ATLANTIC AMERICAN CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 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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(Registrant’s telephone number, including area code)
(
404
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266-5500
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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Securities registered pursuant to Section 12(g) of the Act
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None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No
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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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No ☒
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2024, the last business day of the registrant’s most recently completed second fiscal
quarter, was $
6,854,118
. For purposes hereof, beneficial ownership is determined under rules adopted pursuant to Section 13 of the
Securities Exchange Act of 1934, and the foregoing excludes value ascribed to common stock that may be deemed beneficially owned by the directors and executive officers, and 10% or greater stockholders, of the registrant, some of whom may not be
deemed to be affiliates upon judicial determination. On February 28, 2025, there were
20,399,758
shares of the registrant’s common
stock, par value $1.00 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive
Proxy Statement for the 2025 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year end, have been incorporated by reference in Items 10, 11, 12, 13 and 14 of Part
III of this Form 10-K.
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Page
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1
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PART I
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Item 1.
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3
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11
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Item 1A.
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11
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Item 1B.
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11
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Item 1C.
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12
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Item 2.
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13
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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23
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Item 9.
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58
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Item 9A.
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58
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Item 9B.
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59
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Item 9C.
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59
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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60 |
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Item 11.
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Executive Compensation
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60 |
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
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60 |
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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60 |
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Item 14.
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Principal Accountant Fees and Services
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60 |
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PART IV
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Item 15.
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61
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Item 16.
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63
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69
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Certain of the statements contained or incorporated by reference herein are forward-looking statements within the meaning of the federal securities laws. Forward-looking
statements are all statements other than those of historical fact. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,
and Section 21E of the Securities Exchange Act of 1934, and include estimates and assumptions related to, among other things, general economic, competitive, operational and legislative developments, expectations and trends. Forward-looking statements
are inherently subject to risks and uncertainties which are, in many instances, beyond the Company’s control and have been made based upon management’s current expectations and beliefs concerning future developments and their potential effect upon
the Company. There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on the Company will be those anticipated by management. Actual results could differ
materially from those expressed by forward-looking statements, depending on the occurrence or outcome of various factors. These factors include, among others: the effects of macroeconomic conditions and general economic uncertainty; unexpected
developments in the health care or insurance industries affecting providers or individuals, including the cost or availability of services, or the tax consequences related thereto; disruption to the financial markets; unanticipated increases in the
rate, number and amounts of claims outstanding; our ability to remediate the identified material weakness in our internal control over financial reporting; the level of performance of reinsurance companies under reinsurance contracts and the
availability, pricing and adequacy of reinsurance to protect the Company against losses; changes in the stock markets, interest rates or other financial markets, including the potential effect on the Company’s statutory capital levels; the uncertain
effect on the Company of regulatory and market-driven changes in practices relating to the payment of incentive compensation to brokers, agents and other producers; the potential impact of public health emergencies; the incidence and severity of
catastrophes, both natural and man-made; the possible occurrence of terrorist attacks; stronger than anticipated competitive activity; unfavorable judicial or legislative developments; the potential effect of regulatory developments, including those
which could increase the Company’s business costs and required capital levels; the Company’s ability to distribute its products through distribution channels, both current and future; the uncertain effect of emerging claim and coverage issues; the
effect of assessments and other surcharges for guaranty funds and other mandatory pooling arrangements; information technology system failures or network disruptions; and risks related to cybersecurity matters, such as breaches of our computer
network or those of other parties or the loss of or unauthorized access to the data we maintain. As a result, undue reliance should not be placed upon forward-looking statements, which speak only as of the date they are made. The Company undertakes
no obligation to publicly update any forward-looking statements as a result of subsequent developments, changes in underlying assumptions or facts or otherwise, except as may be required by law.
PART I
Atlantic American Corporation, a Georgia corporation incorporated in 1968 (the “Parent” or “Company”), is a holding company that operates through its subsidiaries in
well-defined specialty markets within the life and health and property and casualty insurance industries. The Parent’s principal operating subsidiaries are American Southern Insurance Company and American Safety Insurance Company (together known as
“American Southern”) within the property and casualty insurance industry and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers Fidelity”) within the
life and health insurance industry. Each of American Southern and Bankers Fidelity is managed separately based upon the type of products it offers and is evaluated on its individual performance. The Company’s strategy is to focus on well-defined
geographic, demographic and/or product niches within the insurance marketplace. Each of American Southern and Bankers Fidelity operates with relative autonomy, which structure is designed to allow for quick reaction to market opportunities.
The Parent has no significant business operations of its own and relies on fees, dividends and other distributions from its operating subsidiaries as the principal source of
cash flow to meet its obligations. Additional information regarding the cash flow and liquidity needs of the Parent can be found in the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Property and Casualty Operations
American Southern comprises the Company’s property and casualty operations and its primary product lines are as follows:
Commercial Automobile Insurance
policies provide bodily injury and/or property damage liability coverage, uninsured motorist
coverage and physical damage coverage for commercial accounts.
General Liability Insurance
policies cover bodily injury and/or property damage liability for both premises and completed
operations exposures for general classes of business.
Surety Bonds
are contracts under which one party, the insurance company issuing the surety bond, guarantees to a third party
that the primary party will fulfill an obligation in accordance with a contractual agreement. This obligation may involve meeting a contractual commitment, paying a debt or performing certain duties.
American Southern provides tailored commercial automobile insurance coverage, on a multi-year contract basis, to state governments, local municipalities and other large motor
pools and fleets (“block accounts”) that can be specifically rated and underwritten. The size of the block accounts insured by American Southern are generally such that individual class experience can be determined, which allows for customized policy
terms and rates. American Southern is licensed to do business in 32 states and the District of Columbia. While the majority of American Southern’s premiums are derived from its automobile lines of business, American Southern also offers general
liability and other lines such as inland marine coverage. Additionally, American Southern directly provides surety bond coverage for subdivision construction, school bus contracts, as well as performance and payment bonds.
The following table summarizes, for the periods indicated, the allocation of American Southern’s net earned premiums from each of its principal product lines:
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Year Ended December 31,
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2024
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2023
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(In thousands)
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Automobile liability
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$
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39,788
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$
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38,821
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Automobile physical damage
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13,464
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15,046
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General liability
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5,990
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5,758
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Surety
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5,809
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6,303
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Other lines
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2,638
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2,515
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Total
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$
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67,689
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$
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68,443
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Life and Health Operations
Bankers Fidelity comprises the life and health operations of the Company and offers a variety of life and supplemental health products. Products offered by Bankers Fidelity
include ordinary life insurance, Medicare supplement and other accident and health insurance products.
Life Insurance
products include non-participating, individual and group whole life insurance policies with a variety of riders
and options. Policy premiums depend on a number of factors, including but not limited to issue age, level of coverage and any selected riders or options.
Medicare Supplement
Insurance includes 8 of the 10 standardized Medicare supplement plans that were developed in response to
the requirements of the Omnibus Budget Reconciliation Act of 1990 (“OBRA 1990”). These policies provide insurance coverage for certain expenses not covered by the Medicare program, including but not limited to copayments and deductibles.
Other Accident and Health Insurance
coverages include several individual and group policies providing for the payment of
benefits that help defray the health care and other costs associated with the treatment of cancer and other critical illnesses. In addition, Bankers Fidelity offers policies that reimburse the costs associated with short-term nursing facility care,
policies that provide monthly benefits in the event of a covered disability, and policies that provide cash benefits in the event of a covered accident or a covered hospital stay.
Health insurance products, primarily Medicare supplement insurance, accounted for 82% of Bankers Fidelity’s net earned premiums in 2024 while life insurance, including both
whole and term life insurance policies, accounted for the balance. In terms of the number of policies written in 2024, 69% were health insurance policies and 31% were life insurance policies.
The following table summarizes, for the periods indicated, the allocation of Bankers Fidelity’s net earned premiums from each of its principal product lines:
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Year Ended December 31,
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2024
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2023
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(In thousands)
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Group life
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$
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14,700
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$
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12,431
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Individual life
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5,594
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6,153
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Total life
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20,294
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18,584
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Medicare supplement
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71,867
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77,424
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Group accident and health
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11,390
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7,583
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Other individual health
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7,491
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6,791
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Total health
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90,748
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91,798
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Total
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$
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111,042
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$
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110,382
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Marketing
Property and Casualty Operations
A portion of American Southern’s business is marketed through a small number of specialized, experienced independent agents. American Southern’s agent selection process is
actively managed by internal marketing personnel with oversight from management. Senior management carefully reviews all new programs prior to acceptance. Most of American Southern’s agents are paid an up-front commission with the potential for
additional commissions by participating in a profit sharing arrangement that is directly linked to the profitability of the underlying business. American Southern also solicits business from governmental entities. As an experienced writer of
insurance policies for certain governmental programs, the company actively pursues this market on a direct basis. Much of this business is priced by means of competitive bid situations. As a result, there can be no assurance with respect to the
ultimate profitability or ability of the Company to obtain or retain such business at the time of a specific contract renewal.
Life and Health Operations
Bankers Fidelity acquires its clientele through three distribution channels spread across 46 different states and two business divisions, all of which utilize commissioned,
independent agents. The three distribution channels include traditional independent agents, brokers typically interested in a specific product of Bankers Fidelity and brokers who focus on sales within the group/employer benefits division, Atlantic
American Employee Benefits, all of which are responsible for their own marketing and sales activities. Contracting as independent agents enables Bankers Fidelity to effectively expand or contract its sales force without incurring significant expense.
Bankers Fidelity had approximately 6,243 licensed agents contracted in both the individual and group divisions as of December 31, 2024. During 2024, approximately 1,429 of
these licensed agents wrote policies on behalf of Bankers Fidelity.
Bankers Fidelity’s marketing and distribution strategy revolves around five pillars: Diversification, Differentiation, Quality, Retention and Profitability.
Diversification
. Through unique product offerings such as the Vantage Flex Plus®, a hospital indemnity plan, and Vantage Recovery®,
short-term care product and a group whole life product featuring a chronic illness rider, the Company is able to offer its distributors an array of products to sell that stand out from the competition. As the Company continues to expand its
geographical footprint with agents and products, one of its main objectives is to have a healthy mix of all of its product lines nationwide.
Differentiation
. Bankers Fidelity prides itself on the quality of customer service it offers to policyholders and agents. A dedicated
agent support team is available to the field to support them on administration, underwriting, sales training, product questions and a plethora of other services which differentiates the Company from other carriers. Additionally, a customer loyalty
team is available solely to serve insureds for any of their insurance needs. Bankers Fidelity prides itself on being agile, which we believe differentiates us from larger carriers and helps the Company to quickly execute senior management’s
initiatives.
Quality
. Bankers Fidelity is focused on being a niche carrier that delivers superior service, quality products and innovative
solutions. Sophisticated technology and reporting allows the home office teams to work with the sales force to deliver a tailored experience and phenomenal customer service.
Retention.
Through seasonal campaigns and customer outreach, the Company is focused on client retention and servicing its policyholders
through all stages in their lives. By providing its agents with an innovative product portfolio, the Company further promotes client retention by empowering its agents to continually meet the needs of our policyholders.
Profitability
. In an effort to be sustainable in the marketplace as a long-term partner, senior management is focused on
diversification, differentiation, quality and retention to achieve profitability.
Property and Casualty Operations
American Southern specializes in underwriting various risks that are sufficiently large enough to establish separate class experience, relying upon the underwriting expertise
of its agents.
During the course of the policy life, extensive use is made of risk management representatives to assist commercial underwriters in identifying and correcting potential loss
exposures and to physically inspect new accounts. The underwriting results from each insured are reviewed on an individual basis periodically. If results are below expectations, management takes corrective action, which may include adjusting rates,
revising underwriting standards, adjusting commissions paid to agents, and/or altering or declining to renew accounts at expiration.
Life and Health Operations
Bankers Fidelity issues a variety of products that span from the group markets to the individual markets for both life and health insurance. Products offered by Bankers
Fidelity include life insurance, typically with small face amounts, Medicare supplement and other accident and health insurance. Bankers Fidelity also provides an array of group products such as accident, cancer, critical illness, hospital indemnity
and life insurance that is offered to employers who are looking to provide coverage for their employees and have the related premiums deducted through payroll deductions.
The individual products are underwritten on a non-medical basis using a simplified issue approach by which an application containing a variety of health related questions is
submitted. Applications for insurance are reviewed to determine the face amount, age, medical history and any other necessary information. Bankers Fidelity utilizes information obtained directly from the insured, the medical claims data, prescription
utilization reports as well as telephone interviews to determine whether an applicant meets the Company’s underwriting criteria. Bankers Fidelity may also utilize medical records and investigative services to supplement and substantiate information,
as necessary.
The group products are underwritten and assessed at the group level for financial risk. The underwriting will utilize several factors to determine this risk such as the industry, demographics,
enrollment strategies, employee access, locations of offices and any regulatory or legislative changes that could impact the decisions. The spread of risk is also reviewed which analyzes the content of the employees within the group which includes
the spread of gender, ages, salaries and occupations. This information is used to quote an appropriate benefits package, pricing, waiting periods and rates for the group entity.
The Company believes that prompt, efficient policyholder and claims services are essential to its continued success in marketing its insurance products (see “Competition”).
Additionally, the Company believes that its insureds are particularly sensitive to claims processing time and to the accessibility of qualified staff to answer inquiries. Accordingly, the Company’s policyholder and claims services seek to offer
expeditious disposition of service requests by providing toll-free access for all customers, 24-hour claim reporting services, and direct computer links with some of its largest accounts. The Company also utilizes an automatic call distribution
system designed to ensure that inbound calls to customer service support groups are processed efficiently. Operational data generated from this system allows management to further refine ongoing client service programs and service representative
training modules.
Property and Casualty Operations
American Southern controls its claims costs by utilizing an in-house staff of claims supervisors to investigate, verify, negotiate and settle claims. Upon notification of an
occurrence purportedly giving rise to a claim, a claim file is established. The claims department then conducts a preliminary investigation, determines whether an insurable event has occurred and, if so, updates the file for the findings and any
required reserve adjustments. Independent adjusters and appraisers are frequently utilized to service claims which require on-site inspections.
Life and Health Operations
The majority of life and health claims are filed electronically while insureds also have the ability to download claims forms and file directly. Insureds may also obtain claim
forms by calling the customer service group or through Bankers Fidelity’s website. All of these claims are entered into the system immediately upon receipt and put into a pending status until the claim can be fully processed. To shorten claim
processing time, a letter detailing all supporting documents that are required to complete a claim for a particular policy is sent to the customer along with the correct claim form. Properly documented claims are generally paid within five business
days of receipt. With regard to Medicare supplement policies, the claim is either directly billed to Bankers Fidelity by the provider or sent electronically through a Medicare clearing house.
Reserves are set by line of business within each of the subsidiaries. At December 31, 2024, approximately 72% of the losses and claims reserves related to property and
casualty and approximately 28% related to life and health. The Company’s property and casualty operations incur losses which may take extended periods of time to evaluate and settle. Issues with respect to legal liability, actual loss quantification,
legal discovery and ultimate subrogation, among other factors, may influence the initial and subsequent estimates of loss. In the property and casualty operations, the Company’s general practice is to reserve at the higher end of the determined
reasonable range of loss if no other value within the range is determined to be more probable. The Company’s life and health operations generally incur losses which are more readily quantified. Medical claims received are recorded in case reserves
based on contractual terms using the submitted billings as a basis for determination. Life claims are recorded based on contract value at the time of notification to the Company; offset by policy reserves related to such contracts previously
established. Individual case reserves are established by a claims processor on each individual claim and are periodically reviewed and adjusted as new information becomes known during the course of handling a claim. Regular internal periodic reviews
are also performed by management to ensure that loss reserves are established and revised timely relative to the receipt of new or additional information. Lines of business for which loss data (e.g., paid losses and case reserves) emerge over a long
period of time are referred to as long-tail lines of business. Lines of business for which loss data emerge more quickly are referred to as short-tail lines of business. The Company’s long-tail line of business generally consists of its general
liability coverage while the short-tail lines of business generally consist of property and automobile coverages.
The Company’s actuaries regularly review reserves for both current and prior accident years using the most current claims data. These reviews incorporate a variety of
actuarial methods (discussed in Critical Accounting Policies) and judgments and involve a disciplined analysis. For most lines of business, certain actuarial methods and specific assumptions are deemed more appropriate based on the current
circumstances affecting that line of business. These selections incorporate input from claims personnel and operating management on reported loss cost trends and other factors that could affect the reserve estimates.
The Company establishes reserves for claims based upon: (a) management’s estimate of ultimate liability and claims adjusters’ evaluations of unpaid claims reported prior to
the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of losses and loss adjustment expense (“LAE”). The estimated liability is periodically reviewed and updated,
and changes to the estimated liability are recorded in the statement of operations in the period in which such changes become known.
For long-tail lines of business, the emergence of paid losses and case reserves is less credible in the early periods, and accordingly may not be indicative of ultimate
losses. For these lines, methods which incorporate a development pattern assumption are given less weight in calculating IBNR for the early periods of loss emergence because such a low percentage of ultimate losses are reported in that time frame.
Accordingly, for any given accident year, the rate at which losses on long-tail lines of business emerge in the early periods is generally not as reliable an indication of ultimate losses as it would be for shorter-tail lines of business. The
estimation of reserves for these lines of business in the early periods of loss emergence is therefore largely influenced by statistical analyses and application of prior accident years’ loss ratios, after considering changes to earned pricing, loss
costs, mix of business, ceded reinsurance and other factors that are expected to affect the estimated ultimate losses. For later periods of loss emergence, methods which incorporate a development pattern assumption are given more weight in estimating
ultimate losses. For short-tail lines of business, the emergence of paid loss and case reserves is more credible in the early periods and is more likely to be indicative of ultimate losses. The method used to set reserves for these lines of business
is based upon utilization of a historical development pattern for reported losses. IBNR reserves for the current year are set as the difference between the estimated fully developed ultimate losses for each year, less the established, related case
reserves and cumulative related payments. IBNR reserves for prior accident years are similarly determined, again relying on an indicated, historical development pattern for reported losses.
Based on the results of regular reserve estimate reviews, the Company determines the appropriate reserve adjustment, if any, to record in each period. If necessary, recorded
reserve estimates are changed after consideration of numerous factors, including, but not limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indication in
the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, changes are made more quickly to recognize changes in estimates to ultimate losses in
mature accident years and less volatile lines of business.
The Company’s policy is to record reserves for losses and claims in amounts that represent actuarial best estimates of ultimate values. Actuarial best estimates do not
necessarily represent the midpoint value determined using the various actuarial methods; however, such estimates will fall between the estimated low and high end reserve values. The range of estimates developed in connection with the December 31,
2024 actuarial review indicated that reserves could be as much as 5.2% lower or as much as 25.0% higher. In the opinion of management, recorded reserves represent the best estimate of outstanding losses, although significant judgments are made in the
derivation of reserve estimates and revisions to such estimates are expected to be made in future periods. Any such revisions could be material, and may materially adversely affect the Company’s financial condition and results of operations in any
future period.
Property and Casualty Operations
American Southern maintains loss reserves representing estimates of amounts necessary for payment of losses and LAE, which are not discounted. IBNR reserves are also
maintained for future development. These loss reserves are estimates, based on known facts and circumstances at a given date, of amounts the Company expects to pay on incurred claims. All balances are reviewed periodically by the Company’s
independent consulting actuary. Reserves for LAE are intended to cover the ultimate costs of settling claims, including investigation and defense of any lawsuits resulting from such claims. Loss reserves for reported claims are based on a
case-by-case evaluation of the type of claim involved, the circumstances surrounding the claim, and the policy provisions relating to the type of loss along with anticipated future development. The LAE for claims reported and claims not reported is
based on historical statistical data and anticipated future development. Inflation and other factors which may affect claim payments are implicitly reflected in the reserving process through analysis and consideration of cost trends and reviews of
historical reserve results.
Estimating case reserves and ultimate losses involves various considerations which differ according to the line of business. In addition, changes in legislative and regulatory
environments may impact loss estimates. General liability claims may have a long pattern of loss emergence. Given the broad nature of potential general liability coverages, investigative time periods may be extended and questions of coverage may
exist. Such uncertainties create greater imprecision in estimating required levels of loss reserves. The property and automobile lines of business generally have less variable reserve estimates than other lines. This is largely due to the coverages
having relatively shorter periods of loss emergence. Estimates, however, can still vary due to a number of factors, including interpretations of frequency and severity trends. Severity trends can be impacted by changes in internal claim handling and
reserving practices in addition to changes in the external environment. These changes in claim practices increase the uncertainty in the interpretation of case reserve data, which increases the uncertainty in recorded reserve levels.
Life and Health Operations
Bankers Fidelity establishes reserves for future policy benefits to meet projected obligations under policies that are in force as of the statement date. These reserves are
calculated to satisfy policy and contract obligations as they are projected to come due. Reserves for insurance policies are calculated using assumptions for interest rates, mortality rates, disablement rates, benefit utilization rates, and lapse
rates. These assumptions vary by the product type, the year the policy was issued, and policyholder demographic information. Changes in assumptions may be made from one issue year to another to reflect actual experience. Actual future experience
that deviates significantly from the assumptions, or actual results that differ significantly from our estimates, could have a materially adverse effect on our liquidity, results of operations, or financial condition.
Liabilities for future benefits on life insurance policies and accident and health insurance policies are based on assumed investment yields, mortality rates, disablement
rates, benefit utilization rates, and lapse rates after giving effect to possible risks of unexpected adverse claim experience. The mortality, morbidity, and lapse assumptions are based upon the Company’s experience and incorporate a margin for
adverse experience development. These assumptions are modified as necessary to reflect anticipated trends and are generally established at contract inception.
See Note 7 of Notes to Consolidated Financial Statements for more information on insurance reserves and policyholder funds.
The Company’s insurance subsidiaries from time-to-time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks
and to protect against catastrophic losses. In a reinsurance transaction, an insurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer. The reinsurer assumes the exposure in return for a portion of
the premiums. The ceding of insurance does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet its obligations under the
reinsurance agreement.
Property and Casualty Operations
American Southern’s basic reinsurance treaties generally cover all claims in excess of specified per occurrence limitations. Limits per occurrence within the reinsurance
treaties are as follows: Inland marine and commercial automobile physical damage - $225,000 excess of $125,000 retention; and automobile liability and general liability - excess coverage of $2.0 million less retentions that may vary from $150,000 to
$500,000 depending on the account. American Southern maintains a property catastrophe treaty with a $5.5 million limit excess of $500,000 retention. American Southern also issues individual surety bonds with face amounts generally up to $1.5 million,
and limited to $5.0 million in aggregate per account, that are not reinsured.
Life and Health Operations
Bankers Fidelity has entered into reinsurance contracts ceding the excess of its life retention. Maximum retention by Bankers Fidelity on any one individual life insurance
policyholder is $200,000. As of December 31, 2024, $7.2 million of the $975.8 million of life insurance in force at Bankers Fidelity was reinsured under a combination of coinsurance and yearly renewable term agreements. Certain prior year reinsurance
agreements also remain in force although they no longer provide reinsurance for new business.
Bankers Fidelity has also entered into a reinsurance contract ceding excess new Medicare Supplement business to General Re Life Corporation. Ceding thresholds are set
annually. During 2024, the liability of the reinsurer was 50% of all new Medicare Supplement business issued by the Company on amounts up to a maximum retention of $15.0 million of annualized premium. Accordingly, $5.1 million of the Company’s $10.1
million of new annualized Medicare Supplement premium was ceded.
Competition for insurance products is based on many factors including premiums charged, terms and conditions of coverage, customer service, financial ratings assigned by
independent rating agencies, claims handling, consumer recognition and reputation, perceived financial strength and the experience of the organization in the line of business being written.
Property and Casualty Operations
The businesses in which American Southern engages are highly competitive. The principal areas of competition are pricing and service. Many competing property and casualty
companies have been in business longer than American Southern, offer more diversified lines of insurance and have substantially greater financial resources. Management believes, however, that the policies it sells are competitive with those providing
similar benefits offered by other insurers doing business in the states in which American Southern operates. American Southern strives to develop strong relationships with its agents and, consequently, believes it is well positioned for new
opportunities and programs with those agents.
Life and Health Operations
The life and health insurance business remains highly competitive and includes a large number of insurance companies, many of which are new entrants to the business of
providing Medicare supplement and other accident and health insurance products. Bankers Fidelity has established itself as a trusted carrier of choice for its customers providing quality and sustainability for over 65 years.
In order to compete, Bankers Fidelity actively seeks opportunities in niche markets, developing long-term relationships with a select number of independent marketing
organizations. Additionally, Bankers Fidelity actively promotes Atlantic American Employee Benefits, the group benefits division, as well as selective association partnerships. It competes with other insurers to attract and retain the allegiance of
its independent agents through commission and sales incentive arrangements, accessibility and marketing assistance, lead programs, reputation and market expertise. Bankers Fidelity successfully competes in its chosen markets by establishing
relationships with independent agents and providing proprietary marketing initiatives as well as providing outstanding service to policyholders.
Ratings are important measures within the insurance industry, and higher ratings are expected to have a favorable impact on the ability of a company to compete in the
marketplace. Ratings of insurance companies are not designed for investors and do not constitute recommendations to buy, sell, or hold any security.
Each year A.M. Best Company, Inc. (“A.M. Best”) publishes Best’s Insurance Reports, which includes assessments and ratings of all insurance companies. A.M. Best’s financial
strength ratings, which may be revised or revoked at any time, follow a graduated scale of rating categories and notches ranging from A++ (Superior) to F (in liquidation). A.M. Best’s ratings are based on a detailed analysis of the statutory
financial condition and operations of an insurance company compared to the industry in general.
American Southern.
American Southern Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company, are each, as
of the date of this report, rated “A” (Excellent) by A.M. Best.
Bankers Fidelity.
Bankers Fidelity Life Insurance Company and its wholly-owned subsidiaries, Bankers Fidelity Assurance Company and
Atlantic Capital Life Assurance Company, are each, as of the date of this report, rated “A-” (Excellent) by A.M. Best.
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. The method of such regulation varies, but regulation relates generally to the licensing of insurers and their agents, the nature of and
limitations on investments, approval of policy forms, reserve requirements, the standards of solvency to be met and maintained, deposits of securities for the benefit of policyholders, and periodic examinations of insurers and trade practices, among
other things. The Company’s products generally are subject to rate regulation by state insurance commissions, which require that certain minimum loss ratios be maintained. Certain states also have insurance holding company laws which require
registration and periodic reporting by insurance companies controlled by other corporations licensed to transact business within their respective jurisdictions. The Company’s insurance subsidiaries are subject to such legislation and are registered
as controlled insurers in those jurisdictions in which such registration is required. Such laws vary from state to state, but typically require periodic disclosure concerning the corporation which controls the registered insurers and all subsidiaries
of such corporations, as well as prior notice to, or approval by, the state insurance commissioners of intercorporate transfers of assets (including payments of dividends by the insurance subsidiaries in excess of specified amounts) within the
holding company system. The Company believes it is in compliance with all such requirements.
Most states require that rate schedules and other information be filed with the state’s insurance regulatory authority, either directly or through a ratings organization with
which the insurer is affiliated. The regulatory authority may disapprove a rate filing if it determines that the rates are inadequate, excessive, or discriminatory. The Company has historically experienced no significant regulatory resistance to its
applications for rate adjustments; however, the Company cannot provide any assurance that it will not receive any objections to any applications in the future.
A state may require that acceptable securities be deposited for the protection either of policyholders located in those states or of all policyholders. As of December 31,
2024, the Company was in compliance with all such requirements, and securities with an amortized cost of $15.1 million were on deposit either directly with various state authorities or with third parties pursuant to various custodial agreements on
behalf of the Company’s insurance subsidiaries.
Virtually all of the states in which the Company’s insurance subsidiaries are licensed to transact business require participation in their respective guaranty funds designed
to cover claims against insolvent insurers. Insurers authorized to transact business in these jurisdictions are generally subject to assessments of up to 4% of annual direct premiums written in that jurisdiction to pay such claims, if any. The
likelihood and amount of any future assessments cannot be estimated until an insolvency has occurred.
The National Association of Insurance Commissioners (the “NAIC”) was established to, among other things, provide guidelines to assess the financial strength of insurance
companies for state regulatory purposes. The NAIC conducts annual reviews of the financial data of insurance companies primarily through the application of financial ratios prepared on a statutory basis. Annual statements are required to be submitted
to state insurance departments to assist them in monitoring insurance companies in their state and to allow such states to determine a desirable range for each such ratio with which companies should comply.
The NAIC developed the Insurance Regulatory Information System (“IRIS”) to help state regulators identify companies that may require regulatory attention. Financial examiners
review annual financial statements and the results of key financial ratios based on year-end data with the goal of identifying insurers that appear to require immediate regulatory attention. Each ratio has an established “usual range” of results. A
ratio result falling outside the usual range, however, is not necessarily considered adverse; rather, unusual values are used as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound
companies to have several ratios with results outside the usual ranges. Generally, an insurance company may become subject to regulatory scrutiny or, depending on the company’s financial condition, regulatory action if certain of its key IRIS ratios
fall outside the usual ranges and the insurer’s financial condition is trending downward.
For the year ended December 31, 2024, American Southern Insurance Company had one ratio that was outside the usual range, the two-year reserve development to policyholders’
surplus, which was primarily due to adverse reserve developments on prior year claims in the commercial automobile liability line of business.
Bankers Fidelity Assurance Company (“BFAC”) had three ratios outside the normal range, primarily the result of a net loss for the year, certain surplus ratios and non-admitted
assets to admitted assets. The net loss is primarily related to federal income taxes incurred which resulted in a corresponding decrease in surplus levels for the year as well as a deferred tax asset which is non-admitted. The surplus relief ratio
for BFAC triggered because the ratio of commission & expense allowances to capital exceeds 100%. BFAC writes only Medicare supplement insurance and cedes 100% of its written business to its parent, therefore the change in product mix ratio will
always produce no result.
Bankers Fidelity Life Insurance Company had two ratios outside the normal range. Both the first and second ratios were unusual because capital and surplus fell greater than
10% from 2023 to 2024. The decrease in capital was due primarily to the extraordinary dividend paid to its parent. Other contributing factors are a lower net income in 2024 versus 2023 and an increase in unrealized loss on our invested bond
portfolio.
Atlantic Capital Life Assurance Company (“ACLAC”) had one ratio outside the normal range, ratio 8 Surplus Relief. The surplus relief ratio for ACLAC triggered because the
ratio of commission & expense allowances to capital exceeds 100%. ACLAC writes only Medicare supplement insurance and cedes 100% of its written business to its parent, therefore the change in product mix ratio will always produce no result.
American Safety Insurance Company had no IRIS ratios outside the usual ranges. Management does not anticipate regulatory action as a result of the 2024 IRIS ratio results for
the insurance subsidiaries.
Risk-based capital (“RBC”) is a metric used by ratings agencies and regulators as an early warning tool to identify weakly capitalized companies for the purpose of initiating
further regulatory action. The RBC calculation determines the amount of adjusted capital needed by a company to avoid regulatory action. “Authorized Control Level Risk-Based Capital” (“ACL”) is calculated, and if a company’s adjusted capital is 200%
or lower than ACL, it is subject to regulatory action. At December 31, 2024, the Company’s insurance subsidiaries’ RBC levels exceeded the required regulatory levels.
Investment income represents a significant portion of the Company’s operating and total income. Insurance company investments are subject to state insurance laws and
regulations which limit the concentration and types of investments. The following table provides information on the Company’s investments as of the dates indicated.
|
December 31,
|
||||||||||||||||
|
2024
|
2023
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Fixed maturities:
|
||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
22,251
|
9.7
|
%
|
$
|
22,849
|
9.6
|
%
|
||||||||
|
Loan backed and structured securities
|
22,290
|
9.7
|
27,210
|
11.5
|
||||||||||||
|
States, municipalities and political subdivisions
|
7,623
|
3.3
|
8,106
|
3.4
|
||||||||||||
|
All other corporate bonds
|
160,261
|
69.6
|
159,849
|
67.4
|
||||||||||||
|
Redeemable preferred stock
|
187
|
0.1
|
205
|
0.1
|
||||||||||||
|
Total fixed maturities
(1)
|
212,612
|
92.4
|
218,219
|
92.0
|
||||||||||||
|
Equity securities
(2)
|
7,900
|
3.4
|
9,413
|
4.0
|
||||||||||||
|
Other invested assets
(3)
|
6,616
|
3.0
|
6,381
|
2.8
|
||||||||||||
|
Policy loans
(4)
|
1,722
|
0.7
|
1,778
|
0.7
|
||||||||||||
|
Real estate
|
38
|
0.0
|
38
|
0.0
|
||||||||||||
|
Investments in unconsolidated trusts
|
1,238
|
0.5
|
1,238
|
0.5
|
||||||||||||
|
Total investments
|
$
|
230,126
|
100.0
|
%
|
$
|
237,067
|
100.0
|
%
|
||||||||
| (1) |
Fixed maturities are carried on the balance sheet at estimated fair value. Certain fixed maturities do not have publicly quoted prices, and are carried at estimated fair value as determined by management.
Total amortized cost of fixed maturities was $236.3 million as of December 31, 2024 and $238.6 million as of December 31, 2023.
|
| (2) |
Equity securities are carried on the balance sheet at estimated fair value. Total cost of equity securities was $4.9 million as of December 31, 2024 and 2023.
|
| (3) |
Other invested assets are accounted for using the equity method. Total cost of other invested assets was $7.9 million as of December 31, 2024 and $7.0 million as of December 31, 2023.
|
| (4) |
Policy loans are valued at unpaid principal balances.
|
Estimated fair values are determined as discussed in Note 1 of Notes to Consolidated Financial Statements.
Results of the Company’s investment portfolio for periods shown were as follows:
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Average investments
(1)
|
$
|
280,420
|
$
|
275,995
|
||||
|
Net investment income
|
9,791
|
10,058
|
||||||
|
Average yield on investments
|
3.5
|
%
|
3.6
|
%
|
||||
|
Realized investment gains, net
|
1,210
|
70
|
||||||
| (1) |
Calculated as the average of cash and investment balances (at amortized cost) at the beginning of the year and at the end of each of the succeeding four quarters.
|
The Company engages a global investment management firm serving the insurance industry to manage the Company’s investment portfolios. Management’s recent investment strategy
has been a continued focus on quality and diversification, while improving the overall risk versus return profile of the portfolio.
The Company and its subsidiaries employed 156 people at December 31, 2024. Of the 156 people, 153 were full-time. We believe that our ability to attract and retain highly
motivated and skilled employees with diverse backgrounds and experiences is critical to our continued success. We also believe the structure of our compensation program is aligned with the interests of our shareholders and serves to reward the
performance of our employees. We monitor and evaluate the effectiveness of our human capital management efforts by seeking formal and informal feedback from our employees, including periodic surveys to obtain opinions on key topics.
We sponsor health and wellness programs in an effort to promote a healthier employee base. We also offer competitive health and wellbeing benefits to include health, dental,
vision, health and flexible savings accounts, disability, life, supplemental and telemedicine. An Employee Assistance Program (“EAP”) is provided to all full-time employees and their family members at no cost. The EAP offers confidential telephonic
counseling, referral services, legal and financial services and additional tools that offer support and solutions. Additionally, we offer a 401(k) retirement savings plan with an employer match as well as an annual Safe Harbor Non-Elective
contribution.
We strive to provide a work environment that encourages work/life balance. Options depend on job responsibilities and may include flexible work schedules, paid time off, paid holidays and
part-time employment.
We offer tuition reimbursement along with budgeted professional development opportunities in order to foster professional growth and to increase skillsets.
The Parent’s primary insurance subsidiaries operate with relative autonomy with the oversight of the Chief Operating Decision Maker (“CODM”) and each company is evaluated
based on its individual performance. Our CODM is the Company’s Chairman, President and Chief Executive Officer. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance
market. Each segment derives revenue from the collection of premiums, as well as from investment income. Substantially all revenue other than that in the corporate and other segment is from external sources. For more information on segments, see Note
17 of Notes to Consolidated Financial Statements.
The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other information with the
Securities and Exchange Commission (the “SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company.
In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC by the Company, the Company makes copies available to the public, free of charge, on or through its web site at www.atlam.com. Neither the
Company’s website, nor the information appearing on the website, is included, incorporated into, or a part of, this report.
The table and information below set forth, for each current executive officer of the Company, his name, age (as of March 1, 2025), positions with the Company and business
experience for the past five years, as well as any prior service to the Company.
|
Name
|
Age
|
Positions with the Company
|
Director or Officer Since
|
|||
|
Hilton H. Howell, Jr.
|
62
|
Chairman of the Board, President & CEO
|
1992
|
|||
|
J. Ross Franklin
|
47
|
Vice President, CFO and Corporate Secretary
|
2017
|
Officers are elected annually and serve at the discretion of the board of directors.
Mr. Howell
has been President and Chief Executive Officer of the Company since May 1995, and prior thereto served as Executive Vice
President of the Company from October 1992 to May 1995. He has been a Director of the Company since October 1992 and effective February 24, 2009, began serving as Chairman of the board of directors. He is also Executive Chairman and Chief Executive
Officer of Gray Media, Inc.
Mr. Franklin
has been Vice President, Chief Financial Officer and Corporate Secretary of the Company since November 2017, and prior
thereto served as Interim Chief Financial Officer from August 2017 to November 2017. Since 2000 he has held various roles of increasing responsibility with Atlantic American and its subsidiaries, previously serving as Vice President, Accounting and
Treasurer of Bankers Fidelity since 2009.
| Item 1A. |
Risk Factors
|
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K (a “smaller reporting company”), we have elected to comply
with certain scaled disclosure reporting obligations, and therefore are not providing the information required by this Item.
Not applicable.
Risk Management and Strategy
The Company’s operations rely on the secure processing, storage, and transmission of confidential and personal identifiable
information within various technology platforms. Cybersecurity is a high priority and the Company has made significant investments in its processes and programs designed to prevent, detect, and respond to and recover from cybersecurity threats.
We also have processes in place to help ensure compliance with our information security program with respect to our use of third-party service providers.
Such processes and programs are a part of the Company’s overall risk management and compliance programs.
The Company continues to enhance
its intrusion protection and detection technology, infrastructure and application firewalls, and network monitoring. The Company has also installed advanced endpoint threat protection technology and implemented a mandatory security awareness
training program for all employees. This training is reinforced through periodic simulated phishing tests to assess our employees’ responses to suspicious emails.
The Company uses a sophisticated backup and recovery methodology that supports the replication of data across multiple secure data
centers. It also includes a comprehensive disaster recovery plan that is continually tested and designed to help enable us to resume business in the event of a disaster or cybersecurity incident. Through recurring internal and external audits,
controls are regularly reviewed, tested, and enhanced to promote best practices.
The Company has augmented our information security program through a partnership with a leading global cybersecurity service provider
to review and implement additional services such as Security Event Monitoring, Advanced Endpoint Threat Detection, Incident Management Retainer Services, and
Strategic Advisory Services focused on Chief Information Security Officer (CISO) duties such as counter-threat intelligence.
The Company also maintains dedicated cyber liability insurance for breach event costs including: post breach event remediation costs;
cybercrime coverage (including financial fraud, telecommunications fraud, and phishing attacks); and coverage for system failure, bricking loss, and physical damage. The policy also provides coverage for lost revenue due to a damaged reputation
from a cyber breach.
Governance
Our board of directors recognizes the important role of information security and mitigating cybersecurity and other data security
threats.
Although our full board of directors maintains ultimate responsibility with respect to risk management oversight, our board has delegated oversight of the Company’s information
security program and matters of cybersecurity to the Audit Committee of the board of directors.
The Company’s senior officers, including its Chief Information Officer, are responsible for the operation of the information security program
and regularly communicate with the Audit Committee
on the state of the program, risks faced by the Company and the Company’s risk mitigation efforts
related thereto.
In addition, the Company’s information technology environment is managed by an experienced team of professionals who follow an
extensive set of policies and procedures related to data security. Our data security employees have backgrounds in cybersecurity and data protection, including prior relevant experience in the industry and industry standard certifications.
| Item 2. |
Properties
|
Leased Properties.
The Company leases space for its principal offices and for some of its insurance operations in an office building
located in Atlanta, Georgia under a lease which continues until either party provides written notice of cancellation at least twelve months in advance of the actual termination date (“Lease Agreement”). The lease, which commenced on November 1,
2007, provides for rent adjustments on every fifth anniversary of the commencement date. Under the current terms of the lease, the Company occupies approximately 49,586 square feet of office space. The owner of the building, 4370 Peachtree LLC, is
controlled by an affiliate of the Company.
On December 26, 2024, the Company, and its subsidiary, Bankers Fidelity Life Insurance Company, entered into a Second Amendment to Lease Agreement (the “Second Amendment”)
with 4370 Peachtree LLC. The Second Amendment amends the Lease Agreement, dated November 1, 2007, by and among the same parties (as previously amended, the “Lease Agreement”), pursuant to which the Company leases space for its principal offices and
for some of its insurance operations in an office building located in Atlanta, Georgia. Pursuant to the Second Amendment, the Lease Agreement was modified to increase the base rent payable by the Company, beginning January 1, 2025. The Second
Amendment also provides for rent adjustment on January 1, 2027, January 1, 2030 and each five years thereafter.
American Southern leases space for its office in a building located in Atlanta, Georgia. The lease term expires September 30, 2026. Under the terms of the lease, American
Southern occupies approximately 17,014 square feet.
The Company believes that its current properties are in good condition and are sufficient for the operations of its business.
| Item 3. |
Legal Proceedings
|
From time to time, the Company and its subsidiaries are, and expect to continue to be, involved in various claims and lawsuits arising in the ordinary course of business,
both as a liability insurer defending third-party claims brought against insureds and as an insurer defending coverage claims brought against it, and in various regulatory proceedings in the states in which we do business. The Company accounts for
such exposures through the establishment of loss and loss adjustment expense reserves and accrued expenses. We currently do not expect that the ultimate liability, if any, with respect to such ordinary-course claims litigation or regulatory
proceedings, after consideration of provisions made for probable losses and costs of defense, will be material to the Company’s consolidated financial condition, although the results of such matters could be material to the consolidated results of
operations for any given period.
| Item 4. |
Mine Safety Disclosures
|
Not applicable.
PART II
| Item 5. |
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
|
The Company’s common stock is listed on the Nasdaq Global Market (Symbol: AAME). As of March 12, 2025, there were 1,214 shareholders of record.
On March 25, 2025, the Company announced that the board of directors declared an annual cash dividend of $0.02 per share of common stock that is payable to shareholders of
record at the close of business on April 9, 2025. On April 1, 2024, the Company announced that the board of directors declared an annual cash dividend of $0.02 per share, which was paid
on April 26, 2024 to
shareholders of record as of April 12, 2024.
The declaration and payment of any future dividends will be at the discretion of the Company’s board of directors and will depend upon the financial condition, capital
requirements, and earnings of the Company, as well as any restrictions contained in any agreements by which the Company is bound and other factors as the board of directors may deem relevant. The Company’s primary recurring source of cash for the
payment of dividends is dividends from its subsidiaries; although as of December 31, 2024, the Parent held unrestricted cash and investment balances of approximately $5.6 million. Under the insurance code of the state in which each insurance
subsidiary is domiciled, dividend payments to the Parent by its insurance subsidiaries are subject to certain limitations, including prior notice to, or approval by, the state insurance commissioners if such dividends are in excess of specified
amounts. In 2024, dividend payments to the Parent by the insurance subsidiaries in excess of $8.8 million would require prior approval.
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.
Other than pursuant to the Repurchase Plan, no purchases of common stock of the Company were made by or on behalf of the Company during the periods described below.
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 ended December 31,
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
|
||||||||||||
|
October 1 – October 31, 2024
|
—
|
$
|
—
|
—
|
325,129
|
|||||||||||
|
November 1 – November 30, 2024
|
—
|
—
|
—
|
325,129
|
||||||||||||
|
December 1 – December 31, 2024
|
—
|
—
|
—
|
325,129
|
||||||||||||
|
Total
|
—
|
$
|
—
|
—
|
||||||||||||
Stock Performance Graph
As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and therefore are not providing the information required by
this Item.
| Item 6. |
Reserved
|
| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the
“Parent”) and its subsidiaries (collectively with the Parent, the “Company”) for the years ended December 31, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included
elsewhere herein. Operating results achieved in any historical period are not necessarily indicative of results to be expected in any future period.
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”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company
(together known as “Bankers Fidelity”) in the life and health insurance industry. Each operating company is managed separately, offers different products and is evaluated on its individual performance.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, in
management’s belief, conform to general practices within the insurance industry. The following is an explanation of the Company’s accounting policies and the resultant estimates considered most significant by management. These accounting policies
inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. Atlantic American does not expect that changes in the estimates determined
using these policies will have a material effect on the Company’s financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.
Cash and investments
comprised 68% of the Company’s total assets at December 31, 2024. Substantially all of the Company’s
investments are in bonds and common and preferred stocks, the values of which are subject to significant market fluctuations. The Company carries all fixed maturities, which includes bonds and redeemable preferred stocks, as available for sale, and
equity securities, which includes common and non-redeemable preferred stocks, at their estimated fair values.
On January 1, 2023, the Company adopted accounting standards update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on
Financial Instruments (“ASU 2016-13”), using a modified retrospective approach. Under ASU 2016-13, for securities in an unrealized loss position, a credit loss is recognized in earnings within realized investment gains (losses) when it is
anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of
amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the
present value of projected future cash flows expected to be collected is recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses). However, the ACL is limited by the amount
that the fair value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline
in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI.
The Company determines the fair values of certain financial instruments based on the fair value hierarchy established in Accounting Standards Codification (“ASC”) 820-10-20,
Fair Value Measurements and Disclosures
(“ASC 820-10-20”). The fair values of fixed maturities and equity securities are largely determined by nationally quoted market prices, when available, or independent
broker quotations. See Note 2 and Note 3 of Notes to Consolidated Financial Statements with respect to assets and liabilities carried at fair value and information about the inputs used to value those financial instruments, by hierarchy level, in
accordance with ASC 820-10-20.
Future policy benefits
comprised 34% of the Company’s total liabilities at December 31, 2024. These liabilities relate primarily to
life insurance products and are based upon assumed future investment yields, mortality rates, and lapse rates after giving effect to possible risks of adverse deviation. The assumed mortality and lapse rates are based upon the Company’s experience
modified as necessary to reflect anticipated trends and are generally established at contract inception. If actual results differ from the initial assumptions, the amount of the Company’s recorded liability could require adjustment.
Unpaid loss and loss adjustment expenses
comprised 32% of the Company’s total liabilities at December 31, 2024. This liability
includes estimates for: (1) unpaid losses on claims reported prior to December 31, 2024, (2) future development on those reported claims, (3) unpaid ultimate losses on claims incurred prior to December 31, 2024 but not yet reported and (4) unpaid
loss adjustment expenses for reported and unreported claims incurred prior to December 31, 2024. Quantification of loss estimates for each of these components involves a significant degree of judgment and estimates may vary, materially, from period
to period. Estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the Company. Development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to December 31, 2024
but not yet reported, and estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis. The Company’s actuaries develop ranges of estimated development on
reported and unreported claims as well as loss adjustment expenses using various methods, including the paid-loss development method, the reported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson
method. Any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the Company’s administrative policies. Further, external factors, such as
legislative changes, medical cost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses. The Company’s approach is to select an estimate of ultimate losses based
on comparing results of a variety of reserving methods, as opposed to total reliance on any single method. Unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business, and when current results differ from
the original assumptions used to develop such estimates, the amount of the Company’s recorded liability for unpaid loss and loss adjustment expenses is adjusted. In the event the Company’s actual reported losses in any period are materially in
excess of the previously estimated amounts, such losses, to the extent reinsurance coverage does not exist, could have a material adverse effect on the Company’s results of operations.
Receivables
are amounts due from reinsurers, insureds and agents, and any sales of investment securities not yet settled, and
comprised 13% of the Company’s total assets at December 31, 2024. Insured and agent balances are evaluated periodically for collectability. Annually, the Company performs an analysis of the creditworthiness of the reinsurers with whom the Company
contracts using various data sources. Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise could result in uncollectible amounts and losses to the Company. Allowances for uncollectible amounts are established,
as and when a loss has been determined probable, against the related receivable. Losses are recognized by the Company when determined on a specific account basis and a general provision for loss is made based on the Company’s historical experience.
Deferred acquisition costs
comprised 11% of the Company’s total assets at December 31, 2024. Deferred acquisition costs are
commissions, premium taxes, and other incremental direct costs of contract acquisition that results directly from and are essential to the contract transaction(s) and would not have been incurred by the Company had the contract transaction(s) not
occurred. The deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner. Traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the
estimated premium-paying period of the related policies using assumptions consistent with those used in computing the related liability for policy benefit reserves. Deferred acquisition costs for property and casualty insurance and short-duration
health insurance are amortized over the effective period of the related insurance policies. Deferred policy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration
health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance). Assessments of recoverability for property and casualty and short-duration health insurance are
extremely sensitive to the estimates of a subsequent year’s projected losses related to the unearned premiums. Projected loss estimates for a current block of business for which unearned premiums remain to be earned may vary significantly from the
indicated losses incurred in any previous calendar year.
Deferred income taxes
reflect the effect of temporary differences between assets and liabilities that are recognized for financial
reporting purposes and the amounts that are recognized for tax purposes. These deferred income taxes are measured by applying currently enacted tax laws and rates. Valuation allowances are recognized to reduce the deferred tax asset to the amount
that is deemed more likely than not to be realized. In assessing the likelihood of realization, management considers estimates of future taxable income and tax planning strategies.
Share-based transactions
include employee and director
share-based compensation awards
.
The Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line
basis over the requisite service period for the entire award. For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date
performance is complete, which is the vesting date.
Refer to Note 1 of Notes to Consolidated Financial Statements for details regarding the Company’s significant accounting policies.
Overall Corporate Results
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Revenue
|
||||||||
|
Property and Casualty:
|
||||||||
|
American Southern
|
$
|
72,220
|
$
|
72,846
|
||||
|
Life and Health:
|
||||||||
|
Bankers Fidelity
|
116,097
|
114,199
|
||||||
|
Corporate and Other
|
(90
|
)
|
(252
|
)
|
||||
|
Total revenue
|
$
|
188,227
|
$
|
186,793
|
||||
|
Income (loss) before income taxes
|
||||||||
|
Property and Casualty:
|
||||||||
|
American Southern
|
$
|
888
|
$
|
5,085
|
||||
|
Life and Health:
|
||||||||
|
Bankers Fidelity
|
4,155
|
4,722
|
||||||
|
Corporate and Other
|
(10,307
|
)
|
(10,372
|
)
|
||||
|
Loss before income taxes
|
$
|
(5,264
|
)
|
$
|
(565
|
)
|
||
|
Net loss
|
$
|
(4,268
|
)
|
$
|
(171
|
)
|
||
Management also considers and evaluates performance by analyzing the non-GAAP measure operating income or loss, and believes it 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 income tax expense, which is 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 or unrealized investment gains or losses, 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 loss, the most directly comparable GAAP measure, to operating income (loss) is as follows:
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Reconciliation of Non-GAAP Financial Measure
|
||||||||
|
Net loss
|
$
|
(4,268
|
)
|
$
|
(171
|
)
|
||
|
Income tax benefit
|
(996
|
)
|
(394
|
)
|
||||
|
Realized investment gains, net
|
(1,210
|
)
|
(70
|
)
|
||||
|
Unrealized losses on equity securities, net
|
1,516
|
2,177
|
||||||
|
Non-GAAP operating income (loss)
|
$
|
(4,958
|
)
|
$
|
1,542
|
|||
On a consolidated basis, the Company had net loss of $4.3 million, or $(0.23) per diluted share, in 2024, compared to net loss of $0.2 million, or $(0.03) per diluted share,
in 2023. The increase in net loss was primarily due to 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 well as an increase in claims
costs in the automobile physical damage line of business. Also contributing to the increase in net loss was an increase in administrative costs related to the growth in the group lines of business within the life and health operations. Partially
offsetting this decrease was an increase in net realized investment gains mainly due to gains of $1.2 million from the sale of the Company's interest in a certain limited liability company as well as gains from the sale of a number of the Company's
investments in fixed maturities.
Total revenue was $188.2 million in 2024 as compared to $186.8 million in 2023. Premium revenue decreased slightly to $178.7 million in 2024 from $178.8 million in 2023. The
decrease in premium revenue 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 within the property and casualty operations.
Partially offsetting the decrease in premium revenue was an increase in earned premiums in the group accident and health, group life and the other individual health lines of business due to new sales within the life and health operations.
Operating loss was $5.0 million in 2024 as compared to operating income of $1.5 million in 2023. The decrease in operating income was primarily due to 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 well as an increase in claims costs in the automobile physical damage line of business as discussed
above. Also contributing to the decrease in operating income was an increase in administrative costs related to the growth in the group lines of business within the life and health operations.
A more detailed analysis of the operating companies and other corporate activities follows.
UNDERWRITING RESULTS
American Southern
The following table summarizes, for the periods indicated, American Southern’s premiums, losses, expenses and underwriting ratios:
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Gross written premiums
|
$
|
73,671
|
$
|
77,567
|
||||
|
Ceded premiums
|
(5,979
|
)
|
(5,902
|
)
|
||||
|
Net written premiums
|
$
|
67,692
|
$
|
71,665
|
||||
|
Net earned premiums
|
$
|
67,689
|
$
|
68,443
|
||||
|
Insurance benefits and losses incurred
|
55,767
|
51,015
|
||||||
|
Commissions and underwriting expenses
|
15,565
|
16,746
|
||||||
|
Underwriting income (loss)
|
$
|
(3,643
|
)
|
$
|
682
|
|||
|
Loss ratio
|
82.4
|
%
|
74.5
|
%
|
||||
|
Expense ratio
|
23.0
|
24.5
|
||||||
|
Combined ratio
|
105.4
|
%
|
99.0
|
%
|
||||
Gross written premiums at American Southern decreased $3.9 million, or 5.0%, during 2024 as compared to 2023. The decrease in gross written premiums 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 increased $0.1 million, or 1.3%, during 2024 as compared to 2023. American Southern’s ceded premiums are typically determined as a percentage of earned
premiums and generally increase or decrease as earned premiums increase or decrease or retentions levels change. The increase in ceded premiums was primarily attributable to an increase in lines of business with higher ceding rates.
The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Automobile liability
|
$
|
39,788
|
$
|
38,821
|
||||
|
Automobile physical damage
|
13,464
|
15,046
|
||||||
|
General liability
|
5,990
|
5,758
|
||||||
|
Surety
|
5,809
|
6,303
|
||||||
|
Other lines
|
2,638
|
2,515
|
||||||
|
Total
|
$
|
67,689
|
$
|
68,443
|
||||
Net earned premiums decreased $0.8 million, or 1.1%, during 2024 as compared to 2023. The decrease in net earned premiums 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. Partially offsetting the decrease in net earned premiums was an increase in earned premiums in the
automobile liability line of business due mainly to a new government program which began in the fourth quarter of 2023. 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 a property and casualty 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 incurred at American Southern increased $4.8 million, or 9.3%, during 2024 as compared to 2023. As a percentage of premiums, insurance benefits and losses
incurred were 82.4% in 2024 as compared to 74.5% in 2023. The increase in the loss ratio was mainly due to an increase in the frequency and severity of claims in the automobile liability line of business. Also contributing to the increase in the
loss ratio was an increase in the automobile physical damage line of business due to an increase in claims costs. Partially offsetting the increase in the loss ratio was a decrease in the general liability line of business due to favorable claim
reserve development.
Commissions and underwriting expenses decreased $1.2 million, or 7.1%, during 2024 as compared to 2023. As a percentage of premiums, these expenses were 23.0% in 2024 as
compared to 24.5% in 2023. The decrease in the expense ratio 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. In 2024, variable commissions at American Southern decreased $1.1 million as compared to 2023 due to an unfavorable loss experience from accounts subject to variable commissions.
Bankers Fidelity
The following summarizes, for the periods indicated, Bankers Fidelity’s premiums, losses and expenses:
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Gross earned premiums
|
$
|
164,291
|
$
|
166,375
|
||||
|
Ceded premiums
|
(53,249
|
)
|
(55,993
|
)
|
||||
|
Net earned premiums
|
111,042
|
110,382
|
||||||
|
Insurance benefits and losses incurred
|
70,064
|
71,485
|
||||||
|
Commissions and underwriting expenses
|
41,878
|
37,992
|
||||||
|
Total expenses
|
111,942
|
109,477
|
||||||
|
Underwriting income
|
$
|
(900
|
)
|
$
|
905
|
|||
|
Loss ratio
|
63.1
|
%
|
64.8
|
%
|
||||
|
Expense ratio
|
37.7
|
34.4
|
||||||
|
Combined ratio
|
100.8
|
%
|
99.2
|
%
|
||||
Gross earned premiums at Bankers Fidelity decreased $2.1 million, or 1.3%, during 2024 as compared to 2023. The decrease in gross earned premiums was primarily attributable
to the decrease in gross earned premiums from the Medicare supplement line of business due primarily to non-renewals exceeding the level of new business writings as the existing block of business has incurred rate increases. Also contributing to
the decrease in gross earned premiums was a decrease in gross earned premiums in the individual life line of business, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual
life sales. Partially offsetting the decrease were increases in the group accident and health, group life and other individual health lines of business due to new sales.
Ceded premiums decreased $2.7 million, or 4.9%, during 2024 as compared to 2023. The decrease in ceded premiums was due to a decrease in Medicare supplement premiums subject
to reinsurance.
The following table summarizes, for the periods indicated, Bankers Fidelity’s net earned premiums by line of business:
|
|
Year Ended December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Medicare supplement
|
$
|
71,867
|
$
|
77,424
|
||||
|
Group life
|
14,700
|
12,431
|
||||||
|
Individual life
|
5,594
|
6,153
|
||||||
|
Group accident and health
|
11,390
|
7,583
|
||||||
|
Other individual health
|
7,491
|
6,791
|
||||||
|
Total
|
$
|
111,042
|
$
|
110,382
|
||||
Net earned premium revenue at Bankers Fidelity increased $0.7 million, or 0.6%, during 2024 as compared to 2023. The increase in net earned premiums was primarily
attributable to increases in the group accident and health, group life and other individual health lines of business due to new sales as previously mentioned. Partially offsetting the increase in net earned premiums was a decrease in the Medicare
supplement line of business primarily to non-renewals exceeding the level of new business writings as the existing block of business has incurred rate increases.
Insurance benefits incurred decreased $1.4 million, or 2.0%, during 2024 as compared to 2023. As a percentage of premiums, benefits and losses were 63.1% in 2024 as compared
to 64.8% in 2023. The decrease in the loss ratio was primarily due to improved loss experience within the group life line of business as well as the other individual health line of business. These decreases were partially offset by higher incurred
claims in the other health line of business.
Commissions and underwriting expenses increased $3.9 million, or 10.2%, during 2024 as compared to 2023. As a percentage of earned premiums, these expenses were 37.7% in
2024 as compared to 34.4% in 2023. The increase in the expense ratio 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 primarily attributable to 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 decreased $0.3 million, or 2.7%, in 2024 as compared to 2023. The decrease in investment income was primarily attributable to a net loss in a certain
investment within the Company's limited liability companies of $0.4 million.
The Company had net realized investment gains of $1.2 million in 2024 as compared to net realized investment gains of $0.1 million in 2023. The net realized investment gains
in 2024 were mainly due to gains of $1.2 million from the sale of the Company's interest in a certain limited liability company as well as gains from the sale of a number of the Company's investments in fixed maturities. The net realized investment
gains in 2023 were primarily attributable to gains from the sale of fixed maturities. Management continually evaluates the Company’s investment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will
divest investments. See Note 2 of Notes to Consolidated Financial Statements.
Unrealized Losses on Equity Securities, Net
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 $1.5 million and net unrealized losses of $2.2 million during the years ended December 2024 and 2023, respectively. Changes in unrealized losses on equity securities for the
applicable periods are primarily the result of fluctuations in the market value of certain of the Company’s equity securities.
Interest Expense
Interest expense increased $0.2 million, or 4.6%, in 2024 as compared to 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.
Income Taxes
The primary difference between the effective tax rate and the federal statutory income tax rate for 2024 resulted from a permanent difference related to meals and
entertainment. Also contributing to differences between the effective tax rate and the federal statutory income tax rate was the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of
each fiscal year and were $35 thousand in the year ended December 31, 2024. Another contributing factor to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to
dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable
income. 2024
The primary difference between the effective tax rate and the federal statutory income tax rate for 2023 resulted from the adjustment for prior years’ estimates to actual of
$0.3 million in the year ended December 31, 2023, which included the return to provision adjustment that is generally updated at the completion of the third quarter of each fiscal year and an adjustment for partnership valuation. Also contributing
to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to meals and entertainment.
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, as well as borrowings from time to time under our revolving credit facility. 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 December 31, 2024, the Parent had approximately $5.6 million of unrestricted cash and investments.
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 December 31, 2024, the Parent’s insurance subsidiaries had an aggregate statutory surplus of $80.1 million. Dividends were paid to Atlantic
American by its subsidiaries totaling $9.0 million and $8.4 million in 2024 and 2023, respectively.
The Parent provides certain administrative, purchasing and other services to each of its subsidiaries. The amount charged to and paid by the subsidiaries for these services
was $9.4 million and $8.7 million in 2024 and 2023, respectively. In addition, the Parent has a formal tax-sharing agreement with each of its insurance subsidiaries. A net total of $4.4 million and $4.0 million were paid to the Parent under the tax
sharing agreement in 2024 and 2023, respectively.
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 December 31, 2024, the effective interest rate was 8.82%. 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. 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 December 31, 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 redemption 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. The Company had accrued, but unpaid, dividends on the Series D Preferred Stock of $17.7 thousand at December 31, 2024 and 2023. During each of 2024 and 2023,
the Company paid Series D Preferred Stock dividends of $0.4 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
December 31, 2024. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB. As of December 31, 2024, BFLIC has pledged bonds having an amortized cost of $9.2 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 December 31, 2024, BFLIC does not have any outstanding borrowings from the FHLB.
On May 12, 2021, the Company entered into a revolving credit agreement (“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 December 31, 2024 and 2023, the Company had outstanding borrowings of $4.0 million and $3.0 million under the Credit Agreement.
Cash and cash equivalents increased from $28.3 million at December 31, 2023 to $35.6 million at December 31, 2024. The increase in cash and cash equivalents during 2024 was
primarily attributable to net cash provided by operating activities of $4.8 million. Also contributing to the increase in cash and cash equivalents was net cash provided by investing activities of $2.3 million primarily as a result of investment
sales and maturity of securities exceeding investment purchases.
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,
additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the next 12 months and thereafter 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.
New Accounting Pronouncements
See “Recently Issued Accounting Standards” in Note 1 of Notes to Consolidated Financial Statements.
Impact of Inflation
Insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such losses and expenses, are known.
Consequently, in establishing its premiums, the Company attempts to anticipate the potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by the Company.
Inflation also affects the rate of investment return on the Company’s investment portfolio with a corresponding effect on investment income. During 2024, inflation was a factor in increased loss experience within the Company’s automobile liability
line of business.
| Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk
|
As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and therefore are not providing the information required by
this Item.
| Item 8. |
Financial Statements and Supplementary Data
|
INDEX TO FINANCIAL STATEMENTS
To the Shareholders and Board of Directors
Atlantic American Corporation
Atlanta, Georgia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Atlantic American Corporation (the Company) as of December 31, 2024 and 2023, the
related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024 and the related notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United
States of America (US GAAP).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Shareholders and Board of Directors
Atlantic American Corporation
Valuation of Insurance Reserves for Losses and Claims (Claim Reserves)
As reflected on the consolidated balance sheet and discussed in Note 7 to the consolidated financial statements, the Company’s insurance reserves for
losses and claims (claim reserves), were $93.7 million as of December 31, 2024. The Company’s claim reserves relate primarily to its property casualty lines of business and Medicare supplement business. The process of establishing claim reserves
requires the use of estimates and judgments based on circumstances underlying the insured loss at the date of accrual. Management’s judgments include claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting
period, estimates of incurred but not reported (IBNR) claims based on past experience and estimates of loss adjustment expenses.
The principal considerations for our determination that the valuation of claim reserves is a critical audit matter are the high degree of judgment and
subjectivity in auditing the actuarial methods and assumptions used in the valuation process, including assumptions around expected loss ratios and reported and paid loss emergence patterns.
Addressing the matter involved performing the following audit procedures, among others:
|
|
• |
Involving our actuarial specialists to assist in our procedures in:
|
|
|
o |
Evaluating the appropriateness of management’s actuarial reserving methodologies and assumptions;
|
|
|
o |
Evaluating management’s hindsight analyses;
|
|
|
o |
Comparing management’s carried reserve to the range calculated by management’s specialist for property casualty claim reserves;
|
|
|
• |
Testing the completeness and accuracy of data provided by management that served as the basis for the actuarial analyses on a sample basis; and
|
|
|
• |
Evaluating movement of the Company’s recorded property casualty claim reserves within the Company’s estimated reserve range year over year.
|
Valuation of Insurance Reserves for Future Policy Benefits (Policy Reserves)
As reflected on the consolidated balance sheet and discussed in Note 7 to the consolidated financial statements, the Company’s insurance reserves for
future policy benefits (policy reserves) were $98.5 million as of December 31, 2024. Policy reserves are related to life and health insurance policies and are based upon significant assumptions including future investment yields, mortality rates,
withdrawal rates and expenses after giving effect to possible risks of unexpected claim experience. These assumptions are based on historical experience modified as necessary to reflect anticipated trends and are generally established at contract
inception.
The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment
required to assess certain assumptions that impact policy reserves and the complexity of the actuarial calculations.
Addressing the matter involved performing the following audit procedures, among others:
|
|
• |
Involving our actuarial specialists to assist in our procedures in:
|
|
|
o |
Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with US GAAP;
|
|
|
o |
Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant assumptions noted
above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions;
|
|
|
o |
Reviewing benefit reserve replication workbooks prepared by management for a sample of contracts; and
|
Shareholders and Board of Directors
Atlantic American Corporation
|
|
o |
Evaluating management’s loss recognition testing of aggregate reserve sufficiency.
|
|
|
• |
Testing the completeness and accuracy of data used by management in developing assumptions on a sample basis.
|
/s/
Forvis Mazars, LLP
We have served as the Company’s auditor since 2018.
Atlanta, Georgia
March 25, 2025
ATLANTIC AMERICAN CORPORATION
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands,
except share and per
share data)
|
||||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Investments:
|
||||||||
|
Fixed maturities, available-for-sale, at fair value (amortized cost: $
|
|
|
||||||
|
Equity securities, at fair value (cost: $
|
|
|
||||||
|
Other invested assets (cost: $
|
|
|
||||||
|
Policy loans
|
|
|
||||||
|
Real estate
|
|
|
||||||
|
Investment in unconsolidated trusts
|
|
|
||||||
|
Total investments
|
|
|
||||||
|
Receivables:
|
||||||||
|
Reinsurance (net of allowance for uncollectible reinsurance of $
|
|
|
||||||
|
Insurance premiums and other (net of allowance for expected credit losses $
|
|
|
||||||
|
Deferred income taxes, net
|
|
|
||||||
|
Deferred acquisition costs
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Intangibles
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
Insurance reserves and policyholder funds
|
||||||||
|
Future policy benefits
|
$
|
|
$
|
|
||||
|
Unearned premiums
|
|
|
||||||
|
Losses and claims
|
|
|
||||||
|
Other policy liabilities
|
|
|
||||||
|
Total insurance reserves and policyholder funds
|
|
|
||||||
|
Accounts payable and accrued expenses
|
|
|
||||||
|
Revolving credit facility
|
|
|
||||||
|
Junior subordinated debenture obligations, net
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
| Commitments and contingencies (Note 18) |
|
|
||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock, $
|
|
|
||||||
|
Common stock, $
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Unearned stock grant compensation
|
(
|
)
|
(
|
)
|
||||
|
Treasury stock, at cost,
|
(
|
)
|
(
|
)
|
||||
|
Total shareholders’ equity
|
|
|
||||||
|
Total liabilities and shareholders’ equity
|
$
|
|
$
|
|
||||
See the accompanying notes to the consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands,
except per share data)
|
||||||||
|
Revenue:
|
||||||||
|
Insurance premiums, net
|
$
|
|
$
|
|
||||
|
Net investment income
|
|
|
||||||
|
Realized investment gains, net
|
|
|
||||||
|
Unrealized losses on equity securities, net
|
(
|
)
|
(
|
)
|
||||
|
Other income
|
|
|
||||||
|
Total revenue
|
|
|
||||||
|
Benefits and expenses:
|
||||||||
|
Insurance benefits and losses incurred
|
|
|
||||||
|
Commissions and underwriting expenses
|
|
|
||||||
|
Interest expense
|
|
|
||||||
|
Other expense
|
|
|
||||||
|
Total benefits and expenses
|
|
|
||||||
|
Loss before income taxes
|
(
|
)
|
(
|
)
|
||||
|
Income tax benefit
|
(
|
)
|
(
|
)
|
||||
|
Net loss
|
(
|
)
|
(
|
)
|
||||
|
Preferred stock dividends
|
(
|
)
|
(
|
)
|
||||
|
Net loss applicable to common shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Loss per common share (basic and diluted)
|
(
|
)
|
(
|
)
|
||||
See the accompanying notes to the consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Other comprehensive gain (loss):
|
||||||||
|
Available-for-sale fixed maturity securities:
|
||||||||
|
Gross unrealized holding gain (loss) arising in the period
|
(
|
)
|
|
|||||
|
Related income tax effect
|
|
(
|
)
|
|||||
|
Subtotal
|
(
|
)
|
|
|||||
|
Less: reclassification adjustment for net realized gains included in net income
|
(
|
)
|
(
|
)
|
||||
|
Related income tax effect
|
|
|
||||||
|
Subtotal
|
(
|
)
|
(
|
)
|
||||
|
Total other comprehensive income (loss), net of tax
|
(
|
)
|
|
|||||
|
Total comprehensive income (loss)
|
$
|
(
|
)
|
$
|
|
|||
See the accompanying notes to the consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
|
Year Ended December 31,
|
||||||||
|
(In thousands, except share and per share data)
|
2024
|
2023
|
||||||
|
Preferred stock:
|
||||||||
|
Balance, beginning of year
|
$
|
|
$
|
|
||||
|
Balance, end of year
|
|
|
||||||
|
Common stock:
|
||||||||
|
Balance, beginning of year
|
|
|
||||||
|
Balance, end of year
|
|
|
||||||
|
Additional paid-in capital:
|
||||||||
|
Balance, beginning of year
|
|
|
||||||
|
Balance, end of year
|
|
|
||||||
|
Retained earnings:
|
||||||||
|
Balance, beginning of year
|
|
|
||||||
|
|
|
(
|
) | |||||
|
Net loss
|
(
|
)
|
(
|
)
|
||||
|
Dividends on common stock
|
(
|
)
|
(
|
)
|
||||
|
Dividends accrued on preferred stock
|
(
|
)
|
(
|
)
|
||||
|
Balance, end of year
|
|
|
||||||
|
Accumulated other comprehensive loss:
|
||||||||
|
Balance, beginning of year
|
(
|
)
|
(
|
)
|
||||
|
Other comprehensive income (loss), net of tax
|
(
|
)
|
|
|||||
|
Balance, end of year
|
(
|
)
|
(
|
)
|
||||
|
Unearned stock grant compensation:
|
||||||||
|
Balance, beginning of year
|
(
|
)
|
(
|
)
|
||||
|
Amortization of unearned compensation
|
|
|
||||||
|
Balance, end of year
|
(
|
)
|
(
|
)
|
||||
|
Treasury stock:
|
||||||||
|
Balance, beginning of year
|
(
|
)
|
(
|
)
|
||||
|
Net shares acquired related to employee share-based compensation plans
|
(
|
)
|
(
|
)
|
||||
|
Balance, end of year
|
(
|
)
|
(
|
)
|
||||
|
Total shareholders’ equity
|
$
|
|
$
|
|
||||
|
Dividends declared on common stock per share
|
$
|
|
$
|
|
||||
|
Common shares outstanding:
|
||||||||
|
Balance, beginning of year
|
|
|
||||||
|
Net shares acquired under employee share-based compensation plans
|
(
|
) |
(
|
) | ||||
|
Balance, end of year
|
|
|
||||||
See the accompanying notes to the consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Amortization of deferred acquisition costs
|
|
|
||||||
|
Acquisition costs deferred
|
(
|
)
|
(
|
)
|
||||
|
Realized investment gains, net
|
(
|
)
|
(
|
)
|
||||
|
Unrealized losses on equity securities, 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 in insurance reserves and policyholder funds
|
|
|
||||||
|
Increase (decrease) in accounts payable and accrued expenses
|
|
(
|
)
|
|||||
|
Other, net
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Proceeds from investments sold and policy loans redeemed
|
|
|
||||||
|
Proceeds from investments matured, called or redeemed
|
|
|
||||||
|
Investments purchased
|
(
|
)
|
(
|
)
|
||||
|
Additions to property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) investing activities
|
|
(
|
)
|
|||||
|
Cash flows from financing activities:
|
||||||||
|
Payment of dividends on Series D preferred stock
|
(
|
)
|
(
|
)
|
||||
|
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 increase (decrease) in cash
|
|
(
|
)
|
|||||
|
Cash and cash equivalents at beginning of year
|
|
|
||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
||||
|
Supplemental cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Cash paid for income taxes
|
$
|
|
$
|
|
||||
See the accompanying notes to the consolidated financial statements.
(Dollars in thousands)
| Note 1. |
Summary of Significant Accounting Policies
|
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) which, for insurance companies, differ in some respects from the statutory accounting practices prescribed or permitted by regulatory authorities. These financial statements include the accounts of Atlantic American
Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results achieved in any
historical period are not necessarily indicative of results to be expected in any future period.
At December 31, 2024, the Parent owned
five
insurance subsidiaries, Bankers Fidelity Life Insurance Company and its wholly-owned subsidiaries, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers Fidelity”), and American Southern
Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company. American Southern Insurance Company also wholly-owned
three
non-insurance subsidiaries, Premier Adjusting and Claim Services, Inc., Automobile Safety Management, Inc. and Automated Systems of Georgia, Inc. (together with American Southern Insurance Company and American Safety Insurance Company known as
“American Southern”). In addition, the Parent owned
one
non-insurance subsidiary, xCalibre Risk Services, Inc. The Parent has issued a
guarantee of all liabilities of Bankers Fidelity.
Premium Revenue and Cost Recognition
Life insurance premiums are recognized as revenue when due; accident and health insurance premiums are recognized as revenue over the premium paying
period and property and casualty insurance premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided. Losses, benefits and expenses are accrued as incurred and are associated
with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. For traditional life insurance and long-duration health insurance, this association is accomplished by the provision of a future policy
benefits reserve and the deferral and subsequent amortization of the costs of acquiring business, which are referred to as “deferred policy acquisition costs” (principally commissions, premium taxes, and other incremental direct costs of issuing
policies). Deferred policy acquisition costs (“DAC”) are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the future policy benefits reserve. The Company provides
for insurance benefits and losses on accident, health, and property-casualty claims based upon estimates of projected ultimate losses. DAC for property and casualty insurance and short-duration health insurance is amortized over the effective
period of the related insurance policies. Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts, and are
periodically evaluated and accrued as earned. In periods in which revisions are made to the estimated loss reserves related to the particular insurance contract or group of insurance contracts subject to such commissions, corresponding adjustments
are also made to the related accruals. DAC is expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for
property and casualty and short-duration health insurance).
Insurance Premiums and Other Receivables
Receivables amounts due from reinsurers, insureds and agents are evaluated
periodically for collectability. Allowances for expected credit losses are established, as and when a loss has been determined probable, against the related receivable. An allowance for expected credit loss is recognized by the Company when
determined on a specific account basis and a general provision for loss is made based on the Company’s historical and expected experience.
Intangibles
Intangibles consist of goodwill and other indefinite-lived intangible assets. Goodwill represents the excess of cost over the fair value of net
assets acquired and is not amortized. Other indefinite-lived intangibles represent the value of licenses and are not amortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverse
conditions exist that could indicate impairment. Conditions that could trigger impairment include, but are not limited to, a significant change in business climate that could affect the value of the related asset, an adverse action, or an
assessment by a regulator.
No
impairment of the Company’s recorded intangibles was identified during any of the periods presented.
Investments
The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and,
accordingly, are carried at fair value with the after-tax difference from amortized cost, less allowance for credit losses (“ACL”), as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive
income or loss. The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income. The fair values of fixed maturities and equity securities are
largely determined from publicly quoted market prices, when available, or independent broker quotations. Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore
ultimately greater price volatility than the value of securities with publicly quoted market prices.
Policy
loans are carried at unpaid principal balance and are fully collateralized by the cash surrender value of the underlying insurance contract. Real estate is carried at historical cost and is evaluated for impairment when circumstances would
indicate that fair value may be less than carrying value.
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 partnerships and limited
liability companies formed for the purpose of achieving diversified equity returns, which are included in other invested assets on the balance sheet and are accounted for using the equity method. 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. Also included in the Company’s VIEs are investments in
unconsolidated trusts, which are presented on the balance sheet and carried at cost. The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE. The Company has no arrangements with any of the VIEs to provide
other financial support to or on behalf of the VIE. The Company reviews its investments in other invested assets for impairment no less frequently than quarterly and monitors the performance throughout the year. If the Company becomes aware of
an impairment of an other invested asset at the balance sheet date, it will recognize an impairment by recording a reduction in the carrying value of the other invested asset with a corresponding charge to net investment income.
Premiums and discounts related to investments are amortized or accreted over the life of the related investment as an adjustment to yield using the
effective interest method. Dividends and interest income are recognized when earned or declared. The cost of securities sold is based on specific identification. Unrealized gains (losses) in the value of fixed maturities are accounted for as a
direct increase (decrease) in accumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effect on net income.
Income Taxes
Deferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. They
arise from differences between the financial reporting and tax basis of assets and liabilities and are adjusted for changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount of income
taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance is recognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a
deferred tax asset will not be realized.
Earnings Per Common Share
Basic earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period.
Diluted earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period, plus options outstanding, if applicable, using the treasury stock method and the assumed
conversion of the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per common share amounts are presented on a diluted basis.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with original maturities of three months
or less from date of purchase.
Reinsurance
The Company’s insurance subsidiaries from time to time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks and to protect against catastrophic losses. In
a reinsurance transaction, an insurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer. The reinsurer assumes the exposure in return for a portion of the premiums. The ceding of insurance
does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet its obligations under the reinsurance agreement
.
Amounts currently recoverable under reinsurance agreements are included in reinsurance receivables and amounts currently payable are included in other liabilities. Assets and liabilities
relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company under
the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance
.
Share-Based Transactions
For employee and director share-based compensation awards, the Company determines a grant date fair value based on the price of our publicly-traded
common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award. For non-employee share-based
compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date.
Treasury Stock
Treasury stock is reflected as a reduction of shareholders’ equity at cost. The Company uses the first-in-first-out (“FIFO”) purchase cost to
determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additional paid-in capital when treasury stock is reissued.
Recently Issued Accounting Standards
Adoption of New Accounting Standards
Reference Rate Reform
.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference
rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event
that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities
classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. The Company adopted the guidance as of June 30, 2023. The adoption of the guidance had
no significant impact on the Company’s financial condition and results of operations
.
Financial Instruments – Credit Losses.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The updated guidance
applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (including reinsurance recoverables, premium and other receivables) and
requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable
forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net
carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.
The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the
recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has
been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.
The Company adopted the updated guidance as of January 1, 2023. The updated guidance was applied by a cumulative effect adjustment to the opening
balance of retained earnings as of January 1, 2023, the beginning of the period of adoption. The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of $
0.1
million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance. This adjustment is
primarily associated with reinsurance recoverables, premium and other receivables. The cumulative effect adjustment decreased retained earnings as of January 1, 2023 and increased the allowance for estimated uncollectible reinsurance.
Segment Reporting
.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting- An Amendment for Improvements to Reportable Segment Disclosures (Topic 280) (
“
ASU 2023-07
”
). The
amendments in ASU 2023-07 improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendment; introduces a new requirement to disclose significant segment expenses regularly
provided to the chief operating decision maker (CODM); extends certain annual disclosures to interim periods; clarifies single reportable segment entities must apply Topic 280 in its entirety, permits more than one measure of segment profit
or loss to be reported under certain conditions, and requires disclosure of the title and position of the CODM. The amendments in this update do not change or remove existing disclosure requirements. The Update is effective for fiscal years
beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted.
The company adopted ASU No. 2023-07 on December 31, 2024. Refer to Note 17 of Notes to
Consolidated Financial Statements for details regarding the Company’s Segment Information.
Future Adoption of New Accounting Standards
Accounting for Long-Duration Contracts
.
In August
2018, the FASB issued ASU No. 2018-12, Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). This guidance (1) improves the timeliness of recognizing changes in the
liability for future policy benefits and modifies the rate used to discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts,
(3) simplifies the amortization of deferred acquisition costs, and (4) improves the effectiveness of the required disclosures. ASU 2018-12 is effective for annual reporting periods beginning after December 15, 2024 and interim periods
beginning after December 15, 2025, although earlier adoption is permitted. The Company is currently evaluating the new guidance and considering appropriate cohorts to be reported, such as lines of business and both premium paying and
nonpremium paying policies. The Company expects to use the modified retrospective method upon adoption. Although the financial impact on the financial statements has not been determined, it is presumed to be material.
Income Taxes
. In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The amendment requires that all entities disclose on an annual basis the following information about income
taxes paid; the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in
which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received). All entities also are required to disclose; income (or loss) from continuing operations before income tax
expense (or benefit) disaggregated between domestic and foreign; and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU, which also includes certain other amendments to
improve the effectiveness of income tax disclosures, is effective for public business entities for annual periods beginning after December 15, 2024. The Company is evaluating the new guidance and any effect it will have on the Company’s
financials.
Expense Disaggregation Disclosures
. In
November 2024, the FASB issued ASU No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (“ASU 2024-03”). This Update requires disaggregated disclosure of income statement expenses for public
business entities (“PBE”). The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within
the footnotes to the financial statements. ASU 2024-03 adds ASC 220-40 to require a footnote disclosure about specific expenses by requiring companies to disaggregate, in a tabular presentation, each relevant expense caption on the face of
the income statement that includes employee compensation, depreciation, and intangible asset amortization. The tabular disclosure would also include certain other expenses, which do not apply to the Company. The ASU does not change or
remove existing expense disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. ASU 2024-03 is effective for all PBEs for fiscal years beginning after December 15, 2026,
and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the new guidance and any effect it will have on the Company’s financials.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates and assumptions are used
in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves, investments, and receivables, among others, and actual results could differ materially from management’s estimates.
| Note 2. |
Investments
|
The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, allowance for credit losses and cost or
amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of December 31, 2024 and December 31, 2023.
Fixed maturities were comprised of the following:
| 2024 | ||||||||||||||||||||
|
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for
Credit
Losses
|
Amortized
Cost
|
|||||||||||||||
|
Fixed maturities:
|
||||||||||||||||||||
|
Bonds:
|
||||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||||
|
Loan backed and structured securities
|
|
|
|
|
|
|||||||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||||
|
2023
|
||||||||||||||||||||
|
|
Estimated
Fair Value
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Allowance
for
Credit
Losses
|
Amortized
Cost
|
|||||||||||||||
|
Fixed maturities:
|
||||||||||||||||||||
|
Bonds:
|
||||||||||||||||||||
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
$
|
|
$
|
|
$
|
|
$ |
|
$
|
|
||||||||||
|
Loan backed and structures securities
|
|
|
|
|
|
|||||||||||||||
|
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 $
15,065
and $
14,647
and included in the tables above were on deposit with
insurance regulatory authorities at December 31, 2024 and 2023, respectively, in accordance with statutory requirements. In addition, the Company maintains cash and cash equivalents on deposit with insurance regulatory authorities of $
226
at December 31, 2024 and 2023. Additionally, bonds having an amortized cost of $
9,209
and $
9,584
and included in the tables above were pledged as collateral
to FHLB at December 31, 2024 and 2023, respectively.
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
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 December 31, 2024 and 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.
|
2024
|
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 December 31, 2024 and 2023.
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loan backed and structured securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Redeemable preferred stocks
|
|
|
|
|
|
|
||||||||||||||||||
|
Total temporarily impaired securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Loan backed and structured securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Total temporarily impaired securities
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
Analysis of Securities in Unrealized Loss Positions
As
of December 31, 2024 and 2023, there were
213
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
ACL on its available-for-sale fixed maturities as of December 31, 2024 and 2023.
Investment income was earned from the following sources:
|
2024
|
2023
|
|||||||
|
Fixed maturities
|
$
|
|
$
|
|
||||
|
Equity securities
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
|
Investment expenses
|
|
|
||||||
|
Net investment income
|
$
|
|
$
|
|
||||
A summary of realized investment gains (losses) follows:
| 2024 | ||||||||||||||||
|
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total | ||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| 2023 | ||||||||||||||||
|
Fixed
Maturities
|
Equity
Securities
|
Other
Invested Assets
|
Total | |||||||||||||
|
Gains
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Losses
|
|
|
|
|
||||||||||||
|
Realized investment gains, net
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Proceeds from the sales of available-for-sale fixed maturities were as follows:
|
2024
|
2023
|
|||||||
|
Sales proceeds
|
$
|
|
$
|
|
||||
|
Gross gains
|
|
|
||||||
|
Gross losses
|
|
|
||||||
Proceeds from the sales of equity securities were as follows:
|
2024
|
2023
|
|||||||
|
Sales proceeds
|
$
|
|
$
|
|
||||
|
Gross gains
|
|
|
||||||
|
Gross losses
|
|
|
||||||
Proceeds from the sales of other invested assets were as follows:
|
2024
|
2023
|
|||||||
|
Sales proceeds
|
$
|
|
$
|
|
||||
|
Gross gains
|
|
|
||||||
|
Gross losses
|
|
|
|
|||||
Sales of available-for-sale securities in 2024 and 2023 were primarily a result of improving the
overall risk versus return profile of the portfolio. In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party in 2024.
The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2024
and 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 on equity securities, net
|
$
|
(
|
)
|
$
|
(
|
)
|
||
The Company’s bond portfolio included
99
%
investment grade securities, as defined by the NAIC, at December 31, 2024 and 2023.
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 partnerships and 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 $
6,616
and $
6,381
at December 31, 2024 and 2023, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $
1,238
at December 31, 2024 and 2023.
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 has no
arrangements with any of the VIEs to provide other financial support to or on behalf of 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 $
7,854
and $
7,619
,
at December 31, 2024 and 2023, respectively. As of December 31, 2024 and 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 3. |
Disclosures About Fair Value 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 significantly 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, 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 December 31, 2024 and December 31, 2023, the value of the equity security valued using Level 3 criteria was $
|
Recurring Fair Value Measurements
Cash Equivalents
.
The carrying amount approximates fair value
due to the short-term nature of the instruments.
Fixed Maturities and Common and Non-Redeemable Preferred Stocks
.
The
carrying amount is determined from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are
not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information is also considered, as
applicable.
Nonrecurring Fair Value Measurements
Non-publicly Traded Invested Assets
.
The fair value of
investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships.
Policy Loans
.
Policy loans, which are categorized as Level 3
fair value measurements, are carried at the unpaid principal balances.
Junior Subordinated Debentures
.
The fair value is estimated
based on observable interest rates and yields for debt instruments having similar characteristics.
As of December 31, 2024, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
Assets:
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
|
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:
|
Assets:
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
|
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 December 31, 2024 and 2023.
|
Level in
|
2024
|
2023
|
|||||||||||||||||
|
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 4. |
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 December 31, 2024 and
2023, and the changes in the allowance for expected credit losses for the year ended December 31, 2024 and 2023.
|
At and year ended December 31, 2024
|
||||||||
|
|
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
|
$
|
|
$
|
|
||||
|
At and year ended December 31, 2023
|
||||||||
|
|
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 December 31, 2024 and
2023, and the changes in the allowance for expected credit losses for the year ended December 31, 2024 and 2023.
|
|
At and year ended December 31, 2024
|
|||||||
|
|
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 year ended December 31, 2023
|
||||||||
|
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 5. |
Deferred Policy Acquisition Costs
|
The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31.
| 2024 |
2023
|
|||||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
American
Southern
|
Bankers
Fidelity
|
|||||||||||||
|
Deferred policy acquisition costs:
|
||||||||||||||||
|
Balance, beginning of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Capitalization
|
|
|
|
|
||||||||||||
|
Amortization
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance, end of year
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| 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
, as amended
, was
three years
.
The arrangement was renewed in March 2024 for an additional
five years
, with a subsequent renewal
term of
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 expected remaining term
of the hosting arrangement, when the software is substantially ready for its intended use. The Company incurred and capitalized implementation costs of $
108
and $
1,545
during the years ended December 31, 2024 and 2023, respectively. The Company has capitalized $
4,675
and $
4,567
in implementation costs
in other assets in its condensed consolidated balance sheet as of December 31, 2024 and 2023, respectively. The Company expects the software will be substantially ready for its intended use during 2025. Accordingly, the Company has
no
t recorded any amortization expense related to software implementation costs for years ended December 31, 2024 and 2023.
| Note 7. |
Insurance Reserves and Policyholder Funds
|
The following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims and loss adjustment
expenses at December 31, 2024 and 2023.
|
Amount of
Insurance In Force, Net
|
||||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Future policy benefits
|
||||||||||||||||
|
Life insurance policies:
|
||||||||||||||||
|
Ordinary life and annuities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Group life
|
|
|
|
|
||||||||||||
|
|
|
$
|
|
$
|
|
|||||||||||
|
Accident and health insurance policies
|
|
|
||||||||||||||
|
|
|
|||||||||||||||
|
Unearned premiums
|
|
|
||||||||||||||
|
Losses, claims and loss adjustment expenses
|
|
|
||||||||||||||
|
Other policy liabilities
|
|
|
||||||||||||||
|
Total insurance reserves and policyholder funds
|
$
|
|
$
|
|
||||||||||||
Annualized premiums for accident and health insurance policies were $
82,730
and $
84,127
at December 31, 2024 and 2023, respectively.
Future Policy Benefits
Liabilities for future benefits on life insurance policies and accident and health insurance policies are based on assumed investment yields,
mortality rates, disablement rates, benefit utilization rates, and lapse rates after giving effect to possible risks of unexpected adverse claim experience. The mortality, morbidity, and lapse assumptions are based upon the Company’s experience
and incorporate a margin for adverse experience development. These assumptions are modified as necessary to reflect anticipated trends and are generally established at contract inception. The interest rates assumed, which reflect future
investment yields at the time policies are issued, are generally: (i)
2.5
% to
5.5
% for issues
prior to 1977
, (ii)
5.5
% to
7.0
% for
1977 through 1979
issues, (iii)
9.0
%
for
1980 through 1987
issues, (iv)
5.0
%
to
7.0
% for
1988 through 2009
issues, and (v)
3.0
% to
4.0
%
for
2010 through 2024
issues.
Loss and Claim Reserves
Loss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate of ultimate liability and
claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. The
estimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operations in the year in which such changes are known.
Activity in the liability for unpaid loss and claim reserves is summarized as follows:
|
2024
|
2023
|
|||||||
|
Balance at January 1
|
$
|
|
$
|
|
||||
|
Less: Reinsurance recoverable on unpaid losses
|
(
|
)
|
(
|
)
|
||||
|
Net balance at January 1
|
|
|
||||||
|
Incurred related to:
|
||||||||
|
Current year
|
|
|
||||||
|
Prior years
|
|
(1)
|
|
(2)
|
||||
|
Total incurred
|
|
|
||||||
|
Paid related to:
|
||||||||
|
Current year
|
|
|
||||||
|
Prior years
|
|
|
||||||
|
Total paid
|
|
|
||||||
|
Net balance at December 31
|
|
|
||||||
|
Plus: Reinsurance recoverable on unpaid losses
|
|
|
||||||
|
Balance at December 31
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred:
|
2024
|
2023
|
|||||||
|
Total incurred losses
|
$
|
|
$
|
|
||||
|
Cash surrender value and matured endowments
|
|
|
||||||
|
Benefit reserve changes
|
|
|
|
|||||
|
Total insurance benefits and losses incurred
|
$
|
|
$
|
|
||||
Liability for Unpaid Losses, Claims and Loss Adjustment Expenses
The following is information, by significant product lines, about incurred and paid claims development as of December 31, 2024, net of
reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included within the net incurred claims amounts. The information presented for the years ended December
31, 2015 and prior is presented as supplementary information and is unaudited.
Medicare Supplement
|
For the Years Ended December 31,
|
As of December 31,
2024
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of
Reinsurance
|
IBNR
Reserves
|
Cumulative
Number of
Reported Claims
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||
|
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance
|
$
|
|
||||||||||||||||||||||||||||||||||||||
The cumulative number of reported claims for the Medicare Supplement line of business is the number of distinct claims incurred and submitted to
the Centers for Medicare and Medicaid Services (or its designee) for payment in the given year. Multiple payments on the same claim are not counted in the claim frequency data. For Medicare Supplement policies, the estimated ultimate claims
incurred, using claims data reported during each month of any given year, are calculated using the chain ladder method. Because claim patterns vary significantly during the year, this method is modified to reflect claim experience over the
corresponding four-month period prior to the statement date during the prior two calendar years, and recent claim experience during a twelve-month period from sixteen months prior to the valuation date through five months prior to the valuation
date. Additional adjustments to the estimated ultimate claims incurred are then applied to account for seasonal changes in claim experience and changes in the rate of claim processing. The liability for Medicare Supplement claims that are
Incurred but Not Reported (the IBNR) is calculated by subtracting both paid claims through the valuation date and claims in the course of settlement as of the valuation date from the estimated ultimate claims.
of loss data are used to develop the estimated ultimate incurred claims. For other accident and health products and life products,
similar approaches are used and modified to reflect the unique aspects of the products.
Automobile Liability
|
For the Years Ended December 31,
|
As of December 31,
2024
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of
Reinsurance
|
IBNR
Reserves
|
Cumulative
Number of
Reported
Claims
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||
|
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance
|
$
|
|
||||||||||||||||||||||||||||||||||||||
Automobile Physical Damage
|
For the Years Ended December 31,
|
As of December 31, 2024
|
|||||||||||||||||||||||||||
|
Incurred Losses, Claims and Allocated Loss Adjustment Expenses,
Net of Reinsurance
|
IBNR
Reserves
|
Cumulative
Number of
Reported
Claims
|
||||||||||||||||||||||||||
|
Accident Year
|
2020
|
2021
|
2022
|
2023
|
2024
|
|||||||||||||||||||||||
|
2020
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||
|
2021
|
|
|
|
|
|
|
||||||||||||||||||||||
|
2022
|
|
|
|
|
|
|||||||||||||||||||||||
|
2023
|
|
|
|
|
||||||||||||||||||||||||
|
2024
|
|
|
|
|||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||
|
Cumulative Paid Losses, Claims and Allocated Loss Adjustment
Expenses, Net of Reinsurance
|
||||||||||||||||||||
|
Accident Year
|
2020
|
2021
|
2022
|
2023
|
2024
|
|||||||||||||||
|
2020
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
2021
|
|
|
|
|
||||||||||||||||
|
2022
|
|
|
|
|||||||||||||||||
|
2023
|
|
|
||||||||||||||||||
|
2024
|
|
|||||||||||||||||||
|
$
|
|
|||||||||||||||||||
|
All outstanding liabilities before 2020, net of reinsurance
|
|
|
||||||||||||||||||
| Liabilities for losses, claims and loss adjustment expenses, net of reinsurance |
$
|
|
||||||||||||||||||
General Liability
|
For the Years Ended December 31,
|
As of December 31,
2024
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of
Reinsurance
|
IBNR
Reserves
|
Cumulative
Number of
Reported
Claims
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||
|
All outstanding liabilities before 2015, net of reinsurance
|
|
|||||||||||||||||||||||||||||||||||||||
|
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance
|
$
|
|
||||||||||||||||||||||||||||||||||||||
Surety
|
For the Years Ended December 31,
|
As of December 31,
2024
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of
Reinsurance
|
IBNR
Reserves
|
Cumulative
Number of
Reported
Claims
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
||||||||||||||||||||||||||||||||||||||||
|
Accident Year
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||||||||||||||||
|
2015
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
2017
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
2019
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
|
2020
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
2021
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
2022
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
2023
|
|
|
||||||||||||||||||||||||||||||||||||||
|
2024
|
|
|||||||||||||||||||||||||||||||||||||||
|
$
|
|
|||||||||||||||||||||||||||||||||||||||
|
All outstanding liabilities before 2015, net of reinsurance
|
|
|||||||||||||||||||||||||||||||||||||||
|
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance
|
$
|
|
||||||||||||||||||||||||||||||||||||||
For the property and casualty lines of business, the number of claims presented above equals the number of occurrences by type of claim reported
to the Company. The number of claims reported during a given year corresponds to the number of claims records opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business. For automobile
claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. The Company has consistently monitored claim frequency on this basis, and believes this provides more meaningful information than using
claimant count which can change over the course of settling a claim.
In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimate payment based on
the known information of the claim at that time. Claims managers review and monitor all property and casualty claims in excess of $
25,000
.
As new information becomes available or payments are made on a claim, the case reserve is adjusted to reflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims are based on
complex and subjective judgments and subject to change at any time as new information becomes available.
In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Company as of the reporting
date as well as potential adverse development on known case reserves. IBNR reserve estimates are derived through a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitative factors
are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicated
adjustments are made.
Because of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove better or worse than
indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized and could increase or decrease earnings for the period.
The following is supplementary information about average historical claims duration as of December 31, 2024.
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Subrogation and Reinsurance (Unaudited)
|
||||||||||||||||||||||||||||||||||||||||
|
Reserve Line
|
1
st
Year
|
2
nd
Year
|
3
rd
Year
|
4
th
Year
|
5
th
Year
|
6
th
Year
|
7
th
Year
|
8
th
Year
|
9
th
Year
|
10
th
Year
|
||||||||||||||||||||||||||||||
|
Medicare Supplement
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||||||
|
Automobile Liability
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||||||
|
Automobile Physical Damage
|
|
%
|
|
%
|
|
%
|
|
%
|
-
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||||||
|
General Liability
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||||||
|
Surety
|
|
%
|
|
%
|
|
%
|
|
%
|
-
|
%
|
-
|
%
|
-
|
%
|
|
%
|
-
|
%
|
|
%
|
||||||||||||||||||||
The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and loss adjustment expenses is as
follows:
|
December 31, 2024
|
||||
|
Net outstanding liabilities
|
||||
|
Medicare supplement
|
$
|
|
||
|
Automobile liability
|
|
|||
|
Automobile physical damage
|
|
|||
|
General liability
|
|
|||
|
Surety
|
|
|||
|
Other short-duration insurance lines
|
|
|||
|
Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance
|
|
|||
|
Reinsurance recoverable on unpaid losses:
|
||||
|
Medicare supplement
|
|
|||
|
Automobile liability
|
|
|||
|
Automobile physical damage
|
|
|||
|
General liability
|
|
|||
|
Other short-duration insurance lines
|
|
|||
|
Total reinsurance recoverable on unpaid losses
|
|
|||
|
Unallocated claims adjustment expenses
|
|
|||
|
Total gross liability for unpaid losses, claims and loss adjustment expenses
|
$
|
|
||
| Note 8. |
Reinsurance
|
In accordance with general practice in the insurance industry, portions of the life, property and casualty insurance written by the Company are
reinsured; however, the Company remains liable with respect to reinsurance ceded should any reinsurer be unable or unwilling to meet its obligations. Approximately
99.8
% of the Company’s reinsurance recoverables were due from a single reinsurer as of December 31, 2024. Reinsurance recoverables of $
22,887
were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against
reinsurance recoverables, if appropriate.
Property and Casualty Operations
American Southern’s basic reinsurance treaties generally cover all claims in excess of specified per occurrence limitations.
Limits per occurrence within the reinsurance treaties are as follows: Inland marine and commercial automobile physical damage - $
225
,000
excess of $
125
,000 retention; and automobile liability and general liability - excess coverage of $
2.0
million less retentions that may vary from $
150
,000
to $
500
,000 depending on the account. American Southern maintains a property catastrophe treaty with a $
5.5
million limit excess of $
500
,000
retention. American Southern also issues individual surety bonds with face amounts generally up to $
1.5
million, and limited to $
5.0
million in aggregate per account, that are not reinsured.
Life and Health Operations
Bankers Fidelity has entered into reinsurance contracts ceding the excess of its life retention. Maximum retention by Bankers
Fidelity on any one individual life insurance policyholder is $
200
,000. As of December 31, 2024, $
7.2
million of the $
975.8
million of
life insurance in force at Bankers Fidelity was reinsured under a combination of coinsurance and yearly renewable term agreements. Certain prior year reinsurance agreements also remain in force although they no longer provide reinsurance for
new business.
Bankers Fidelity has also entered into a reinsurance contract ceding excess new Medicare Supplement business to General Re Life
Corporation. Ceding thresholds are set annually. During 2024, the liability of the reinsurer was
50
% of all new Medicare Supplement
business issued by the Company on amounts up to a maximum retention of $
15.0
million of annualized premium. Accordingly, $
5.1
million of the Company’s $
10.1
million of new annualized Medicare Supplement premium was ceded.
The
effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows:
|
For the Year Ended December 31, 2024
|
||||||||||||
|
American
Southern |
Bankers
Fidelity
|
Total
|
||||||||||
|
Direct premiums written
|
$
|
|
$
|
|
$
|
|
||||||
|
Assumed premiums written
|
|
|
|
|||||||||
|
Ceded premiums written
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net premiums written
|
$
|
|
$
|
|
$
|
|
||||||
|
Direct premiums earned
|
$
|
|
$
|
|
$
|
|
||||||
|
Assumed premiums earned
|
|
|
|
|||||||||
|
Ceded premiums earned
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net premiums earned
|
$
|
|
$
|
|
$
|
|
||||||
|
Provision for benefits and losses incurred
|
$
|
|
$
|
|
$
|
|
||||||
|
Reinsurance loss recoveries
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Insurance benefits and losses incurred
|
$
|
|
$
|
|
$
|
|
||||||
|
For the Year Ended December 31, 2023
|
||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
Total
|
||||||||||
|
Direct premiums written
|
$
|
|
$
|
|
$
|
|
||||||
|
Assumed premiums written
|
|
|
|
|||||||||
|
Ceded premiums written
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net premiums written
|
$
|
|
$
|
|
$
|
|
||||||
|
Direct premiums earned
|
$
|
|
$
|
|
$
|
|
||||||
|
Assumed premiums earned
|
|
|
|
|||||||||
|
Ceded premiums earned
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net premiums earned
|
$
|
|
$
|
|
$
|
|
||||||
|
Provision for benefits and losses incurred
|
$
|
|
$
|
|
$
|
|
||||||
|
Reinsurance loss recoveries
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Insurance benefits and losses incurred
|
$
|
|
$
|
|
$
|
|
||||||
Components of reinsurance receivables at
December 31, 2024 and 2023 were as follows:
|
December 31, 2024
|
||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
Total
|
||||||||||
|
Recoverable on unpaid losses, net of allowance
|
$
|
|
$
|
|
$
|
|
||||||
|
Recoverable on unpaid benefits
|
|
|
|
|||||||||
|
Recoverable on paid losses
|
|
|
|
|||||||||
|
Ceded unearned premiums
|
|
|
|
|||||||||
|
Ceded advanced premiums
|
|
|
|
|||||||||
|
Total reinsurance receivables
|
$
|
|
$
|
|
$
|
|
||||||
| December 31, 2023 | ||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
Total
|
||||||||||
|
Recoverable on unpaid losses, net of allowance
|
$
|
|
$
|
|
$
|
|
||||||
|
Recoverable on unpaid benefits
|
|
|
|
|||||||||
|
Recoverable on paid losses
|
|
|
|
|||||||||
|
Ceded unearned premiums
|
|
|
|
|||||||||
|
Ceded advanced premiums
|
|
|
|
|||||||||
|
Total reinsurance receivables
|
$
|
|
$
|
|
$
|
|
||||||
| Note 9. |
Income Taxes
|
Total income taxes were allocated as follows:
|
2024
|
2023
|
|||||||
|
Total tax benefit on income
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Tax expense (benefit) on components of shareholders’ equity:
|
||||||||
|
Net unrealized income (losses) on investment securities
|
(
|
)
|
|
|||||
|
Total tax expense (benefit)
|
$
|
(
|
)
|
$
|
|
|||
A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as
follows:
|
2024
|
2023
|
|||||||
|
Federal income tax provision at the statutory rate
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Statutory rate
|
|
%
|
|
%
|
||||
|
Dividends-received deduction
|
(
|
)
|
(
|
)
|
||||
|
Meals and entertainment
|
|
|
||||||
|
Vested stock and club dues
|
|
|
||||||
|
Parking disallowance
|
|
|
||||||
|
Adjustment for prior years’ estimates to actual
|
|
(
|
)
|
|||||
|
Income tax benefit
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Effective tax rate
|
|
%
|
|
%
|
||||
The primary difference between the effective tax rate and the federal statutory income tax rate for 2024 resulted from a permanent difference related to meals and entertainment.
Also contributing to differences between the effective tax rate and the federal statutory income tax rate was the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal
year and were $
35
in the year ended December 31, 2024. Another contributing factor to the differences between the effective tax rate
and the federal statutory income tax rate was a permanent difference related to dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to,
actual distributions from investments as well as the amount of the Company’s taxable income.
The primary difference between the effective tax rate and the federal statutory income tax rate for 2023 resulted from the adjustment for prior years’ estimates to actual of $
299
in the year ended December 31, 2023, which included the return to provision adjustment that is generally updated at the completion of the third
quarter of each fiscal year and an adjustment for partnership valuation. Also contributing to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to meals and
entertainment.
Deferred tax assets and liabilities at December 31, 2024 and 2023 were comprised of the following:
|
2024
|
2023
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Deferred acquisition costs
|
$
|
|
$
|
|
||||
|
Net unrealized investment losses
|
|
|
||||||
|
Insurance reserves
|
|
|
||||||
|
Impaired assets
|
|
|
||||||
|
Bad debts and other
|
|
|
||||||
|
Net operating loss
|
|
|
||||||
|
Total deferred tax assets
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Deferred and uncollected premiums
|
$
|
(
|
)
|
|
|
(
|
)
|
|
|
Total deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net deferred tax asset
|
$
|
|
$
|
|
||||
The components of income tax benefit were:
|
2024
|
2023
|
|||||||
|
Current – Federal
|
$
|
|
$
|
|
||||
|
Deferred – Federal
|
(
|
)
|
(
|
)
|
||||
|
Total
|
$
|
(
|
)
|
$
|
(
|
)
|
||
The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years
are considered open tax years that remain subject to examination by the Internal Revenue Service.
| Note 10. |
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
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 December 31, 2024 and 2023, the Company had outstanding borrowings of $
4,023
and $
3,019
, respectively,
under the Credit Agreement.
For the year ended 2024 and 2023, the Company incurred $
283
and $
200
in interest expense, respectively, on the revolving credit facility borrowing. During the year ended 2024 and 2023, the Company paid $
9
and $
0
, respectively, in fees on
the available unused amount of the revolving credit facility of $
6,000
. At December 31, 2024 and 2023, the effective interest rate
was
6.67
% and
7.46
%,
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
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 December 31, 2024, the effective interest rate was
8.82
%.
The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2024 and 2023, was as follows:
|
Atlantic American
Statutory Trust I
|
Atlantic American
Statutory Trust II
|
|||||||
|
JUNIOR SUBORDINATED DEBENTURES
(1)(2)
|
||||||||
|
Balance December 31,
2024
|
$
|
|
$ |
|
||||
|
Less: Treasury debt
(3)
|
|
(
|
) | |||||
|
Net balance December 31,
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 11.
|
Leases
|
The Company has
two
operating
lease agreements, each for the use of office space in the ordinary course of business. The original term of the first lease was to automatically renew on an annual basis and was amended on December 26, 2024, when the Company and its subsidiary,
Bankers Fidelity Life Insurance Company, entered into a Second Amendment to Lease Agreement (the “Second Amendment”) with 4370 Peachtree LLC. The Second Amendment amends the Lease Agreement, dated November 1, 2007, by and among the same parties
(as previously amended, the “Lease Agreement”), pursuant to which the Company leases space for its principal offices and for some of its insurance operations in an office building located in Atlanta, Georgia. Pursuant to the Second Amendment, the
Lease Agreement was modified to increase the base rent payable by the Company, beginning January 1, 2025. The Second Amendment also provides for rent adjustment on January 1, 2027, January 1, 2030 and each five years thereafter.
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 each of the years ended December 31, 2024 and 2023 was $
1,014
.
Additional information regarding the Company’s real estate operating leases is as follows:
|
Year Ended
December 31, 2024
|
Year Ended
December 31, 2023
|
|||||||
|
Other information on operating leases:
|
||||||||
|
Cash payments included in the measurement of lease liabilities reported in operating cash flows
|
$
|
|
|
|||||
|
Right-of-use assets included in
on the 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
|
||||
|
2025
|
$
|
|
||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029
|
|
|||
|
Thereafter
|
|
|||
|
Total undiscounted lease payments
|
|
|||
|
Less: present value adjustment
|
|
|||
|
Operating lease liability included in
on the consolidated balance sheet
|
$
|
|
||
| Note 12. |
Benefit Plans
|
Equity Incentive Plan
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.
During the year ended 2024 and 2023, there were
no
restricted shares issued under the 2022 Plan.
The
estimated fair value of the restricted shares issued are based on the common stock price at date of grant. Stock grants are generally issued from treasury shares. Vesting of restricted shares generally occurs after a
to
three year
period following the
date of grant. The Company accounts for forfeitures as they occur. There were
no
stock options granted or outstanding under the
2022 Plan in 2024 and 2023.
Shares available for future grant under the 2022 Plan at December 31, 2023 and 2022 were
2,960,000
.
401(k) Plan
The Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Code in May 1995. The Plan
covers substantially all of the Company’s employees. Effective January 1, 2009, the Company modified the Plan such that the Plan would operate on a safe harbor basis. Under the Plan, employees may defer up to
50
% of their compensation, not to exceed the annual deferral limit. The Company’s total matching contribution for 2024 and 2023 was $
306
and $
283
, respectively, and
consisted of a contribution equal to
35
% of up to the first
6
% of each participant’s contributions. In addition to the matching contribution, the Company also provided a
3
% safe harbor non-elective contribution in 2024 and 2023 of $
682
and $
629
, respectively. All contributions were made in cash. Participants are 100% vested in their own contributions and the vested percentage attributable
to certain employer contributions is based on a
five-year
graded schedule.
Agent Stock Purchase Plan
The Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012. The purpose of the Agent Stock Purchase
Plan is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company. Under the Agent Stock Purchase Plan,
payment for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment. Stock purchases are made at the end of each calendar quarter at the then current market value.
| Note 13. |
Preferred Stock
|
The Company had
55,000
shares
of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2024 and 2023, respectively. 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 par value of $
1
per share and a redemption 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. The Company had accrued, but unpaid, dividends, on the Series D
Preferred Stock of $
18
at December 31, 2024 and 2023. During each of 2024 and 2023, the Company paid Series D Preferred Stock
dividends of $
399
.
| Note 14. |
Loss Per Common Share
|
Basic loss per share was computed by dividing net loss available to common shareholders by the weighted average number of common shares
outstanding during the period. The computation of diluted loss per share reflected the effect of potentially dilutive securities.
A reconciliation of the numerator and denominator of the loss per common share calculations is as follows:
| For the Year Ended December 31, 2024 | ||||||||||||
|
Loss
|
|
Weighted
Average Shares
Outstanding
(In thousands)
|
P
er Share
Amount
|
|||||||||
|
Basic and Diluted Loss Per Common Share
|
||||||||||||
|
Net loss before preferred stock dividends
|
$
|
(
|
)
|
|
-
|
|||||||
|
Less preferred stock dividends
|
(
|
)
|
—
|
|||||||||
|
Net loss applicable to common shareholders
|
$
|
(
|
)
|
|
$
|
(
|
)
|
|||||
|
For the Year Ended December 31, 2023
|
||||||||||||
|
Loss
|
Weighted
Average Shares
Outstanding
(In thousands)
|
Per Share
Amount
|
||||||||||
|
Basic and Diluted Loss Per Common Share
|
||||||||||||
|
Net loss before preferred stock dividends
|
$
|
(
|
)
|
|
-
|
|||||||
|
Less preferred stock dividends
|
(
|
)
|
—
|
|||||||||
|
Net loss applicable to common shareholders
|
$
|
(
|
)
|
|
$
|
(
|
)
|
|||||
The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2024 and 2023
since its impact would have been antidilutive.
| Note 15. |
Statutory Reporting
|
The assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects from statutory accounting
practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP are that under SAP: (i) carrying value of certain investments differ on a GAAP versus SAP basis, such as fixed
maturities that are shown at amortized cost for SAP versus fair value for GAAP (ii) certain assets that are non-admitted assets are eliminated from the balance sheet; (iii) acquisition costs for policies are expensed as incurred, while they are
deferred and amortized over the estimated life of the policies under GAAP; (iv) the provision that is made for deferred income taxes is different than under GAAP; (v) the timing and methodology of establishing certain reserves is different than
under GAAP; (vi) reinsurance is shown net on balance sheet for SAP and (vii) certain valuation allowances attributable to certain investments are required under SAP such as asset valuation reserve and interest maintenance reserve.
The Company meets the minimum capital requirements in the states in which it does business. The amount of reported statutory net income and
capital and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows:
|
2024
|
2023
|
|||||||
|
Bankers Fidelity, net income
|
$
|
|
$
|
|
||||
|
American Southern, net income
|
|
|
||||||
|
Statutory net income
|
$
|
|
$
|
|
||||
|
Bankers Fidelity, capital and surplus
|
$
|
|
$
|
|
||||
|
American Southern, capital and surplus
|
|
|
||||||
|
Statutory capital and surplus
|
$
|
|
$
|
|
||||
Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance
subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. The Parent received dividends of $
9,000
and $
8,400
in the years ended 2024 and 2023, respectively, from its subsidiaries. In 2025,
dividend payments to the Parent by the insurance subsidiaries in excess of $
6,347
would require prior approval.
| Note 16. |
Related Party Transactions
|
In the normal course of business the Company has engaged in transactions with entities affiliated with the controlling shareholder of the Company.
These transactions include the leasing of office space, certain investing and financing activities, as well as inconsequential administrative and consulting services. At December 31, 2024,
two
members of the Company’s board of directors, including the Company’s Chairman, President and Chief Executive Officer, were considered to be affiliates of the majority
shareholder.
The Company leases approximately
49,586
square feet of office and covered garage space from one such controlled entity, 4370 Peachtree LLC. During the years ended December 31, 2024 and 2023, the Company paid $
1,153
and $
1,199
, respectively, under this lease.
On December 26, 2024, the Company and its subsidiary, Bankers Fidelity Life Insurance Company, entered into a Second Amendment to
Lease Agreement (the “Second Amendment”) with 4370 Peachtree LLC. The Second Amendment amends the Lease Agreement, dated November 1, 2007, by and among the same parties (as previously amended, the “Lease Agreement”), pursuant to which the
Company leases space for its principal offices and for some of its insurance operations in an office building located in Atlanta, Georgia. Pursuant to the Second Amendment, the Lease Agreement was modified to increase the base rent payable by
the Company, beginning January 1, 2025. The Second Amendment also provides for rent adjustment on January 1, 2027, January 1, 2030 and each five years thereafter.
Certain financing for the Company has also been provided by this entity in the form of an investment in the Series D Preferred Stock (See Note
13). During the years ended December 31, 2024 and 2023, the Company paid this entity $
399
in dividends on the Series D Preferred
Stock.
Certain members of the Company’s management and board of directors are shareholders and on the board of directors of Gray Media, Inc., formerly
Gray Television, Inc. (“Gray”). As of December 31, 2024 and 2023, the Company owned
880,272
shares of Gray Class A common stock
and
106,000
shares of Gray common stock. The aggregate carrying value of these investments in Gray at December 31, 2024 and 2023
was $
6,751
and $
8,490
,
respectively.
In each of the years ended December 31, 2024 and 2023, Gray paid the Company approximately $
2,173
and $
2,050
in insurance premiums related to certain
voluntary employee benefit plans.
| Note 17. |
Segment Information
|
The Parent’s primary insurance subsidiaries operate with relative autonomy and each company is evaluated based
on its individual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as
well as from investment income. The Company’s strategy is to focus on well-defined geographic, demographic and/or product niches within the insurance marketplace. Substantially all revenue other than that in the corporate and other segment is
from external sources.
The Company adopted ASU No. 2023-07, Segment Reporting- An Amendment for Improvements to Reportable Segment
Disclosures (Topic 280) in December 2024. The most significant provision was for the Company to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”). Our CODM is the Company’s
Chairman, President and Chief Executive Officer. The segment’s most significant expenses include insurance benefits and losses incurred and other expenses, such as commissions and underwriting. Interest expense at the segment level is
insignificant. To assess profitability on a reportable segment basis, the CODM reviews income (loss) before income taxes.
|
For the Year Ended December 31, 2024
|
||||||||||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
Corporate
& Other
|
Adjustments
& Eliminations
|
Consolidated
|
||||||||||||||||
|
Insurance premiums, net
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Insurance benefits and losses incurred
|
|
|
|
|
|
|||||||||||||||
|
Expenses deferred
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Amortization and depreciation expense
|
|
|
|
|
|
|||||||||||||||
|
Other expenses
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total expenses
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Underwriting income
|
(
|
)
|
(
|
)
|
|
|
(
|
) | ||||||||||||
|
Net investment income (loss)
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Other income (loss)
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Subtotal
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Net realized gains
|
|
|
|
|
|
|||||||||||||||
|
Unrealized losses on equity securities
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||
|
Income (loss) before income taxes
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||||
|
Total revenues
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Intangibles
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
For the Year Ended December 31, 2023
|
||||||||||||||||||||
|
American
Southern
|
Bankers
Fidelity
|
Corporate
& Other
|
Adjustments
& Eliminations
|
Consolidated
|
||||||||||||||||
|
Insurance premiums, net
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Insurance benefits and losses incurred
|
|
|
|
|
|
|||||||||||||||
|
Expenses deferred
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Amortization and depreciation expense
|
|
|
|
|
|
|||||||||||||||
|
Other expenses
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total expenses
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Underwriting income
|
|
|
|
|
|
|||||||||||||||
|
Net investment income (loss)
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Other income (loss)
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Subtotal
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Net realized gains (losses)
|
|
|
|
|
|
|||||||||||||||
|
Unrealized losses on equity securities
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||
|
Income (loss) before income taxes
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||||
|
Total revenues
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Intangibles
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
| Note 18. |
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 19. |
Subsequent Events
|
On
March 25, 2025
, the Company announced that the board of directors declared an annual cash dividend of $
0.02
per share of common stock that is payable to shareholders of record at the close of business on
April 9, 2025
.
| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None.
| Item 9A. |
Controls and Procedures
|
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.
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 Securities Exchange Act of 1934). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were not effective as of that date due to the
previously identified and unremediated material weakness in internal control over financial reporting described below.
Management’s Report on 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.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2024 based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the updated 2013
Internal
Control – Integrated
Framework
. Based on that evaluation, management believes that internal control over financial reporting as such
term is defined in Exchange Act Rule 13a-15(f) was not effective as of December 31, 2024, as a result of the previously identified and unremediated material weakness described below. 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.
As initially disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, we previously
identified certain deficiencies in internal control that we believe rise to the level of a material weakness. 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, because of the actions taken by management in
identifying, and the efforts that the Company has been taking to address and correct, these deficiencies prior to the completion and filing of this Annual Report on Form 10-K, 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. Similarly, there were no changes to any of our historical financial statements.
Changes in Internal Control Over Financial Reporting
The Company’s remediation efforts of the previously identified material weakness, which began in the quarter ended
March 31, 2024, remained ongoing though the quarter ended December 31, 2024, and through the date hereof. The Company has made significant progress in its remediation efforts, and during the quarter ended December 31, 2024, management conducted a
systematic review of the components of underwriting income for the Company’s Life products. This review included independent calculations of actuarial values for these products using a comprehensive process that had been developed, tested, and
implemented during the quarter ended December 31, 2024. Based on this review, management did not identify any material misstatement in the Company’s financial statements.
In furtherance of the remediation efforts, 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. The Company’s group whole life product has been implemented
on the system, which was used to validate the actuarial values for this product as of December 31, 2024. The Company currently expects that an extension of this system to accommodate other product lines the Company offers will be operational by
September 30, 2025. Full development and implementation of this system has required more time than previously anticipated due to unforeseen complexities inherent in the actuarial software systems used to calculate and report the actuarial values.
These complexities have required additional effort to understand and to replicate in this system, and to complete the remediation process
Inherent Limitations on Effectiveness of Controls
No system of controls, no matter how well designed and implemented, can provide absolute assurance that the objectives
of the system of controls are met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud within a company have been detected.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company’s independent registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to certain rules of the Securities and Exchange Commission that
exempt non-accelerated filers, including the Company, from such requirement.
| Item 9B. |
Other Information
|
None of the Company's directors or officers
adopted
or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024, as such terms are
defined under Item 408(a) of Regulation S-K.
| Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
|
Not applicable.
PART III
With the exception of certain information relating to the executive officers of the Company, which is provided in Part I hereof, the information relating to securities
authorized for issuance under equity compensation plans and the information relating to the Company’s Code of Business Conduct and Ethics, each of which is included below, all information required by Part III (Items 10, 11, 12, 13 and 14 of Form
10-K) is incorporated by reference to the sections entitled “Election of Directors,” “Security Ownership of Certain Beneficial Owners and Management,” “Delinquent Section 16(a) Reports” (if applicable), “Executive Compensation,” “Certain
Relationships and Related Person Transactions" and “Ratification of the Appointment of the Company's Independent Registered Public Accounting Firm” to be contained in the Company’s definitive proxy statement in connection with the Company’s 2025
Annual Meeting of Shareholders, to be filed with the SEC within 120 days of the Company’s fiscal year end.
Equity Compensation Plan Information
The following table sets forth, as of December 31, 2024, the number of securities issuable upon exercise of outstanding options, warrants and rights, the weighted average
exercise price thereof and the number of securities remaining available for future issuance under the Company’s equity compensation plans:
|
Plan Category
|
Number of
Securities to Be
Issued Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
|
Weighted-Average
Exercise Price
of Outstanding
Options,
Warrants
and Rights
|
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
First Column)
|
|||||||||
|
Equity compensation plans approved by security holders
|
—
|
$
|
—
|
2,960,000
|
||||||||
|
Equity compensation plans not approved by security holders
(1)
|
—
|
—
|
—
|
|||||||||
|
Total
|
—
|
$
|
—
|
2,960,000
|
||||||||
| (1) |
All of the Company’s equity compensation plans have been approved by the Company’s shareholders.
|
Code of Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or
controller, or any persons performing similar functions, as well as its directors and other employees. A copy of this Code of Business Conduct and Ethics has been filed as an exhibit to this annual report on Form 10-K.
PART IV
| Item 15. |
Exhibits and Financial Statement Schedules
|
| (a) |
List of documents filed as part of this report:
|
|
|
1. |
Financial Statements:
|
See Index to Financial Statements contained in Item 8 hereof.
|
|
2. |
Financial Statement Schedules:
|
Schedule II - Condensed financial information of the registrant
Schedule III - Supplementary insurance information of the registrant
Schedule IV - Reinsurance information for the registrant
Schedule VI - Supplemental information concerning property-casualty insurance operations of the registrant
Schedules other than those listed above are omitted as they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. Columns
omitted from schedules filed have been omitted because the information is not applicable.
|
|
3. |
Exhibits *:
|
|
Restated Articles of Incorporation of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K for the year ended December 31, 2008].
|
||
|
Restated Bylaws of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed on March 4, 2016].
|
||
|
Description of the registrant’s common stock registered pursuant to section 12 of the Securities Exchange Act of 1934 [incorporated by reference to Exhibit 4.1 to the registrant’s Form
10-K filed on March 24, 2020].
|
||
|
10.01
|
Management Agreement, dated July 1, 1993, between the registrant and Atlantic American Life Insurance Company and Bankers Fidelity Life Insurance Company [incorporated by reference to
Exhibit 10.41 to the registrant’s Form 10-Q for the quarter ended September 30, 1993].
|
|
|
Tax Allocation Agreement, dated as of January 4, 2016, between the registrant and the registrant’s subsidiaries [incorporated by reference to Exhibit 10.02 to the registrant’s Form
10-K for the year ended December 31, 2017].
|
||
|
Atlantic American Corporation 2012 Nonqualified Stock Purchase Plan [incorporated by reference to Exhibit 99.1 to the registrant’s Form S-8 (File No. 333-183207) filed on August 10,
2012].
|
||
|
Atlantic American Corporation 2012 Equity Incentive Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q for the quarter ended March 31, 2013].
|
||
|
Lease Agreement, dated as of November 1, 2007, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life
Insurance Company [incorporated by reference to Exhibit 10.10 to the registrant’s Form 10-K for the year ended December 31, 2007].
|
||
|
First Amendment to Lease Agreement, dated as of March 31, 2008, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation
and Delta Life Insurance Company [incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q for the quarter ended March 31, 2008].
|
||
|
Assignment and Assumption of Leases and Contracts, dated as of December 21, 2022, by and between Delta Life Insurance Company and 4370 Peachtree LLC [incorporated by reference to
Exhibit 10.07 to the registrant’s Form 10-K filed on June 30, 2023].
|
||
|
Revolving Credit Agreement, dated as of May 12, 2021, as amended by that certain First Amendment to Revolving Credit Agreement, dated as of March 22, 2024, by and between Atlantic
American Corporation and Truist Bank [incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the SEC on May 13, 2021].
|
||
|
Atlantic American Corporation 2022 Equity and Incentive Compensation Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on May 31, 2022].
|
||
|
Second Amendment to Lease Agreement, dated as of December 26, 2024, by and among 4370 Peachtree LLC, Atlantic American Corporation and Bankers Fidelity Life Insurance Company
[incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the SEC on December 30, 2024].
|
||
|
Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Form 10-K for the year ended December 31, 2003].
|
||
|
19.1
|
Atlantic
American Corporation Insider Trading Policy
|
|
|
Subsidiaries of the registrant [incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-K for the year ended December 31, 2015].
|
||
|
Consent of Forvis Mazars, LLP, Independent Registered Public Accounting Firm.
|
||
|
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
Atlantic American Corporation Compensation Clawback Policy
|
||
|
101.INS
|
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).
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema.
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase.
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase.
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase.
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase.
|
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
| * |
The registrant agrees to furnish to the Commission upon request a copy of any instruments defining the rights of security holders of the registrant that may be omitted from filing in accordance with the
Commission’s rules and regulations.
|
| ** |
Management contract, compensatory plan or arrangement.
|
| Item 16. |
Form 10-K Summary
|
None.
Pursuant to the requirements of Section 13 or 15(d) 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.
|
ATLANTIC AMERICAN CORPORATION
|
||
|
(Registrant)
|
||
|
By:
|
/s/ J. Ross Franklin
|
|
|
J. Ross Franklin
|
||
|
Vice President and Chief Financial Officer
|
||
|
Date: March 25, 2025
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Hilton H. Howell, Jr.
|
President, Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
|
March 25, 2025
|
||
|
HILTON H. HOWELL, JR.
|
||||
|
/s/ J. Ross Franklin
|
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
March 25, 2025
|
||
|
J. ROSS FRANKLIN
|
||||
|
/s/ Robin R. Howell
|
Director
|
March 25, 2025
|
||
|
ROBIN R. HOWELL
|
||||
|
/s/ Mark E. Preisinger
|
Director
|
March 25, 2025
|
||
|
MARK E. PREISINGER
|
||||
|
/s/ Joseph M. Scheerer
|
Director
|
March 25, 2025
|
||
|
JOSEPH M. SCHEERER
|
||||
|
/s/ Scott G. Thompson
|
Director
|
March 25, 2025
|
||
|
SCOTT G. THOMPSON
|
||||
|
/s/ D. Keehln Wheeler
|
Director
|
March 25, 2025
|
||
|
D. KEEHLN WHEELER
|
Schedule II
Page 1 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
BALANCE SHEETS
ASSETS
|
December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Investments
|
|
|
||||||
|
Investment in subsidiaries
|
|
|
||||||
|
Investments in unconsolidated trusts
|
|
|
||||||
| Deferred tax asset, net |
|
|
||||||
|
Income taxes receivable from subsidiaries
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Other payables
|
$
|
|
$
|
|
||||
|
Revolving credit facility
|
|
|
||||||
|
Junior subordinated debentures obligations, net
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Shareholders’ equity
|
|
|
||||||
|
Total liabilities and shareholders’ equity
|
$
|
|
$
|
|
||||
See accompanying report of independent registered public accounting firm.
Schedule II
Page 2 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS OF OPERATIONS
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Revenue
|
||||||||
|
Fee income from subsidiaries
|
$
|
|
$
|
|
||||
|
Distributed earnings from subsidiaries
|
|
|
||||||
|
Unrealized losses on equity securities, net
|
(
|
)
|
(
|
)
|
||||
|
Other
|
(
|
)
|
(
|
)
|
||||
|
Total revenue
|
|
|
||||||
|
General and administrative expenses
|
|
|
||||||
|
Interest expense
|
|
|
||||||
|
(
|
)
|
(
|
)
|
|||||
|
Income tax benefit
(1)
|
(
|
)
|
(
|
)
|
||||
|
|
|
|||||||
|
Equity in undistributed earnings of subsidiaries, net
|
(
|
)
|
(
|
)
|
||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
| (1) |
|
See accompanying report of independent registered public accounting firm.
Schedule II
Page 3 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS OF CASH FLOWS
|
Year Ended December 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
(In thousands)
|
||||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
|
Unrealized losses on equity securities, net
|
|
|
||||||
|
Depreciation and amortization
|
|
|
||||||
|
Compensation expense related to share awards
|
|
|
||||||
|
Loss from equity method investees
|
|
|
||||||
|
Equity in undistributed earnings of subsidiaries, net
|
|
|
||||||
|
Decrease (increase) in intercompany taxes
|
|
(
|
)
|
|||||
|
Deferred income tax benefit
|
(
|
)
|
(
|
)
|
||||
|
Increase (decrease) in accounts payable and accrued expenses
|
|
(
|
)
|
|||||
|
Other, net
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|||||
|
Cash flows from investing activities:
|
||||||||
|
Additions to property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Payment of dividends on Series D preferred stock
|
(
|
)
|
(
|
)
|
||||
|
Payment of dividends on common stock
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from revolving credit facility, net
|
|
|
||||||
|
Treasury stock acquired — net employee share-based compensation
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net increase in cash
|
|
|
||||||
|
Cash and cash equivalents at beginning of year
|
|
|
||||||
|
Cash and cash equivalents at end of year
|
$
|
|
$
|
|
||||
|
Supplemental disclosure:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Cash paid for income taxes
|
$
|
|
$
|
|
||||
|
Intercompany tax settlement from subsidiaries
|
$
|
|
$
|
|
||||
See accompanying report of independent registered public accounting firm.
Schedule III
Page 1 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
|
Segment
|
Deferred
Acquisition
Costs
|
Future Policy
Benefits,
Losses,
Claims and
Loss
Reserves
|
Unearned
Premiums
|
Other Policy
Claims and
Benefits
Payable
|
||||||||||||
|
(In thousands)
|
||||||||||||||||
|
December 31,
2024
:
|
||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
American Southern
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
(1)
|
$
|
|
$
|
|
||||||||
|
December 31,
2023
:
|
||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
American Southern
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
(2)
|
$
|
|
$
|
|
||||||||
| (1) |
|
| (2) |
|
See accompanying report of independent registered public accounting firm.
Schedule III
Page 2 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
|
Segment
|
Premium
Revenue
|
Net
Investment
Income
|
Benefits,
Claims,
Losses and
Settlement
Expenses
|
Amortization
of Deferred
Acquisition
Costs
|
Other
Operating
Expenses
|
Casualty
Premiums
Written
|
||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||
|
December 31,
2024
:
|
||||||||||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
American Southern
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate & other
|
|
|
|
|
|
|
|
|||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||
|
December 31,
2023
:
|
||||||||||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
American Southern
|
|
|
|
|
|
|
||||||||||||||||||
|
Corporate & other
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||
See accompanying report of independent registered public accounting firm.
Schedule IV
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
REINSURANCE INFORMATION
|
Direct
Amount
|
Ceded to
Other
Companies
|
Assumed
From Other
Companies
|
Net
Amounts
|
|
Percentage
of Amount
Assumed
to Net
|
|||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||
|
Year ended December 31,
2024
:
|
||||||||||||||||||||
|
Life insurance in force
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||
|
Premiums —
|
||||||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
%
|
|||||||||
|
American Southern
|
|
(
|
)
|
|
|
|
%
|
|||||||||||||
|
Total premiums
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
%
|
|||||||||
|
Year ended December 31,
2023
:
|
||||||||||||||||||||
|
Life insurance in force
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||
|
Premiums —
|
||||||||||||||||||||
|
Bankers Fidelity
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
%
|
|||||||||
|
American Southern
|
|
(
|
)
|
|
|
|
%
|
|||||||||||||
|
Total premiums
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
%
|
|||||||||
See accompanying report of independent registered public accounting firm.
Schedule VI
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
|
Claims and Claim
Adjustment
Expenses Incurred
Related To
|
||||||||||||||||||||||||||||||||||||||||
|
Year Ended
|
|
Deferred
Policy
Acquisition
Costs
|
Reserves
|
Unearned
Premiums
|
Earned
Premiums
|
Net
Investment
Income
|
Current
Year
|
Prior
Years
|
Amortization
of Deferred
Acquisition
Costs
|
Paid Claims
and Claim
Adjustment
Expenses
|
Premiums
Written
|
|||||||||||||||||||||||||||||
|
|
(In thousands) | |||||||||||||||||||||||||||||||||||||||
|
December 31,
2024
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
December 31,
2023
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
See accompanying report of independent registered public accounting firm.
70
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 1C. CybersecurityItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Shareholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. ReservedItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1. Summary Of Significant Accounting PoliciesNote 2. InvestmentsNote 3. Disclosures About Fair Value Of Financial InstrumentsNote 4. Allowance For Expected Credit LossesNote 5. Deferred Policy Acquisition CostsNote 6. Internal-use SoftwareNote 7. Insurance Reserves and Policyholder FundsNote 8. ReinsuranceNote 9. Income TaxesNote 10. Credit ArrangementsNote 11. LeasesNote 12. Benefit PlansNote 13. Preferred StockNote 14. Loss Per Common ShareNote 15. Statutory ReportingNote 16. Related Party TransactionsNote 17. Segment InformationNote 18. Commitments and ContingenciesNote 19. Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary