)

			Net cash used in financing activities		(16,384	)		(6,782	)

NET INCREASE (DECREASE) IN CASH					333			(3,495	)
CASH AT BEGINNING OF PERIOD					5,975			11,286

CASH AT END OF PERIOD				$	6,308		$	7,791

INTEREST PAID				$	2,542		$	2,778
INCOME TAXES PAID				$	1,500		$	6,000


		For Basic EPS		For Diluted EPS

Nine months ended September 30:
	2003		17,411		17,919

	2002		17,312		17,868

Three months ended September 30:
	2003		17,420		17,913

	2002		17,341		17,341


			Nine Months Ended Sept. 30, 2003							Three Months Ended Sept. 30, 2003

					Revenues-		Pre-Tax			Revenues-				Pre-Tax
			Total		External		Income				External			Income
			Assets		Customers		(Loss)			Customers				(Loss)

Reportable Segments:
	Insurance:
		Manufactured housing		n/a	$	245,038	$	21,156				$	81,263	$	6,535
		Other		n/a		240,297		(6,418	)				86,595		(2,418	)
		Unallocated	$	1,091,933		—		2,235					—		833
	Transportation			32,866		19,736		771					6,915		455
	Corporate and all other			—		—		(1,363	)				—		(187	)

							$	16,381						$	5,218


			Nine Months Ended Sept. 30, 2002							Three Months Ended Sept. 30, 2002

					Revenues-		Pre-Tax			Revenues-				Pre-Tax
			Total		External		Income				External			Income
			Assets		Customers		(Loss)			Customers				(Loss)

Reportable Segments:
	Insurance:
		Manufactured housing		n/a	$	244,016	$	13,689				$	81,953	$	(179	)
		Other		n/a		191,577		4,585					69,924		(4,383	)
		Unallocated	$	1,034,653		—		(1,029	)				—		(351	)
	Transportation			22,585		16,815		8					5,404		219
	Corporate and all other			—		—		(2,021	)				—		(660	)

							$	15,232						$	(5,354	)


		Nine Months Ended Sept. 30,					Three Months Ended Sept. 30,

			2003		2002			2003		2002

Net Income (Loss) as Reported			$	13,321	$	11,144		$	4,289	$	(2,615	)
Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects				705		550			197		150

Pro forma Net Income (Loss)			$	12,616	$	10,594		$	4,092	$	(2,765	)

Basic Shares				17,411		17,312			17,420		17,341
Diluted Shares				17,919		17,868			17,913		17,341
Earnings per share:
	Basic — as reported		$	0.77	$	0.64		$	0.25		($0.15	)
	Basic — pro forma			0.73		0.61			0.23		(0.16	)
	Diluted — as reported		$	0.74	$	0.62		$	0.23		($0.15	)
	Diluted — pro forma			0.70		0.59			0.23		(0.16	)


			Nine Months Ended						Nine Months Ended
			September 30, 2003						September 30, 2002

			Gross		Net		Net		Gross		Net		Net
			Written		Written		Earned		Written		Written		Earned
Business Segment			Premium		Premium		Premium		Premium		Premium		Premium

Manufactured Housing			$	246.8	$	232.9	$	245.0	$	230.8	$	220.8	$	244.0
All Other Insurance and Services:
	Other Property & Casualty Specialty Products			263.6		243.4		219.7		220.7		211.0		173.1
	Life Operations			10.2		8.9		10.1		40.8		9.5		8.7

		Total	$	520.6	$	485.2	$	474.8	$	492.3	$	441.3	$	425.8


			Three Months Ended						Three Months Ended
			September 30, 2003						September 30, 2002

			Gross		Net		Net		Gross		Net		Net
			Written		Written		Earned		Written		Written		Earned
Business Segment			Premium		Premium		Premium		Premium		Premium		Premium

Manufactured Housing			$	88.6	$	83.4	$	81.3	$	82.2	$	79.1	$	82.0
All Other Insurance and Services:
	Other Property & Casualty Specialty Products			95.7		85.1		79.4		78.6		75.1		63.3
	Life Operations			4.7		5.8		3.6		11.3		3.7		3.1

		Total	$	189.0	$	174.3	$	164.3	$	172.1	$	157.9	$	148.4


		Unrealized			Fair		# of
		Gain (Loss)			Value		Positions

Fixed Income Securities
Total Held In A Gain Position		$	31,280		$	567,210		643
Held In A Loss Position For Less Than 3 Months			(440	)		21,835		22
Held In A Loss Position For More Than 3 Months And Less Than 9 Months			(519	)		39,929		37
Held In A Loss Position For More Than 9 Months And Less Than 18 Months			(12	)		1,258		3
Held In A Loss Position For More Than 18 Months			(273	)		2,018		7

	Fixed Income Total	$	30,036		$	632,250		712

Equity Securities
Total Held In A Gain Position		$	69,253		$	133,481		165
Held In A Loss Position For Less Than 3 Months			(1,221	)		2,890		22
Held In A Loss Position For More Than 3 Months And Less Than 9 Months			(295	)		3,706		15
Held In A Loss Position For More Than 9 Months And Less Than 18 Months			(1,324	)		9,712		35
Held In A Loss Position For More Than 18 Months			(521	)		3,132		9
	Equity Total	$	65,892		$	152,921		246

Total Per Above		$	95,928		$	785,171		958
Accrued Interest and Dividends						7,496

Total Per Balance Sheet		$	95,928		$	792,667


		Nine Months Ended					Three Months Ended
		September 30,					September 30,

Changes in:		2003		2002			2003			2002

Net unrealized capital gains		$	13,108	$	(4,366	)	$	(3,512	)	$	(5,854	)
Fair value of interest rate swap hedge			117		(1,215	)		203			(823	)

	Total	$	13,225	$	(5,581	)	$	(3,309	)	$	(6,677	)