UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-3722
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(404 ) 266-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting
company ☑ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☑
The total number of shares of the registrant’s Common Stock, $1 par value, outstanding on October 31, 2024 was 20,399,758 .
ATLANTIC AMERICAN CORPORATION
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2
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Part I.
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Financial Information
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Item 1.
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3
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3
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4
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5
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6
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7
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8
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Item 2.
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20 | |
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Item 4.
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26
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Part II.
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Other Information
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Item 2.
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27
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Item 5.
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27
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Item 6.
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27
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28
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This report contains and references certain information that constitutes forward-looking statements as that term is defined in the federal securities laws. Forward-looking statements are all
statements other than those of historical fact. Such forward-looking statements are made based upon management’s current assessments of various risks and uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions
of the federal securities laws. Forward-looking statements are inherently subject to various risks and uncertainties and the Company’s actual results could differ materially from the results expressed in or implied by these forward-looking
statements. These risks and uncertainties include, but are not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and other subsequent filings made by the Company from time to time with
the Securities and Exchange Commission. In addition, other risks and uncertainties not known by us, or that we currently determine to not be material, may materially adversely affect our financial condition, results of operations or cash flows.
The Company undertakes no obligation to update any forward-looking statement as a result of subsequent developments, changes in underlying assumptions or facts, or otherwise, except as may be required by law.
PART I.
FINANCIAL INFORMATION
ATLANTIC AMERICAN CORPORATION
(In thousands, except share and per share data)
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Unaudited
September 30,
2024
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December 31,
2023
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|||||||
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ASSETS
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||||||||
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Cash and cash equivalents
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$
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$
|
|
||||
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Investments:
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||||||||
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Fixed maturities, available-for-sale, at fair value (amortized cost: $
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|
||||||
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Equity securities, at fair value (cost: $
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||||||
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Other invested assets (cost: $
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||||||
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Policy loans
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||||||
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Real estate
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||||||
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Investment in unconsolidated trusts
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||||||
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Total investments
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||||||
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Receivables:
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||||||||
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Reinsurance (net of allowance for expected credit losses of $
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|
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||||||
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Insurance premiums and other (net of allowance for expected credit losses of $
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||||||
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Deferred income taxes, net
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||||||
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Deferred acquisition costs
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||||||
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Other assets
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||||||
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Intangibles
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||||||
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Total assets
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$
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|
$
|
|
||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
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Insurance reserves and policyholder funds:
|
||||||||
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Future policy benefits
|
$
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|
$
|
|
||||
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Unearned premiums
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|
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||||||
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Losses and claims
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|
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||||||
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Other policy liabilities
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||||||
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Total insurance reserves and policyholder funds
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||||||
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Accounts payable and accrued expenses
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||||||
| Revolving credit facility |
||||||||
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Junior subordinated debenture obligations, net
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||||||
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Total liabilities
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|
|
||||||
| Commitments and contingencies (Notes 3 and 12) | ||||||||
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Shareholders’ equity:
|
||||||||
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Preferred stock, $
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|
|
||||||
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Common stock, $
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|
|
||||||
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Additional paid-in capital
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|
||||||
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Retained earnings
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|
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||||||
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Accumulated other comprehensive loss
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(
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)
|
(
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)
|
||||
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Unearned stock grant compensation
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(
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)
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(
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)
|
||||
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Treasury stock, at cost:
|
(
|
)
|
(
|
)
|
||||
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Total shareholders’ equity
|
|
|
||||||
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Total liabilities and shareholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; Dollars in thousands, except per share data)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024 | 2023 | |||||||||||||
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Revenue:
|
||||||||||||||||
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Insurance premiums, net
|
$
|
|
$
|
|
$ | $ | ||||||||||
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Net investment income
|
|
|
||||||||||||||
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Realized investment gains, net
|
||||||||||||||||
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Unrealized losses on equity securities, net
|
(
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)
|
(
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)
|
( |
) | ( |
) | ||||||||
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Other income
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|
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||||||||||||||
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Total revenue
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||||||||||||||
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Benefits and expenses:
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||||||||||||||||
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Insurance benefits and losses incurred
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Commissions and underwriting expenses
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||||||||||||||
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Interest expense
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||||||||||||||
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Other expense
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||||||||||||||
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Total benefits and expenses
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||||||||||||||
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Income (loss) before income taxes
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(
|
)
|
|
( |
) | |||||||||||
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Income tax expense (benefit)
|
(
|
)
|
|
( |
) | |||||||||||
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Net income (loss)
|
(
|
)
|
|
( |
) | |||||||||||
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Preferred stock dividends
|
(
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)
|
(
|
)
|
( |
) | ( |
) | ||||||||
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Net income (loss) applicable to common shareholders
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
| Earnings (loss) per common share (basic) |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
|
Earnings (loss) per common share (diluted)
|
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; Dollars in thousands)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024 | 2023 | |||||||||||||
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Net income (loss)
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
Other comprehensive income (loss):
|
||||||||||||||||
|
Available-for-sale fixed maturity securities:
|
||||||||||||||||
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Gross
unrealized holding gains (losses) arising in the period
|
|
(
|
)
|
( |
) | |||||||||||
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Related income tax effect
|
(
|
)
|
|
( |
) | |||||||||||
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Subtotal
|
|
(
|
)
|
( |
) | |||||||||||
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Less: reclassification adjustment for net realized gains included in net income (loss)
|
( |
) | ( |
) | ( |
) | ||||||||||
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Related income tax effect
|
||||||||||||||||
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Subtotal
|
( |
) | ( |
) | ( |
) | ||||||||||
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Total other comprehensive income (loss), net of tax
|
|
(
|
)
|
( |
) | |||||||||||
| Total comprehensive income (loss) |
$
|
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; Dollars in thousands except share data)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024 | 2023 | |||||||||||||
|
Preferred stock:
|
||||||||||||||||
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Balance, beginning of period
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Balance, end of period
|
|
|
||||||||||||||
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Common stock:
|
||||||||||||||||
|
Balance, beginning of period
|
|
|
||||||||||||||
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Balance, end of period
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|
|
||||||||||||||
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Additional paid-in capital:
|
||||||||||||||||
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Balance, beginning of period
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|
|
||||||||||||||
|
Balance, end of period
|
|
|
||||||||||||||
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Retained earnings:
|
||||||||||||||||
|
Balance, beginning of period
|
|
|
||||||||||||||
|
|
— | — | — | ( |
) | |||||||||||
|
Net income (loss)
|
(
|
)
|
|
( |
) | |||||||||||
|
Dividends on common stock
|
|
(
|
)
|
( |
) | ( |
) | |||||||||
|
Dividends accrued on preferred stock
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Balance, end of period
|
|
|
||||||||||||||
|
Accumulated other comprehensive loss:
|
||||||||||||||||
|
Balance, beginning of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Other comprehensive income (loss), net of tax
|
|
(
|
)
|
( |
) | |||||||||||
|
Balance, end of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Unearned stock grant compensation:
|
||||||||||||||||
|
Balance, beginning of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Amortization of unearned compensation
|
|
|
||||||||||||||
|
Balance, end of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Treasury stock:
|
||||||||||||||||
|
Balance, beginning of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Net shares acquired related to employee share-based compensation plans
|
( |
) | ( |
) | ||||||||||||
|
Balance, end of period
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Total shareholders’ equity
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Dividends declared on common stock per share
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Common shares outstanding:
|
||||||||||||||||
|
Balance, beginning of period
|
||||||||||||||||
| Net shares acquired under employee share-based compensation plans | ( |
) | ( |
) | ||||||||||||
| Balance, end of period | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; In thousands)
|
Nine Months Ended
September 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net (loss) income
|
$
|
(
|
)
|
$
|
|
|||
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
||||||||
|
(Additions to) amortization of acquisition costs, net
|
(
|
)
|
|
|||||
|
Realized investment gains, net
|
( |
) | ( |
) | ||||
|
Unrealized investment losses, net
|
||||||||
|
Losses from equity method investees
|
||||||||
|
Compensation expense related to share awards
|
|
|
||||||
|
(Benefit) provision for credit losses
|
( |
) | ||||||
|
Depreciation and amortization
|
|
|
||||||
|
Deferred income tax benefit
|
(
|
)
|
(
|
)
|
||||
|
Increase in receivables, net
|
( |
) |
(
|
)
|
||||
|
Increase (decrease) in insurance reserves and policyholder funds
|
|
(
|
)
|
|||||
|
Decrease in accounts payable and accrued expenses
|
(
|
)
|
(
|
)
|
||||
|
Other, net
|
|
|
||||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Proceeds from investments sold
|
|
|
||||||
|
Proceeds from investments matured, called or redeemed
|
|
|
||||||
|
Investments purchased
|
(
|
)
|
(
|
)
|
||||
|
Additions to property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Payment of dividends on common stock
|
( |
) | ( |
) | ||||
|
Treasury stock acquired — net employee share-based compensation
|
( |
) | ( |
) | ||||
|
Proceeds from revolving credit facility, net
|
||||||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
| Cash paid for income taxes |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; Dollars in thousands, except per share amounts)
| Note 1. |
Basis of Presentation and Significant Accounting Policies
|
The
accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). The Parent’s primary operating subsidiaries,
American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together
known as “Bankers Fidelity”), operate in two principal business units. American Southern operates in the property and casualty insurance
market, while Bankers Fidelity operates in the life and health insurance market. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by GAAP for audited annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The unaudited
condensed consolidated financial statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2023 (the “2023 Annual Report”). For more information regarding Significant Accounting Policies, see the “Summary of Significant Accounting Policies” section of Note 1 of Notes to Consolidated Financial Statements in the
2023 Annual Report. The Company’s financial condition and operating results as of and for the three month and nine month periods ended September 30, 2024 are not necessarily indicative of the financial condition or results of operations and cash
flows that may be expected for the year ending December 31, 2024 or for any other future period.
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. To the extent that the Company changes its accounting for, or presentation of, items
in the financial statements, the presentation of such amounts in prior periods is changed to conform to the current period presentation, if appropriate, and disclosed, if material.
| Note 2. |
Recently Issued Accounting Standards
|
Future Adoption of New Accounting Standards
For more information regarding accounting standards that the Company has not yet
adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the 2023 Annual Report.
| Note 3. |
Investments
|
The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, allowance for credit losses
(“ACL”) and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of September 30, 2024 and December 31, 2023.
Fixed maturities were comprised of the following:
|
September 30, 2024
|
||||||||||||||||||||
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance for
Credit Losses
|
Cost or
Amortized
Cost
|
||||||||||||||||
|
Fixed maturities:
|
||||||||||||||||||||
|
Bonds:
|
||||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||||
|
Obligations of states and political subdivisions
|
||||||||||||||||||||
|
Corporate securities:
|
||||||||||||||||||||
|
Utilities and telecom
|
||||||||||||||||||||
|
Financial services
|
||||||||||||||||||||
|
Other business – diversified
|
||||||||||||||||||||
|
Other consumer – diversified
|
||||||||||||||||||||
|
Total corporate securities
|
||||||||||||||||||||
|
Redeemable preferred stocks:
|
||||||||||||||||||||
|
Other consumer – diversified
|
||||||||||||||||||||
|
Total redeemable preferred stocks
|
||||||||||||||||||||
|
Total fixed maturities
|
$ | $ | $ | $ | $ | |||||||||||||||
|
December 31, 2023
|
||||||||||||||||||||
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance for
Credit Losses
|
Cost or
Amortized
Cost
|
||||||||||||||||
|
Fixed maturities:
|
||||||||||||||||||||
|
Bonds:
|
||||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
|
$
|
|
$
|
|
$
|
|
$ | |||||||||||
|
Obligations of states and political subdivisions
|
||||||||||||||||||||
|
Corporate securities:
|
||||||||||||||||||||
|
Utilities and telecom
|
||||||||||||||||||||
|
Financial services
|
||||||||||||||||||||
|
Other business – diversified
|
||||||||||||||||||||
|
Other consumer – diversified
|
||||||||||||||||||||
|
Total corporate securities
|
||||||||||||||||||||
|
Redeemable preferred stocks:
|
||||||||||||||||||||
|
Other consumer – diversified
|
||||||||||||||||||||
|
Total redeemable preferred stocks
|
||||||||||||||||||||
|
Total fixed maturities
|
$ | $ | $ | $ | $ | |||||||||||||||
Bonds having an amortized cost of $14,720
and $14,647 and included in the tables above were on deposit with insurance regulatory authorities as of September 30, 2024 and December
31, 2023, respectively, in accordance with statutory requirements. In addition, the Company maintains cash and cash equivalents on deposit with insurance regulatory authorities of $226 9,282 and $9,584 and included in the
tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at September 30, 2024 and December 31, 2023, respectively.
Equity securities were comprised of the following:
|
September 30, 2024
|
||||||||||||||||
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Cost
|
|||||||||||||
|
Equity securities:
|
||||||||||||||||
|
Common and non-redeemable preferred stocks:
|
||||||||||||||||
|
Financial services
|
$ | $ | $ | $ | ||||||||||||
|
Communications
|
||||||||||||||||
|
Total equity securities
|
$ | $ | $ | $ | ||||||||||||
|
December 31, 2023
|
||||||||||||||||
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Cost
|
|||||||||||||
|
Equity securities:
|
||||||||||||||||
|
Common and non-redeemable preferred stocks:
|
||||||||||||||||
|
Financial services
|
$ | $ | $ | $ | ||||||||||||
|
Communications
|
||||||||||||||||
|
Total equity securities
|
$ | $ | $ | $ | ||||||||||||
The carrying value and amortized cost of the Company’s investments in fixed maturities at September 30, 2024 and December 31, 2023 by contractual
maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.
|
September 30, 2024
|
December 31, 2023
|
|||||||||||||||
|
Carrying
Value
|
Amortized
Cost
|
Carrying
Value
|
Amortized
Cost
|
|||||||||||||
|
Due in one year or less
|
$ | $ | $ | $ | ||||||||||||
|
Due after one year through five years
|
||||||||||||||||
|
Due after five years through ten years
|
||||||||||||||||
|
Due after ten years
|
||||||||||||||||
|
Asset backed securities
|
||||||||||||||||
|
Totals
|
$ | $ | $ | $ | ||||||||||||
The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous
unrealized loss position as of September 30, 2024 and December 31, 2023.
|
September 30, 2024
|
||||||||||||||||||||||||
|
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
|||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
Obligations of states and political subdivisions
|
||||||||||||||||||||||||
|
Corporate securities
|
||||||||||||||||||||||||
|
Total temporarily impaired securities
|
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
December 31, 2023
|
||||||||||||||||||||||||
|
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses
|
|||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||||||||||
|
Corporate securities
|
||||||||||||||||||||||||
|
Total temporarily impaired securities
|
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Analysis of Securities in Unrealized Loss Positions
As of September 30, 2024 and December 31, 2023, there were 183 and 222 securities, respectively, in an unrealized loss position which primarily included certain
of the Company’s investments in fixed maturities within the utilities and telecom, financial services, other diversified business and other diversified consumer sectors. The unrealized losses on the Company’s fixed maturity securities investments
have been primarily related to general market changes in interest rates and/or the levels of credit spreads rather than specific concerns with the issuer’s ability to pay interest and repay principal.
For any of its fixed maturity securities with significant declines in fair value, the Company performs detailed analyses to identify whether the
drivers of the declines are due to general market drivers, such as the recent increases in interest rates, or due to credit-related factors. Identifying the drivers of the declines in fair value helps to align and allocate the Company’s resources
to securities with real credit-related concerns that could impact the ultimate collection of principal and interest. For any significant declines in fair value determined to be non-interest rate or market related, the Company performs a more
focused review of the related issuers’ specific credit profile.
For corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial
statements and other available financial data. For non-corporate issuers, the Company analyzes all reasonably available sources of credit support, including issuer-specific factors. The Company utilizes information available in the public domain
and, for certain private placement issuers, from consultations with the issuers directly. The Company also considers ratings from Nationally Recognized Statistical Rating Organizations, as well as the specific characteristics of the security it
owns including seniority in the issuer’s capital structure, covenant protections, or other relevant features. From these reviews, the Company evaluates the issuers’ continued ability to service the Company’s investment through payment of interest
and principal.
Assuming no credit-related factors develop, unrealized gains and losses on fixed maturity securities are expected to diminish as investments near
maturity. Based on its credit analysis, the Company believes that the issuers of its fixed maturity investments in the sectors shown in the table above have the ability to service their obligations to the Company. In addition, the Company does not
intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
However, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the
present value of the cash flows expected to be collected due to credit related factors and as a result, a credit allowance will be estimated. The Company had no
The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2024 and 2023.
|
Three Months Ended
September 30, 2024
|
||||||||||||||||
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total
|
|||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
|
|
|
|
||||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three Months Ended
September 30, 2023
|
||||||||||||||||
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total
|
|||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
|
|
|
|
||||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine Months Ended
September 30, 2024
|
||||||||||||||||
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total
|
|||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine Months Ended
September 30, 2023
|
||||||||||||||||
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total
|
|||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
|
|
|
|
||||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following table presents the change in unrealized losses related to equity securities still held for the three month and nine month periods ended September 30, 2024 and 2023.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
| 2024 | 2023 |
2024 |
2023 | |||||||||||||
|
Net realized and unrealized losses recognized during the period on equity securities
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
|
Less: Net realized gains recognized during the period on equity securities sold during the period
|
|
|
||||||||||||||
|
Unrealized losses recognized during the reporting period on equity securities, net
|
$
|
(
|
)
|
$
|
(
|
)
|
$ | ( |
) | $ | ( |
) | ||||
Variable Interest Entities
The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance. The
Company’s VIE interests principally consist of interests in limited liability companies formed for the purpose of achieving diversified equity returns. The Company’s VIE interests, carried as a part of other invested assets, totaled $8,205 and $6,381 as of September 30,
2024 and December 31, 2023, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238
The Company does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the
primary beneficiary. Therefore, the Company has not consolidated these VIEs. The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE. The Company’s maximum loss exposure relative to these investments was
limited to the carrying value of the Company’s investment in the VIEs, which amount to $9,443 and $7,619 , as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company had outstanding
commitments totaling $2,200 , and $4,518 ,
respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. The reduction in the Company’s outstanding commitments
was a result of an additional investment of $2,318 in the partnership.
| Note 4. |
Fair Values of Financial Instruments
|
The
estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret
market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts
which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The
following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial
instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.
| Level 1 |
Observable inputs that reflect
quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange
traded common stocks.
|
| Level 2 |
Observable inputs, other than quoted
prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include most of its fixed maturities, which consist of U.S. Treasury
securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities
and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed
maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds,
default rates and loss severities) or can be corroborated by observable market data.
|
| Level 3 |
Valuations
that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from
objective sources. With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or
liability. The Company’s financial instruments valued using Level 3 criteria consist of one equity security. As of September 30, 2024 and December 31, 2023, the value of the equity security valued using Level 3 criteria was $
|
As
of September 30, 2024, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Fixed maturities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
As
of December 31, 2023, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Fixed maturities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Cash equivalents
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following table sets forth the
carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2024
and December 31, 2023.
|
September 30, 2024
|
December 31, 2023
|
|||||||||||||||||
|
Level in Fair
Value
Hierarchy (1)
|
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
||||||||||||||
|
Assets:
|
||||||||||||||||||
|
Cash and cash equivalents
|
Level 1
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
Fixed maturities
|
Level 2 |
|
|
|
|
|
||||||||||||
|
Equity securities
|
(1) | |
|
|
|
|
||||||||||||
|
Policy loans
|
Level 3
|
|
|
|
|
|||||||||||||
|
|
||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||
|
Junior subordinated debentures, net
|
Level 2
|
|
|
|
|
|||||||||||||
|
Revolving credit facility
|
Level 2 | |||||||||||||||||
| (1) |
| Note 5. |
Allowance for Expected Credit Losses
|
Reinsurance Recoverables
The following table presents the balances of reinsurance recoverables, net of the allowance for expected credit
losses, at September 30, 2024 and 2023, and the changes in the allowance for expected credit losses for the three month and nine month periods ended September 30, 2024 and 2023.
|
|
At and for the three months ended
September 30, 2024
|
At and for the nine months ended
September 30, 2024
|
||||||||||||||
|
Reinsurance
Recoverables,
Net of Allowance
for Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
Reinsurance
Recoverables,
Net of Allowance
for Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
|||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Current period change for estimated uncollectible reinsurance
|
(
|
)
|
(
|
)
|
||||||||||||
|
Write-offs of uncollectible reinsurance recoverables
|
|
|
||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
At and for the three months ended
September 30, 2023
|
At and for the nine months ended
September 30, 2023
|
||||||||||||||
|
Reinsurance
Recoverables,
Net of Allowance
for Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
Reinsurance
Recoverables,
Net of Allowance
for Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
|||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023
|
|
|
||||||||||||||
|
Current period change for estimated uncollectible reinsurance
|
(
|
)
|
(
|
)
|
||||||||||||
|
Write-offs of uncollectible reinsurance recoverables
|
|
|
||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Insurance Premium and Other Receivables
The following table presents the balances of insurance premiums and other, net of the allowance for expected
credit losses, at September 30, 2024 and 2023, and the changes in the allowance for expected credit losses for the three month and nine month periods ended September 30, 2024 and 2023.
|
At and for the three months ended
September 30, 2024
|
At and for the nine months ended
September 30, 2024
|
|||||||||||||||
|
Insurance Premiums
and Other, Net of
Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
Insurance Premiums
and Other, Net of
Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
|||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Current period change for expected credit losses
|
(
|
)
|
(
|
)
|
||||||||||||
|
Write-offs of uncollectible insurance premiums and other receivables
|
|
|
||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
At and for the three months ended
September 30, 2023
|
At and for the nine months ended
September 30, 2023
|
|||||||||||||||
|
Insurance Premiums
and Other, Net of
Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
Insurance Premiums
and Other, Net of
Expected Credit
Losses
|
Allowance for
Expected Credit
Losses
|
|||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023
|
|
|
||||||||||||||
|
Current period change for expected credit losses
|
(
|
)
|
|
|||||||||||||
|
Write-offs of uncollectible insurance premiums and other receivables
|
|
|
||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Note 6. |
Internal-Use Software
|
On March 3, 2021, the
Company entered into a hosting arrangement through a service contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services. The software is managed, hosted, supported, and
delivered as a cloud-based software service product offering (software-as-a-service). The initial term of the arrangement is five years
from the effective date with a renewal term of an additional five years .
Service fees related to
the hosting arrangement are recorded as an expense in the Company’s condensed consolidated statement of operations as incurred. Implementation expenses incurred related to third party professional and consulting services have been capitalized. The
Company will begin amortizing, on a straight-line basis over the remainder of the original ten year term of the hosting arrangement,
when the software is substantially ready for its intended use. The Company incurred and capitalized implementation costs of $78 and $1,218 during the nine months ended September 30, 2024 and 2023, respectively. As a result, the Company has capitalized $4,645 and $4,567 in implementation costs
in other assets within its condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively. The Company expects the software will be substantially ready for its intended use during 2025. Accordingly, the Company has no
| Note 7. |
Insurance Reserves for Losses and Claims
|
The
roll-forward of insurance reserves for losses and claims for the nine months ended September 30, 2024 and 2023 is as follows:
|
Nine Months Ended
September 30,
|
||||||||
|
2024
|
2023
|
|||||||
| Beginning insurance reserves for losses and claims, gross |
$
|
|
$
|
|
||||
|
Less: Reinsurance recoverable on unpaid losses
|
(
|
)
|
(
|
)
|
||||
|
Beginning insurance reserves for losses and claims, net
|
|
|
||||||
|
Incurred related to:
|
||||||||
|
Current accident year
|
|
|
||||||
|
Prior accident year development
|
(1) |
|
(2)
|
|||||
|
Total incurred
|
|
|
||||||
|
Paid related to:
|
||||||||
|
Current accident year
|
|
|
||||||
|
Prior accident years
|
|
|
||||||
|
Total paid
|
|
|
||||||
|
Ending insurance reserves for losses and claims, net
|
|
|
||||||
|
Plus: Reinsurance recoverable on unpaid losses
|
|
|
||||||
|
Ending insurance reserves for losses and claims, gross
|
$
|
|
$
|
|
||||
| (1) |
| (2) |
Following is a reconciliation of total incurred losses to total
insurance benefits and losses incurred:
|
Nine Months Ended
September 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Total incurred losses
|
$
|
|
$
|
|
||||
|
Cash surrender value and matured endowments
|
|
|
||||||
|
Benefit reserve changes
|
|
|
||||||
|
Total insurance benefits and losses incurred
|
$
|
|
$
|
|
||||
| Note 8. |
Credit
Arrangements
|
Bank Debt
On May 12, 2021, the
Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $10,000 revolving credit facility that originally matured on April 12, 2024 .
On March 22, 2024, the Company entered into a First Amendment (the “Amendment”) to its Revolving Credit Agreement (as amended, the “Credit Agreement”) with the Lender. The Amendment, among other things, (a) updates the interest rate provisions
to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term rate (as defined in the Credit Agreement), plus 2.00 %, (b) extends
the maturity date of the revolving credit facility to March 22, 2027 , (c) requires the monthly payment of an unused commitment fee of 0.2 % of the unused
facility amount, and (d) requires that the Company maintain a consolidated net worth of not less than $64,200 . Except as
modified by the Amendment, the existing terms of the original Credit Agreement remain in effect.
The Credit Agreement requires the Company to comply with certain covenants,
including a debt-to-capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35 % of the
Company’s consolidated capitalization at any time and maintaining a minimum consolidated net worth, as previously mentioned. The Credit Agreement also contains customary representations and warranties and events of default. Events of default
include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence
of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of September 30, 2024,
and December 31, 2023, the Company had outstanding borrowings including accrued interest of $4,024 and $3,019 , respectively, under the Credit Agreement.
For the three months ended September 30, 2024 and 2023, the Company incurred $77 and $56 in interest expense, respectively, on the revolving credit
facility borrowing. For the nine months ended September 30, 2024 and 2023, the Company incurred $213 and $142 , respectively, in interest expense. During the three month and nine month periods ended September 30, 2024, the Company paid $3 and $6 , respectively, in fees on
the available unused amount of the revolving credit facility of $6,000 . At September 30, 2024 and December 31, 2023, the effective
interest rate was 7.35 % and 9.69 %,
respectively.
Junior Subordinated Debentures
The Company has two unconsolidated Connecticut
statutory business trusts, which exist for the exclusive purposes of: (i) issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross
proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of the Company; and (iii) engaging in those activities necessary or incidental thereto.
The outstanding $18,042 and $15,696 of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033 , respectively, are callable quarterly, in whole or in part, only at the option of the Company. Prior to July 1, 2023, the interest rate
was based on 3-month LIBOR plus an applicable margin. Effective July 1, 2023, the interest rate is determined based on a reference
rate of the 3-month
plus applicable tenor spread of 0.26161 % plus an applicable margin, ranging from 4.00 % to 4.10 %. At September 30, 2024, the effective interest rate was
9.39 %.
The financial structure of each of
Atlantic American Statutory Trust I and II as of September 30, 2024 was as follows:
|
Atlantic American
Statutory Trust I
|
Atlantic American
Statutory Trust II
|
|||||||
|
JUNIOR SUBORDINATED DEBENTURES (1) (2)
|
||||||||
|
Principal amount owed September 30,
2024
|
$
|
|
$
|
|
||||
|
Less: Treasury debt (3)
|
|
(
|
)
|
|||||
|
Net balance September 30, 2024
|
$
|
|
$
|
|
||||
|
Net balance December 31, 2023
|
$
|
|
$
|
|
||||
|
Coupon rate
|
|
|
||||||
|
Interest payable
|
|
|
||||||
| Maturity date | ||||||||
|
Redeemable by issuer
|
|
|
||||||
|
TRUST PREFERRED SECURITIES
|
||||||||
|
Issuance date
|
|
|
||||||
|
Securities issued
|
|
|
||||||
|
Liquidation preference per security
|
$
|
|
$
|
|
||||
|
Liquidation value
|
$
|
|
$
|
|
||||
|
Coupon rate
|
|
|||||||
|
Distribution payable
|
|
|
||||||
|
Distribution guaranteed by (4)
|
|
|
||||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
| Note 9. |
Earnings (Loss) Per Common Share
|
A reconciliation of the numerator and denominator used in the earnings (loss) per
common share calculations is as follows:
|
Three Months Ended
September 30, 2024
|
||||||||||||
|
Loss
|
Weighted
Average Shares
(In thousands)
|
Per Share
Amount
|
||||||||||
|
Basic and Diluted Loss Per Common Share:
|
||||||||||||
|
Net loss
|
$ | ( |
) | |||||||||
|
Less preferred stock dividends
|
( |
) | — |
|||||||||
|
Net loss applicable to common shareholders
|
$ | ( |
) | $ | ( |
) | ||||||
|
Three Months Ended
September 30, 2023
|
||||||||||||
| Income |
Weighted
Average Shares
(In thousands)
|
Per Share
Amount
|
||||||||||
|
Basic Earnings Per Common Share:
|
||||||||||||
|
Net income
|
$ | |||||||||||
|
Less preferred stock dividends
|
( |
) | — | |||||||||
|
Net income applicable to common shareholders
|
$ | $ | ||||||||||
| Diluted Earnings Per Common Share: | ||||||||||||
| Effect of Series D preferred stock | ||||||||||||
| Net income applicable to common shareholders | $ | $ | ||||||||||
|
Nine Months Ended
September 30,
2024
|
||||||||||||
|
Loss
|
Weighted
Average Shares
(In thousands)
|
Per Share
Amount
|
||||||||||
|
Basic and Diluted Loss Per Common Share:
|
||||||||||||
|
Net loss
|
$ | ( |
) | |||||||||
|
Less preferred stock dividends
|
( |
) | — |
|||||||||
|
Net loss applicable to common shareholders
|
$ | ( |
) | $ | ( |
) | ||||||
|
Nine Months Ended
September 30,
2023
|
||||||||||||
|
Income
|
Weighted
Average Shares
(In thousands)
|
Per Share
Amount
|
||||||||||
|
Basic and Diluted Earnings Per Common Share:
|
||||||||||||
|
Net income
|
$ | |||||||||||
|
Less preferred stock dividends
|
( |
) | — |
|||||||||
|
Net income applicable to common shareholders
|
$ | $ | ||||||||||
The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for all periods presented, except for the three month period ended September 30, 2023, since its impact would
have been antidilutive.
|
Note 10.
|
Income Taxes
|
A reconciliation of the differences between income taxes computed at the federal
statutory income tax rate and income tax expense (benefit) is as follows:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Federal income tax provision at statutory rate of
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
|
Dividends-received deduction
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Meals and entertainment
|
|
|
|
|
||||||||||||
| Vested stock and club dues |
||||||||||||||||
|
Parking disallowance
|
|
|
|
|
||||||||||||
| Adjustment for prior years’ estimates to actual |
( |
) | ( |
) | ||||||||||||
|
Income tax expense (benefit)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
The components of income tax expense (benefit) were:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Current – Federal
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Deferred – Federal
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
| Note 11. |
Leases
|
The Company has two operating lease agreements, each for the use of office space in the ordinary course of business. The first lease renews annually on an automatic basis and based on original
assumptions, management is reasonably certain to exercise the renewal option through 2026. The original term of the second lease was ten years
and amended in January 2017 to provide for an additional seven years , with a termination date on September 30, 2026. The rate used in
determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.
These leases are accounted for
as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for the nine months ended September 30, 2024 and September 30, 2023 was $761
Additional information regarding the Company’s real estate
operating leases is as follows:
|
Nine Months Ended
September 30,
|
||||||||
|
Other information on operating leases:
|
2024
|
2023
|
||||||
|
Cash payments included in the measurement of lease
liabilities reported in operating cash flows
|
$
|
|
$
|
|
||||
|
Right-of-use assets included in on the condensed consolidated balance sheet
|
|
|
||||||
|
Weighted average discount rate
|
|
%
|
|
%
|
||||
|
Weighted average remaining lease term in years
|
|
|
||||||
The following table presents maturities and present value of
the Company’s lease liabilities:
| Lease Liability |
||||
|
Remainder of 2024
|
$
|
|
||
|
2025
|
|
|||
|
2026
|
|
|||
|
Thereafter
|
|
|||
|
Total undiscounted lease payments
|
|
|||
|
Less: present value adjustment
|
|
|||
|
Operating lease liability included in on the condensed consolidated balance sheet
|
$
|
|
||
As of September 30, 2024, the Company has no operating leases
that have not yet commenced.
| Note 12. |
Commitments and Contingencies
|
Litigation
From time to time, the
Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and arising in the ordinary course of its business. In the opinion of management, any such known claims are not expected to have a material effect on
the financial condition or results of operations of the Company.
Regulatory Matters
Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to
regulation and supervision in the jurisdictions in which they do business. Statutes typically delegate regulatory, supervisory, and administrative powers to state insurance commissioners. From time to time, and in the ordinary course of
business, the Company receives notices and inquiries from state insurance departments with respect to various matters. In the opinion of management, any such known regulatory matters are not expected to have a material effect on the financial
condition or results of operations of the Company.
| Note 13. |
Segment Information
|
The Parent’s primary
insurance subsidiaries, American Southern and Bankers Fidelity, operate in two principal business units, each focusing on specific
products. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each business unit is managed independently and is evaluated on its individual
performance. The following sets forth the assets, revenue and income (loss) before income taxes for each business unit as of and for the periods ended 2024 and 2023.
|
Assets
|
September 30,
2024
|
December 31,
2023
|
||||||
|
American Southern
|
$
|
|
$
|
|
||||
|
Bankers Fidelity
|
|
|
||||||
|
Corporate and Other
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
| Revenues |
2024
|
2023 |
2024
|
2023 | ||||||||||||
|
American Southern
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Bankers Fidelity
|
|
|
||||||||||||||
|
Corporate and Other
|
|
(
|
)
|
( |
) | |||||||||||
|
Total revenue
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
Income (Loss) Before Income Taxes
|
2024
|
2023
|
2024
|
2023 | ||||||||||||
|
American Southern
|
$
|
(
|
)
|
$
|
|
$ | $ | |||||||||
|
Bankers Fidelity
|
|
|
||||||||||||||
|
Corporate and Other
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
|
Income (loss) before income taxes
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
Item 2.
AND RESULTS OF OPERATIONS
Overview
The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its
subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periods ended September 30, 2024. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements
and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).
Atlantic American is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries: American Southern Insurance Company and American Safety Insurance
Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers Fidelity”). Each operating company is managed
separately, offers different products and is evaluated on its individual performance.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions
that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of
variability. The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the 2023 Annual Report. Except as disclosed in Note 1 of Notes to Condensed Consolidated Financial
Statements, the Company’s critical accounting policies are consistent with those disclosed in the 2023 Annual Report.
Overall Corporate Results
The following presents the Company’s revenue, expenses and net income (loss) for the three month and nine month periods ended September 30, 2024 and the comparable periods in 2023:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Insurance premiums, net
|
$
|
43,782
|
$
|
43,746
|
$
|
133,327
|
$
|
135,906
|
||||||||
|
Net investment income
|
2,477
|
2,325
|
7,449
|
7,425
|
||||||||||||
|
Realized investment gains, net
|
4
|
—
|
17
|
70
|
||||||||||||
|
Unrealized losses on equity securities, net
|
(1,746
|
)
|
(1,486
|
)
|
(1,617
|
)
|
(3,367
|
)
|
||||||||
|
Other income
|
2
|
6
|
8
|
14
|
||||||||||||
|
Total revenue
|
44,519
|
44,591
|
139,184
|
140,048
|
||||||||||||
|
Insurance benefits and losses incurred
|
30,760
|
26,818
|
94,492
|
86,643
|
||||||||||||
|
Commissions and underwriting expenses
|
11,490
|
11,064
|
35,740
|
36,830
|
||||||||||||
|
Interest expense
|
869
|
850
|
2,591
|
2,407
|
||||||||||||
|
Other expense
|
3,854
|
3,721
|
12,170
|
11,631
|
||||||||||||
|
Total benefits and expenses
|
46,973
|
42,453
|
144,993
|
137,511
|
||||||||||||
|
Income (loss) before income taxes
|
$
|
(2,454
|
)
|
$
|
2,138
|
$
|
(5,809
|
)
|
$
|
2,537
|
||||||
|
Net income (loss)
|
$
|
(1,998
|
)
|
$
|
1,759
|
$
|
(4,680
|
)
|
$
|
2,057
|
||||||
In addition to measures of operating performance determined in accordance with GAAP, management also considers and evaluates performance by analyzing the non-GAAP measure operating income (loss).
We define operating income (loss) as net income (loss) excluding: (i) income tax expense (benefit); (ii) realized investment (gains) losses, net; and (iii) unrealized (gains) losses on equity securities, net. Management believes operating income
(loss) is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as
taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized
investment gains, which are not a part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).
A reconciliation of net income (loss) to operating income (loss) for the three month and nine month periods ended September 30, 2024 and the comparable periods in 2023 is as follows:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
Reconciliation of Non-GAAP Financial Measure
|
2024
|
2023
|
2024
|
2023
|
||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Net income (loss)
|
$
|
(1,998
|
)
|
$
|
1,759
|
$
|
(4,680
|
)
|
$
|
2,057
|
||||||
|
Income tax expense (benefit)
|
(456
|
)
|
379
|
(1,129
|
)
|
480
|
||||||||||
|
Realized investment gains, net
|
(4
|
)
|
—
|
(17
|
)
|
(70
|
)
|
|||||||||
|
Unrealized losses on equity securities, net
|
1,746
|
1,486
|
1,617
|
3,367
|
||||||||||||
|
Non-GAAP operating income (loss)
|
$
|
(712
|
)
|
$
|
3,624
|
$
|
(4,209
|
)
|
$
|
5,834
|
||||||
On a consolidated basis, the Company had net loss of $2.0 million, or $(0.10) per diluted share, for the three month period ended September 30, 2024, compared to net income of $1.8 million, or
$0.08 per diluted share, for the three month period ended September 30, 2023. The Company had net loss of $4.7 million, or $(0.24) per diluted share, for the nine month period ended September 30, 2024, compared to net income of $2.1 million, or
$0.09 per diluted share, for the nine month period ended September 30, 2023. The increase in net loss for the three month and nine month periods ended September 30, 2024 was primarily the result of unfavorable loss experience in the life and
health operations due to an increase in incurred losses in the group life and Medicare supplement lines of business, as well as in the property and casualty operations due to the frequency and severity of claims in the automobile liability line of
business, from the comparable periods in 2023.
For the three month period ended September 30, 2024, premium revenue increased slightly to $43.8 million from $43.7 million in the comparable period in 2023. For the nine month period ended
September 30, 2024, premium revenue decreased $2.6 million, or 1.9%, to $133.3 million from $135.9 million in the comparable period in 2023. The decrease in premium revenue during the nine month period ended September 30, 2024 was primarily
attributable to a decrease in the Medicare supplement insurance premiums in the life and health operations.
Operating income decreased $4.3 million in the three month period ended September 30, 2024 from the three month period ended September 30, 2023. For the nine month period ended September 30, 2024,
operating income decreased $10.0 million from the comparable period in 2023. The decrease in operating income for the three month and nine month periods ended September 30, 2024 was primarily the result of an unfavorable loss experience in the
life and health operations due to an increase in incurred losses in the group life and Medicare supplement lines of business, as previously mentioned. Also contributing to the decrease in operating income was an unfavorable loss experience in the
property and casualty operations due to the frequency and severity of claims in the automobile liability line of business, as previously mentioned, as well as in the automobile physical damage line of business.
A more detailed analysis of the individual operating segments and other corporate activities follows.
American Southern
The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and nine month periods ended September 30, 2024 and the comparable periods in
2023:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Gross written premiums
|
$
|
8,533
|
$
|
10,860
|
$
|
53,502
|
$
|
58,365
|
||||||||
|
Ceded premiums
|
(1,435
|
)
|
(1,501
|
)
|
(4,393
|
)
|
(4,476
|
)
|
||||||||
|
Net written premiums
|
$
|
7,098
|
$
|
9,359
|
$
|
49,109
|
$
|
53,889
|
||||||||
|
Net earned premiums
|
$
|
16,214
|
$
|
16,571
|
$
|
51,636
|
$
|
51,662
|
||||||||
|
Insurance benefits and losses incurred
|
13,984
|
11,881
|
41,025
|
38,089
|
||||||||||||
|
Commissions and underwriting expenses
|
3,826
|
4,335
|
11,911
|
12,906
|
||||||||||||
|
Underwriting income (loss)
|
$
|
(1,596
|
)
|
$
|
355
|
$
|
(1,300
|
)
|
$
|
667
|
||||||
|
Loss ratio
|
86.2
|
%
|
71.7
|
%
|
79.5
|
%
|
73.7
|
%
|
||||||||
|
Expense ratio
|
23.6
|
26.2
|
23.1
|
25.0
|
||||||||||||
|
Combined ratio
|
109.8
|
%
|
97.9
|
%
|
102.6
|
%
|
98.7
|
%
|
||||||||
Gross written premiums at American Southern decreased $2.3 million, or 21.4%, during the three month period ended September 30, 2024 and decreased $4.9 million, or 8.3%, during the nine month
period ended September 30, 2024, from the comparable periods in 2023. The decrease in gross written premiums during the three month and nine month periods ended September 30, 2024 was primarily attributable to the decrease in premiums written in
the automobile liability line of business due to the non-renewal of a program, as well as a decrease in premiums written in the automobile physical damage line of business due to a decline in demand within the trucking industry. Also contributing
to the decrease in gross written premiums was a decrease in premiums written in the surety line of business due to construction slowdowns in certain regions.
Ceded premiums decreased $0.1 million, or 4.4%, during the three month period ended September 30, 2024 and decreased $0.1 million, or 1.9%, during the nine month period ended September 30, 2024,
from the comparable periods in 2023. American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally fluctuate as earned premiums increase or decrease or retentions levels change.
The following presents American Southern’s net earned premiums by line of business for the three month and nine month periods ended September 30, 2024 and the comparable periods in 2023:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Automobile liability
|
$
|
9,659
|
$
|
9,455
|
$
|
31,311
|
$
|
29,270
|
||||||||
|
Automobile physical damage
|
3,056
|
3,534
|
9,678
|
11,574
|
||||||||||||
|
General liability
|
1,529
|
1,399
|
4,550
|
4,250
|
||||||||||||
|
Surety
|
1,377
|
1,592
|
4,336
|
4,696
|
||||||||||||
|
Other lines
|
593
|
591
|
1,761
|
1,872
|
||||||||||||
|
Total
|
$
|
16,214
|
$
|
16,571
|
$
|
51,636
|
$
|
51,662
|
||||||||
Net earned premiums decreased $0.4 million, or 2.2%, during the three month period ended September 30, 2024, and decreased slightly during the nine month period ended September 30, 2024, over the
comparable periods in 2023. The decrease in net earned premiums during the three month and nine month periods ended September 30, 2024 was primarily attributable to a decrease in earned premiums in the automobile physical damage line of business
due to a decline in demand within the trucking industry as previously mentioned. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the
current year and immediately preceding year.
The performance of an insurance company is often measured by its combined ratio. The combined ratio represents the percentage of losses, loss adjustment expenses and other expenses that are
incurred for each dollar of premium earned by the company. A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss. The combined ratio is divided into two components, the
loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).
Insurance benefits and losses incurred at American Southern increased $2.1 million, or 17.7%, during the three month period ended September 30, 2024, and increased $2.9 million, or 7.7%, during the
nine month period ended September 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, insurance benefits and losses incurred were 86.2% in the three month period ended September 30, 2024, compared to 71.7% in the
three month period ended September 30, 2023. For the nine month period ended September 30, 2024, this ratio increased to 79.5% from 73.7% in the comparable period in 2023. The increase in the loss ratio during the three month and nine month
periods ended September 30, 2024 was mainly due to an increase in the frequency and severity of claims in the automobile liability line of business. Partially offsetting the increase in the loss ratio was a decrease in the general liability line
of business due to favorable reserve development, as a well as a decrease in loss adjustment expenses related to a decline in claims costs.
Commissions and underwriting expenses decreased $0.5 million, or 11.7%, during the three month period ended September 30, 2024, and $1.0 million, or 7.7% during the nine month period ended
September 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, underwriting expenses were 23.6% in the three month period ended September 30, 2024, compared to 26.2% in the three month period ended September 30, 2023.
For the nine month period ended September 30, 2024, this ratio decreased to 23.1% from 25.0% in the comparable period in 2023. The decrease in the expense ratio during the three month and nine month periods ended September 30, 2024 was primarily
due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases,
commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. During the three month and nine month periods ended
September 30, 2024, variable commissions at American Southern decreased by $0.3 million and $0.9 million, respectively, from the comparable periods in 2023 due to an unfavorable loss experience from accounts subject to variable commissions.
Bankers Fidelity
The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and nine month periods ended September 30, 2024 and the comparable periods
in 2023:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Medicare supplement
|
$
|
31,238
|
$
|
32,957
|
$
|
93,408
|
$
|
100,815
|
||||||||
|
Other health products
|
4,249
|
3,525
|
11,697
|
10,907
|
||||||||||||
|
Life insurance
|
5,385
|
4,619
|
16,124
|
14,691
|
||||||||||||
|
Gross earned premiums
|
40,872
|
41,101
|
121,229
|
126,413
|
||||||||||||
|
Ceded premiums
|
(13,304
|
)
|
(13,926
|
)
|
(39,538
|
)
|
(42,169
|
)
|
||||||||
|
Net earned premiums
|
27,568
|
27,175
|
81,691
|
84,244
|
||||||||||||
|
Insurance benefits and losses incurred
|
16,776
|
14,937
|
53,467
|
48,554
|
||||||||||||
|
Commissions and underwriting expenses
|
9,980
|
8,810
|
30,756
|
30,373
|
||||||||||||
|
Total expenses
|
26,756
|
23,747
|
84,223
|
78,927
|
||||||||||||
|
Underwriting income (loss)
|
$
|
812
|
$
|
3,428
|
$
|
(2,532
|
)
|
$
|
5,317
|
|||||||
|
Loss ratio
|
60.9
|
%
|
55.0
|
%
|
65.5
|
%
|
57.6
|
%
|
||||||||
|
Expense ratio
|
36.2
|
32.4
|
37.6
|
36.1
|
||||||||||||
|
Combined ratio
|
97.1
|
%
|
87.4
|
%
|
103.1
|
%
|
93.7
|
%
|
||||||||
Net earned premium revenue at Bankers Fidelity increased $0.4 million, or 1.4%, during the three month period ended September 30, 2024, and decreased $2.6 million, or 3.0%, during the nine month
period ended September 30, 2024, from the comparable periods in 2023. Gross earned premiums from the Medicare supplement line of business decreased $1.7 million, or 5.2%, during the three month period ended September 30, 2024, and $7.4 million, or
7.3%, during the nine month period ended September 30, 2024, due primarily to non-renewals exceeding the level of new business writings. Other health product premiums increased $0.7 million, or 20.5%, during the three month period ended September
30, 2024, and $0.8 million, or 7.2%, during the nine month period ended September 30, 2024, over the comparable periods in 2023, primarily due to new sales. Gross earned premiums from the life insurance line of business increased $0.8 million, or
16.6%, during the three month period ended September 30, 2024, and $1.4 million, or 9.8%, during the nine month period ended September 30, 2024, over the comparable periods in 2023, primarily due to an increase in the group life products premium.
Partially offsetting this increase was a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual life sales. Ceded premiums
decreased $0.6 million, or 4.5%, during the three month period ended September 30, 2024 and $2.6 million, or 6.2%, during the nine month period ended September 30, 2024, from the comparable periods in 2023. The decrease in ceded premiums for the
three month and nine month periods ended September 30, 2024 was due to a decrease in Medicare supplement premiums subject to reinsurance.
Insurance benefits and losses incurred increased $1.8 million, or 12.3%, during the three month period ended September 30, 2024, and increased $4.9 million, or 10.1%, during the nine month period
ended September 30, 2024, from the comparable periods in 2023. As a percentage of earned premiums, benefits and losses were 60.9% in the three month period ended September 30, 2024, compared to 55.0% in the three month period ended September 30,
2023. For the nine month period ended September 30, 2024, this ratio increased to 65.5% from 57.6% in the comparable period in 2023. The increase in the loss ratio for the three month and nine month periods ended September 30, 2024 was primarily
due to an increase in reserves in the group life line of business, as well as an increase in paid claims in relation to premiums within the Medicare supplement line of business.
Commissions and underwriting expenses increased $1.2 million, or 13.3%, during the three month period ended September 30, 2024, and increased $0.4 million, or 1.3%, during the nine month period
ended September 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, underwriting expenses were 36.2% in the three month period ended September 30, 2024, compared to 32.4% in the three month period ended September 30,
2023. For the nine month period ended September 30, 2024, this ratio increased to 37.6% from 36.1% in the comparable period in 2023. The increase in the expense ratio for the three month period ended September 30, 2024 was primarily due to an
increase in administrative costs related to the growth in the group lines of business. Partially offsetting the increase in the expense ratio was a decrease in commission expenses in the group life line of business, coupled with a decrease in
the Medicare supplement line of business as a result of non-renewals exceeding the level of new business writings, as previously mentioned.
Net Investment Income and Realized Gains
Investment income increased $0.2 million, or 6.5%, during the three month period ended September 30, 2024, and increased slightly during the nine month period ended September 30, 2024, over the
comparable periods in 2023. The increase in investment income in the three month and nine month periods ended September 30, 2024, from the comparable periods in 2023, was primarily attributable to a net loss in a certain investment within the
Company's limited liability companies of $0.3 million in the three month and nine month periods ended September 30, 2023, which did not occur in the comparable periods in 2024.
The Company had net realized investment gains of less than $0.1 million during the three month period ended September 30, 2024, compared to no net realized investment gains during the three month
period ended September 30, 2023. The Company had net realized investment gains of less than $0.1 million during the nine month period ended September 30, 2024 and net realized investment gains of $0.1 million during the nine month period ended
September 30, 2023. The net realized investment gains during the three month and nine month periods ended September 30, 2023 resulted primarily from the redemption of several of the Company’s investments in fixed maturity securities. Management
continually evaluates the Company’s investment portfolio and makes adjustments for credit losses and/or divests investments as may be determined to be appropriate.
Unrealized Losses on Equity Securities
Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period. The Company recognized net
unrealized losses on equity securities of $1.7 million during the three month period ended September 30, 2024 and unrealized losses on equity securities of $1.5 million during the three month period ended September 30, 2023. The Company recognized
net unrealized losses on equity securities of $1.6 million during the nine month period ended September 30, 2024 and unrealized losses on equity securities of $3.4 million during the nine month period ended September 30, 2023. Changes in
unrealized losses on equity securities for the applicable periods are the result of fluctuations in the market value of the Company’s equity securities.
Interest Expense
Interest expense increased slightly during the three month period ended September 30, 2024, and $0.2 million, or 7.6%, during the nine month period ended September 30, 2024, from the comparable
periods in 2023. Changes in interest expense were primarily due to changes in the Secured Overnight Financing Rate (“SOFR”) published by CME Group Benchmark Administration Limited, as the interest rates on the Company’s outstanding junior
subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility utilize SOFR as the reference rate.
Liquidity and Capital Resources
The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements. Current
and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges. The Company’s primary sources of cash are written premiums, investment income and proceeds from
the sale and maturity of its invested assets. The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium
receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.
Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment
of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At
September 30, 2024, the Parent had approximately $7.4 million of unrestricted cash and investments.
The Parent’s insurance subsidiaries reported statutory net income of $2.0 million for the nine month period ended September 30, 2024, compared to statutory net income of $8.9 million for the nine
month period ended September 30, 2023. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results
determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life
and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.
Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the
Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before
recognizing realized investment gains of the individual insurance subsidiaries. At September 30, 2024, American Southern had $50.4 million of statutory capital and surplus and Bankers Fidelity had $31.0 million of statutory capital and surplus. In
2024, dividend payments by the Parent’s insurance subsidiaries in excess of $8.8 million would require prior approval. Through September 30, 2024, the Parent received dividends of $8.1 million from its subsidiaries.
The Parent provides certain administrative and other services to each of its insurance subsidiaries. The amounts charged to and paid by the subsidiaries include reimbursements for various shared
services and other expenses incurred directly on behalf of the subsidiaries by the Parent. In addition, there is in place a formal tax-sharing agreement between the Parent and its insurance subsidiaries. As a result of the Parent’s tax loss, it is
anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.
The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and
investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are
callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of 3-month CME Term SOFR plus applicable tenor spread of 0.26161% plus an applicable margin. The margin ranges from 4.00% to 4.10%. At September
30, 2024, the effective interest rate was 9.39%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to
the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the
related trust preferred securities. As of September 30, 2024, the Company has not made such an election.
The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from existing
or potential future financing arrangements.
At September 30, 2024, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of
the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the
option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject
to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option.
The Series D Preferred Stock is not currently convertible. At September 30, 2024, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3 million.
Bankers Fidelity Life Insurance Company (''BFLIC") is a member of the Federal Home Loan Bank of Atlanta ("FHLB"), for the primary purpose of enhancing financial flexibility. As a member, BFLIC can
obtain access to low-cost funding and also receive dividends on FHLB stock. The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.2 million, as of September 30, 2024.
Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB. As of September 30, 2024, BFLIC has pledged bonds having an amortized cost of $9.3 million to the FHLB. BFLIC may be required to post
additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB. As of September 30, 2024, BFLIC does not have any outstanding borrowings from the FHLB.
On May 12, 2021, the Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $10.0 million revolving credit facility
that originally matured on April 12, 2024. On March 22, 2024, the Company entered into a First Amendment (the "Amendment") to its Revolving Credit Agreement (as amended, the “Credit Agreement”) with the Lender. The Amendment, among other things,
(a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term SOFR rate (as defined in the Credit Agreement), plus 2.00%, (b) extends the
maturity date of the revolving credit facility to March 22, 2027, (c) requires the monthly payment of an unused commitment fee of 0.2% of the unused facility amount, and (d) requires that the Company maintain a consolidated net worth of not less
than $64.2 million. Except as modified by the Amendment, the existing terms of the original Credit Agreement remain in effect.
The Credit Agreement requires the Company to comply with certain covenants, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35% of
the Company’s consolidated capitalization at any time and maintaining a minimum consolidated net worth, as previously mentioned. The Credit Agreement also contains customary representations and warranties and events of default. Events of default
include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of
bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of September 30, 2024 and
December 31, 2023, the Company had outstanding borrowings of $4.0 and $3.0 million, respectively, under the Credit Agreement.
Cash and cash equivalents decreased from $28.3 million at December 31, 2023 to $23.0 million at September 30, 2024. The decrease in cash and cash equivalents during the nine month period ended
September 30, 2024 was primarily attributable to net cash used in operating activities of $4.8 million. Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $1.0 million primarily as a result
of investment purchases exceeding investment sales and maturity of securities. Partially offsetting the decrease in cash and cash equivalents was net cash provided by financing activities of $0.6 million primarily as a result of proceeds from bank
financing.
The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, borrowings under its credit
facilities or additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatory authorities, which, if
implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only
reasonable assurance regarding management’s control objectives. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures can prevent all possible errors
or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the intentional acts of one or more persons. The design of any system of
controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate
effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may
occur and may not be detected.
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, management, including the Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of that date due to a material weakness in internal control over financial reporting described below.
Remediation of Material Weakness in Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting
system has been designed to provide reasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management recognizes that there are
inherent limitations in the effectiveness of any internal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Furthermore, the application of any evaluations of
effectiveness on future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As previously disclosed in Part II, Item 9A. “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, we identified certain deficiencies in
internal control that we believe rise to the level of a material weakness. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, management determined that the design of the controls surrounding the process of reviewing insurance reserves and
deferred acquisition costs within the Company’s life and health segment was not effective. This deficiency in design did not enable the timely detection of anomalies in these values at the level of precision necessary to detect misstated values
that may be material.
Notwithstanding these deficiencies, management believes that, as a result of the actions taken by management to address and correct these deficiencies prior to the completion and filing of the
relevant periodic reports for those periods, and the effective operation of other internal controls over financial reporting, the material weakness did not result in any identified material misstatements to our financial statements. As a result,
there were no changes to any of our previously-released financial statements.
The Company is currently in the process of remediating the material weakness as described above, which remediation efforts began in the quarter ended March 31, 2024, and continued through the
quarter ended September 30, 2024. During the quarter ended September 30, 2024, management instituted a systematic review of the components of underwriting income for the Company’s life products. An array of analytical reports designed to help
identify potential anomalous actuarial values for these products was implemented during the quarter ended September 30, 2024, and is a key component of this review. Based on this review, management did not identify any material misstatement in the
Company’s financial statements.
The Company has continued the development of a system to perform calculations independently of the actuarial models. This system is intended to verify that the product parameters and actuarial
assumptions are properly reflected in the reported values. It is currently expected that this system will be operational by December 31, 2024.
Changes in Internal Control Over Financial Reporting
Other than the remediation efforts described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
On October 31, 2016, the Board of Directors of the Company approved a plan that allows for the repurchase of up to 750,000 shares of the Company's common stock (the "Repurchase Plan") on the open
market or in privately negotiated transactions, as determined by an authorized officer of the Company. Any such repurchases can be made from time to time in accordance with applicable securities laws and other requirements.
During the three month period ending September 30, 2024 no purchases of common stock of the Company were made by or on behalf of the Company pursuant to the Repurchase Plan. The maximum number of
shares that may yet be purchased under the Repurchase Plan was 325,129 as of September 30, 2024.
On May 24, 2022, the Company’s shareholders approved the 2022 Equity and Incentive Compensation Plan (the “2022 Plan”). The 2022 Plan authorizes the grant of up to 3,000,000 stock options, stock
appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards, and succeeded the 2012 Plan for the purpose of providing the Company’s non-employee directors, consultants, officers and other
employees incentives and rewards for performance and service.
The table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthly basis during the three month period ending September 30, 2024.
|
Period
|
Total Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Maximum Number
of Shares that may
Yet be Purchased
Under the Plans
or Programs
|
||||||||||||
|
July 1 – July 31, 2024
|
—
|
$
|
—
|
—
|
325,129
|
|||||||||||
|
August 1 – August 31, 2024
|
—
|
—
|
—
|
325,129
|
||||||||||||
|
September 1 – September 30, 2024
|
—
|
—
|
—
|
325,129
|
||||||||||||
|
Total
|
—
|
$
|
—
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—
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None of the Company's directors or officers adopted terminated
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Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101. INS
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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101. SCH
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Inline XBRL Taxonomy Extension Schema Document.
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101. CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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104
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
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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.
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ATLANTIC AMERICAN CORPORATION
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(Registrant)
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Date: November 12, 2024
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By:
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/s/ J. Ross Franklin
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J. Ross Franklin
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Vice President and Chief Financial Officer
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(Principal Financial and Accounting Officer)
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28
EXHIBIT 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Hilton H. Howell, Jr., certify that:
| 1. |
I have reviewed this report on Form 10-Q of Atlantic American Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
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| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
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| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
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| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
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| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
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Date: November 12, 2024
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/s/ Hilton H. Howell, Jr.
|
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Hilton H. Howell, Jr.
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President and Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Ross Franklin, certify that:
| 1. |
I have reviewed this report on Form 10-Q of Atlantic American Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
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Date: November 12, 2024
|
/s/ J. Ross Franklin
|
|
J. Ross Franklin
|
|
|
Vice President and
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|
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Chief Financial Officer
|
EXHIBIT 32.1
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Quarterly Report on Form 10-Q of Atlantic American Corporation
(the “Company”) for the quarterly period ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, that, to such officer’s knowledge:
| (1) |
The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
|
|
Date:
November 12, 2024
|
/s/ Hilton H. Howell, Jr.
|
|
|
Hilton H. Howell, Jr.
|
||
|
President and Chief Executive Officer
|
||
|
Date:
November 12, 2024
|
/s/ J. Ross Franklin
|
|
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J. Ross Franklin
|
||
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Vice President and
|
||
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Chief Financial Officer
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the
electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.