UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021

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

Commission File Number 0-3722

ATLANTIC AMERICAN CORPORATION

(Exact name of registrant as specified in its charter)

Georgia		58-1027114
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4370 Peachtree Road, N.E., Atlanta, Georgia		30319
(Address of principal executive offices)		(Zip Code)

(404) 266-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $1.00 per share		AAME		NASDAQ Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐☑ Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding on July ~~24, 2020~~31, 2021 was ~~20,454,001~~20,410,763.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

ASSETS

Unaudited
June 30,
2020

December 31,
2019

Cash and cash equivalents
$
16,354

$
12,893

Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost: $214,080 and $219,233)
236,187

232,472

Equity securities, at fair value (cost: $7,311 and $7,168)
15,965

22,922

Other invested assets (cost: $11,905 and $9,908)
11,454

9,960

Policy loans
2,018

2,007

Real estate
38

38

Investment in unconsolidated trusts
1,238

1,238

Total investments
266,900

268,637

Receivables:
Reinsurance
27,562

32,135

Insurance premiums and other (net of allowance for doubtful accounts: $197 and $183)
23,785

13,134

Deferred income taxes, net
1,144

314

Deferred acquisition costs
39,148

38,861

Other assets
8,300

9,108

Intangibles
2,544

2,544

Total assets
$
385,737

$
377,626

LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance reserves and policyholder funds:
Future policy benefits
$
91,927

$
92,490

Unearned premiums
35,091

26,035

Losses and claims
76,498

81,448

Other policy liabilities
1,195

1,933

Total insurance reserves and policyholder funds
204,711

201,906

Accounts payable and accrued expenses
23,394

23,588

Junior subordinated debenture obligations, net
33,738

33,738

Total liabilities
261,843

259,232

Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value
55

55

Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,454,001 and 20,472,162
22,401

22,401

Additional paid-in capital
57,435

57,820

Retained earnings
34,266

36,020

Accumulated other comprehensive income
17,464

10,459

Unearned stock grant compensation
(466
)

(781
)
Treasury stock, at cost: 1,946,893 and 1,928,732 shares
(7,261
)

(7,580
)
Total shareholders’ equity
123,894

118,394

Total liabilities and shareholders’ equity
$
385,737

$
377,626

	Unaudited June 30, 2021			December 31, 2020
ASSETS
Cash and cash equivalents	$	9,532		$	19,319
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost: $232,141 and $222,461)		257,808			254,106
Equity securities, at fair value (cost: $4,833 and $6,393)		21,903			18,716
Other invested assets (cost: $3,765 and $3,765)		3,117			3,238
Policy loans		1,920			1,975
Real estate		38			38
Investment in unconsolidated trusts		1,238			1,238
Total investments		286,024			279,311
Receivables:
Reinsurance		29,149			29,086
Insurance premiums and other (net of allowance for doubtful accounts: $199 and $198)		29,505			27,512
Deferred income taxes, net		347			0
Deferred acquisition costs		38,462			39,611
Other assets		8,923			7,804
Intangibles		2,544			2,544
Total assets	$	404,486		$	405,187

LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance reserves and policyholder funds:
Future policy benefits	$	88,351		$	90,872
Unearned premiums		35,022			27,131
Losses and claims		81,473			79,147
Other policy liabilities		1,027			1,526
Total insurance reserves and policyholder funds		205,873			198,676
Accounts payable and accrued expenses		22,500			26,412
Deferred income taxes, net		0			1,301
Junior subordinated debenture obligations, net		33,738			33,738
Total liabilities		262,111			260,127

Commitments and contingencies (Note 10)		0			0
Shareholders’ equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value		55			55
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,410,763 and 20,415,243		22,401			22,401
Additional paid-in capital		57,439			57,437
Retained earnings		49,714			47,790
Accumulated other comprehensive income		20,277			25,000
Unearned stock grant compensation		(150	)		(284	)
Treasury stock, at cost: 1,990,131 and 1,985,651 shares		(7,361	)		(7,339	)
Total shareholders’ equity		142,375			145,060
Total liabilities and shareholders’ equity	$	404,486		$	405,187

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

~~-2-~~2

Table of Contents

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~OPERATIONS

(Unaudited; Dollars in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Revenue:
Insurance premiums, net	$	46,499		$	45,469		$	92,049		$	90,251		$	45,133		$	46,499		$	91,223		$	92,049
Net investment income		1,850			2,313			3,889			4,647			2,266			1,850			4,379			3,889
Realized investment gains, net		-			610			249			1,995			50			0			171			249
Unrealized gains (losses) on equity securities, net		1,355			(5,337	)		(7,100	)		1,152			4,003			1,355			4,747			(7,100	)
Other income		33			72			60			100			5			33			12			60
Total revenue		49,737			43,127			89,147			98,145			51,457			49,737			100,532			89,147

Benefits and expenses:
Insurance benefits and losses incurred		27,076			34,151			60,659			69,458			31,703			27,076			64,975			60,659
Commissions and underwriting expenses		10,854			11,509			23,480			22,524			12,179			10,854			24,743			23,480
Interest expense		414			545			890			1,091			347			414			693			890
Other expense		3,112			2,511			6,064			5,376			3,474			3,112			6,914			6,064
Total benefits and expenses		41,456			48,716			91,093			98,449			47,703			41,456			97,325			91,093
Income (loss) before income taxes		8,281			(5,589	)		(1,946	)		(304	)		3,754			8,281			3,207			(1,946	)
Income tax expense (benefit)		1,749			(1,163	)		(391	)		(40	)		792			1,749			676			(391	)
Net income (loss)		6,532			(4,426	)		(1,555	)		(264	)		2,962			6,532			2,531			(1,555	)
Preferred stock dividends		(100	)		(100	)		(199	)		(199	)		(100	)		(100	)		(199	)		(199	)
Net income (loss) applicable to common shareholders	$	6,432		$	(4,526	)	$	(1,754	)	$	(463	)	$	2,862		$	6,432		$	2,332		$	(1,754	)
Earnings (loss) per common share (basic)	$	.31		$	(.22	)	$	(.09	)	$	(.02	)	$	0.14		$	0.31		$	0.11		$	(0.09	)
Earnings (loss) per common share (diluted)	$	.30		$	(.22	)	$	(.09	)	$	(.02	)	$	0.14		$	0.30		$	0.11		$	(0.09	)

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

~~-3-~~3

Table of Contents

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; Dollars in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net income (loss)	$	6,532		$	(4,426	)	$	(1,555	)	$	(264	)	$	2,962		$	6,532		$	2,531		$	(1,555	)
Other comprehensive income:
Other comprehensive income (loss):
Available-for-sale fixed maturity securities:
Gross unrealized holding gain arising in the period		19,997			7,964			9,117			16,404
Gross unrealized holding gain (loss) arising in the period														7,940			19,997			(5,807	)		9,117
Related income tax effect		(4,200	)		(1,673	)		(1,915	)		(3,445	)		(1,668	)		(4,200	)		1,219			(1,915	)
Subtotal		15,797			6,291			7,202			12,959			6,272			15,797			(4,588	)		7,202
Less: reclassification adjustment for net realized gains included in net income (loss)		-			(610	)		(249	)		(882	)		(50	)		0			(171	)		(249	)
Related income tax effect		-			128			52			185			11			0			36			52
Subtotal		-			(482	)		(197	)		(697	)		(39	)		0			(135	)		(197	)
Total other comprehensive income, net of tax		15,797			5,809			7,005			12,262
Total comprehensive income	$	22,329		$	1,383		$	5,450		$	11,998
Total other comprehensive income (loss), net of tax														6,233			15,797			(4,723	)		7,005
Total comprehensive income (loss)													$	9,195		$	22,329		$	(2,192	)	$	5,450

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

~~-4-~~4

Table of Contents

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited; Dollars in thousands except share data)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Preferred stock:
Balance, beginning of period	$	55		$	55		$	55		$	55		$	55		$	55		$	55		$	55
Balance, end of period		55			55			55			55			55			55			55			55
Common stock:
Balance, beginning of period		22,401			22,401			22,401			22,401			22,401			22,401			22,401			22,401
Balance, end of period		22,401			22,401			22,401			22,401			22,401			22,401			22,401			22,401
Additional paid-in capital:
Balance, beginning of period		57,777			57,417			57,820			57,414			57,438			57,777			57,437			57,820
Restricted stock grants, net of forfeitures		(333	)		24			(377	)		24			0			(333	)		0			(377	)
Issuance of shares under stock plans		(9	)		3			(8	)		6
Issuance of 999 and 2,741 shares, as of 2021 and 2020, respectively, under stock plans														1			(9	)		2			(8	)
Balance, end of period		57,435			57,444			57,435			57,444			57,439			57,435			57,439			57,435
Retained earnings:
Balance, beginning of period		27,834			40,868			36,020			37,208			46,852			27,834			47,790			36,020
Net income (loss)		6,532			(4,426	)		(1,555	)		(264	)		2,962			6,532			2,531			(1,555	)
Dividends on common stock		-			-			-			(403	)		0			0			(408	)		0
Dividends accrued on preferred stock		(100	)		(100	)		(199	)		(199	)		(100	)		(100	)		(199	)		(199	)
Balance, end of period		34,266			36,342			34,266			36,342			49,714			34,266			49,714			34,266
Accumulated other comprehensive income (loss):
Accumulated other comprehensive income:
Balance, beginning of period		1,667			(1,082	)		10,459			(7,535	)		14,044			1,667			25,000			10,459
Other comprehensive income, net of tax		15,797			5,809			7,005			12,262
Other comprehensive income (loss), net of tax														6,233			15,797			(4,723	)		7,005
Balance, end of period		17,464			4,727			17,464			4,727			20,277			17,464			20,277			17,464
Unearned Stock Grant Compensation:
Balance, beginning of period		(584	)		(128	)		(781	)		(186	)		(217	)		(584	)		(284	)		(781	)
Restricted stock grants, net of forfeitures		(37	)		(71	)		61			(71	)		0			(37	)		0			61
Amortization of unearned compensation		155			49			254			107			67			155			134			254
Balance, end of period		(466	)		(150	)		(466	)		(150	)		(150	)		(466	)		(150	)		(466	)
Treasury Stock:
Balance, beginning of period		(7,632	)		(8,044	)		(7,580	)		(7,985	)		(7,338	)		(7,632	)		(7,339	)		(7,580	)
Restricted stock grants, net of forfeitures		370			47			316			47			0			370			0			316
Purchase of 0 and 26,210 shares, as of 2020 and 2019, respectively, for treasury		-			(22	)		-			(71	)
Net shares acquired related to employee share-based compensation plans		(10	)		(35	)		(10	)		(49	)
Issuance of shares under stock plans		11			5			13			9
Net shares acquired of 5,479 and 5,902 in 2021 and 2020, respectively related to employee share-based compensation plans														(24	)		(10	)		(24	)		(10	)
Issuance of 999 and 2,741 shares, as of 2021 and 2020, respectively, under stock plans														1			11			2			13
Balance, end of period		(7,261	)		(8,049	)		(7,261	)		(8,049	)		(7,361	)		(7,261	)		(7,361	)		(7,261	)

Total shareholders’ equity	$	123,894		$	112,770		$	123,894		$	112,770		$	142,375		$	123,894		$	142,375		$	123,894
Dividends declared on common stock per share	$	-		$	-		$	-		$	(.02	)	$	0		$	0		$	0.02		$	0

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

~~-5-~~5

Table of Contents

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in thousands)

Six Months Ended
June 30,

2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(1,555
)

$
(264
)
Adjustments to reconcile loss to net cash used in operating activities:
Additions to acquisition costs, net
(287
)

(1,050
)
Realized investment gains, net
(249
)

(1,995
)
Unrealized losses (gains) on equity securities, net
7,100

(1,152
)
Distributions received from equity method investees
-

106

Compensation expense related to share awards
254

107

Depreciation and amortization
503

337

Deferred income tax benefit
(2,693
)

(612
)
Increase in receivables, net
(6,078
)

(13,393
)
Increase in insurance reserves and policyholder funds
2,805

13,493

(Decrease) increase in accounts payable and accrued expenses
(393
)

2,366

Other, net
1,151

(5,162
)
Net cash provided by (used in) operating activities
558

(7,219
)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold
7,448

70,171

Proceeds from investments matured, called or redeemed
3,031

3,628

Investments purchased
(7,411
)

(67,220
)
Additions to property and equipment
(160
)

(32
)
Net cash provided by investing activities
2,908

6,547

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends on common stock
-

(403
)
Proceeds from shares issued under stock plans
5

15

Treasury stock acquired — share repurchase authorization
-

(71
)
Treasury stock acquired — net employee share-based compensation
(10
)

(49
)
Net cash used in financing activities
(5
)

(508
)

Net increase (decrease) in cash and cash equivalents
3,461

(1,180
)
Cash and cash equivalents at beginning of period
12,893

12,630

Cash and cash equivalents at end of period
$
16,354

$
11,450

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
$
944

$
1,100

Cash paid for income taxes
$
-

$
850

	Six Months Ended June 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,531		$	(1,555	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of (additions to) acquisition costs, net		1,149			(287	)
Realized investment gains, net		(171	)		(249	)
Unrealized (gains) losses on equity securities, net		(4,747	)		7,100
Compensation expense related to share awards		134			254
Depreciation and amortization		510			503
Deferred income tax benefit		(393	)		(2,693	)
Increase in receivables, net		(14,734	)		(6,078	)
Increase in insurance reserves and policyholder funds		7,197			2,805
Decrease in accounts payable and accrued expenses		(4,112	)		(393	)
Other, net		(1,250	)		1,151
Net cash (used in) provided by operating activities		(13,886	)		558

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold		14,546			7,448
Proceeds from investments matured, called or redeemed		7,064			3,031
Investments purchased		(17,018	)		(7,411	)
Additions to property and equipment		(65	)		(160	)
Net cash provided by investing activities		4,527			2,908

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends on common stock		(408	)		0
Proceeds from shares issued under stock plans		4			5
Treasury stock acquired — net employee share-based compensation		(24	)		(10	)
Net cash used in financing activities		(428	)		(5	)

Net (decrease) increase in cash and cash equivalents		(9,787	)		3,461
Cash and cash equivalents at beginning of period		19,319			12,893
Cash and cash equivalents at end of period	$	9,532		$	16,354

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	697		$	944
Cash paid for income taxes	$	2,602		$	0

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

~~-6-~~6

Table of Contents

ATLANTIC AMERICAN CORPORATION

NOTES~~NOTES~~ TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; Dollars in thousands, except per share amounts)

Note 1.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). The Parent’s primary operating subsidiaries, American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), operate in ~~two~~2 principal business units. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for audited annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The unaudited condensed consolidated financial statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report”). The Company’s financial condition and results of operations and cash flows as of and for the three ~~month~~ and six month periods ended June 30, ~~2020~~2021 are not necessarily indicative of the financial condition or results of operations and cash flows that may be expected for the year ending December 31, ~~2020~~2021 or for any other future period.

The Company’s significant accounting policies have not changed materially from those set out in the ~~2019~~2020 Annual Report, except as noted below for the adoption of new accounting standards.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

On March 11, 2020, the World Health Organization declared the Novel Coronavirus (“COVID-19”) outbreak a global pandemic. The impact of COVID-19 and related actions to attempt to control its spread began to impact the Company’s business operations in March 2020, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating results. The Company’s insurance subsidiaries may experience difficulties collecting premiums from some policyholders, and policyholders with financial difficulties may decide not to renew insurance policies with the Company. Although itthe ultimate impact cannot be predicted with certainty at this time, the Company’s insurance subsidiaries do not expect a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses, but that may change as more information becomes available. In addition, economic uncertainty related to COVID-19 has led to, ~~a decline in the investment markets,~~ and may continue to create, increased ~~volatility.~~volatility in the investment markets. The impact of COVID-19 on the economy and on the Company ~~is evolving~~continues to evolve and its future effects are uncertain. The Company ~~is closely monitoring~~continues to monitor the effects and risks of COVID-19 to assess its impact on the Company’s business, financial condition, results of operations, liquidity and capital position.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is intended to provide fast and direct economic assistance for American workers and families, small businesses, and to preserve jobs in American industries. The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The Company does not qualify as a small business under the CARES Act and therefore did not apply for any of the government loan programs; however, the Company intends to monitor and assess the availability of resources and other benefits that might be available to the Company under the CARES Act and through other programs.

Note 2.2.

Recently Issued Accounting Standards

Adoption of New Accounting Standards

~~Fair Value Measurement~~

Income Taxes – ~~Changes to~~Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurement.~~ Income Taxes. In ~~August 2018,~~December 2019, the ~~Financial~~FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements~~ for ~~Fair Value Measurement~~Income Taxes (“ASU ~~2018-13”~~2019-12”). This updated guidance ~~removes~~is intended to simplify the ~~following disclosure requirements from Topic 820: (1) the amount of~~accounting for income taxes by removing several exceptions contained in existing guidance and ~~reasons~~amending other existing guidance to simplify several other income tax accounting matters. The updated guidance is effective for ~~transfers between Level 1~~interim and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. This disclosure also includes the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of theannual reporting ~~period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.~~periods beginning after December 15, 2020, although earlier adoption is permitted. The Company adopted ASU ~~2018-13~~2019-12 as of January 1, ~~2020.~~2021. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

~~-7-~~

~~Table of Contents~~

~~Goodwill.~~ In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 is intended to simplify the evaluation of goodwill. The updated guidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unit compared to its estimated fair value, with the amount of the impairment not to exceed the carrying value of the reporting unit’s goodwill. Under the prior accounting guidance, if the reporting unit’s carrying value exceeds its estimated fair value, the Company allocates the fair value of the reporting unit to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. An impairment loss is then recognized for the excess, if any, of the carrying value of the reporting unit’s goodwill compared to the implied goodwill value. The Company adopted ASU 2017-04 as of January 1, 2020. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

Future 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. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. The Company is currently assessing the effect of adopting this guidance on its financial condition and results of operations.

~~Investments – Equity Securities.~~ In January 2020, the FASB issued ASU No. 2020-01 (“ASU 2020-01”) Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This update, among others, clarifies the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323 when there is a change in level of ownership or degree of influence. ASU 2020-01 is effective for the Company beginning with the first quarter of 2021 and will be applied prospectively. Early adoption is permitted. This guidance is not expected to have a material impact on the Company’s consolidated financial statements.

For more information regarding ~~other~~ accounting standards that the Company has not yet adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the ~~2019~~2020 Annual Report.

~~-8-~~7

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Note 3.

Investments

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Fixed maturities were comprised of the following:

	June 30, 2020								June 30, 2021
	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost or Amortized Cost		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost or Amortized Cost
Fixed maturities:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies and authorities	$	20,461	$	1,739	$	25	$	18,747	$	37,393	$	887	$	156	$	36,662
Obligations of states and political subdivisions		11,520		910		-		10,610		11,843		943		0		10,900
Corporate securities:
Utilities and telecom		28,886		4,118		-		24,768		30,813		3,363		29		27,479
Financial services		73,151		6,050		132		67,233		77,409		8,032		63		69,440
Other business – diversified		41,739		3,331		945		39,353		40,936		5,094		89		35,931
Other consumer – diversified		60,180		7,407		404		53,177		59,164		7,723		96		51,537
Total corporate securities		203,956		20,906		1,481		184,531		208,322		24,212		277		184,387
Redeemable preferred stocks:
Other consumer – diversified		250		58		—		192		250		58		0		192
Total redeemable preferred stocks		250		58		—		192		250		58		0		192
Total fixed maturities	$	236,187	$	23,613	$	1,506	$	214,080	$	257,808	$	26,100	$	433	$	232,141

	December 31, 2019								December 31, 2020
	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost or Amortized Cost		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost or Amortized Cost
Fixed maturities:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies and authorities	$	20,259	$	467	$	53	$	19,845	$	30,762	$	1,381	$	26	$	29,407
Obligations of states and political subdivisions		11,940		371		53		11,622		11,802		898		0		10,904
Corporate securities:
Utilities and telecom		26,648		2,404		32		24,276		30,359		4,423		0		25,936
Financial services		73,917		4,249		57		69,725		78,258		9,811		6		68,453
Other business – diversified		41,706		2,335		98		39,469		41,145		5,689		15		35,471
Other consumer – diversified		57,752		3,702		54		54,104		61,530		9,479		47		52,098
Total corporate securities		200,023		12,690		241		187,574		211,292		29,402		68		181,958
Redeemable preferred stocks:
Other consumer – diversified		250		58		-		192		250		58		0		192
Total redeemable preferred stocks		250		58		-		192		250		58		0		192
Total fixed maturities	$	232,472	$	13,586	$	347	$	219,233	$	254,106	$	31,739	$	94	$	222,461

Bonds having an amortized cost of ~~$10,444~~$10,923 and ~~$10,669~~$10,670 and included in the tables above were on deposit with insurance regulatory authorities as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $6,394 and $1,997 and included in the tables above were pledged as collateral to FHLB at June 30, 2021 and December 31, 2020, respectively.

~~-9-~~

~~Table of Contents~~

Equity securities were comprised of the following:

	June 30, 2020								June 30, 2021
	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost or Amortized Cost		Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost
Equity securities:
Common and non-redeemable preferred stocks:
Financial services	$	3,061	$	384	$	1	$	2,678	$	681	$	481	$	0	$	200
Other business – diversified		12,904		8,271		-		4,633		21,222		16,589		0		4,633
Total equity securities	$	15,965	$	8,655	$	1	$	7,311	$	21,903	$	17,070	$	0	$	4,833

December 31, 2019

Estimated
Fair Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Cost or
Amortized
Cost

Equity securities:
Common and non-redeemable preferred stocks:
Financial services

$
3,159

624

-

2,535

Other business – diversified

19,763

15,130

-

4,633

Total equity securities

$
22,922

$
15,754

$
-

$
7,168

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	December 31, 2020
	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Cost
Equity securities:
Common and non-redeemable preferred stocks:
Financial services	$	2,111	$	351	$	0	$	1,760
Other business – diversified		16,605		11,972		0		4,633
Total equity securities	$	18,716	$	12,323	$	0	$	6,393

The carrying value and amortized cost of the Company’s investments in fixed maturities at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 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.

	June 30, 2020				December 31, 2019				June 30, 2021				December 31, 2020
	Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost
Due in one year or less	$	509	$	500	$	-	$	-	$	2,520	$	2,501	$	2,041	$	2,015
Due after one year through five years		19,923		19,012		14,664		14,280		22,991		21,415		18,373		17,039
Due after five years through ten years		85,121		78,583		77,934		73,521		83,491		76,075		89,892		79,993
Due after ten years		122,141		107,964		130,680		122,321		123,313		106,754		124,609		104,527
Asset backed securities		8,493		8,021		9,194		9,111		25,493		25,396		19,191		18,887
Totals	$	236,187	$	214,080	$	232,472	$	219,233	$	257,808	$	232,141	$	254,106	$	222,461

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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

	June 30, 2020												June 30, 2021
	Less than 12 months				12 months or longer				Total				Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		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	$	887	$	25	$	-	$	-	$	887	$	25	$	12,341	$	156	$	0	$	0	$	12,341	$	156
Corporate securities		22,512		1,481		-		-		22,512		1,481		7,944		277		0		0		7,944		277
Total temporarily impaired securities	$	23,399	$	1,506	$	-	$	-	$	23,399	$	1,506	$	20,285	$	433	$	0	$	0	$	20,285	$	433

	December 31, 2020
	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	$	7,045	$	26	$	0	$	0	$	7,045	$	26
Corporate securities		4,602		68		0		0		4,602		68
Total temporarily impaired securities	$	11,647	$	94	$	0	$	0	$	11,647	$	94

~~-10-~~

~~Table of Contents~~

December 31, 2019
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
$
3,432

$
22

$
3,533

$
31

$
6,965

$
53

Obligations of states and political subdivisions
3,106

53

-

-

3,106

53

Corporate securities
23,245

145

2,504

96

25,749

241

Total temporarily impaired securities
$
29,783

$
220

$
6,037

$
127

$
35,820

$
347

The evaluation for an other than temporary impairment (“OTTI”) is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status.

There were no0 OTTI charges recorded during the three month and six month periods ended June 30, ~~2020~~2021 and ~~2019.~~2020.

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As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were ~~seventeen~~NaN and ~~thirty~~20 securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the financial services, other diversified business and other diversified consumer sectors. The ~~decrease~~increase in the number of securities in an unrealized loss position during the six month period ended June 30, ~~2020,~~2021, was primarily attributable to ~~improvement~~a decline in market values in certain of the Company’s fixed maturity securities as a result of a ~~declining~~rising interest rate environment. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of June 30, ~~2020.~~2021.

The following tables summarize realized investment gains for the three month period ended June 30, 2021 and the six month periods ended June 30, 2021 and 2020. There were no realized ~~investments~~investment gains (losses) in the three month period ended June 30, 2020. ~~The following tables summarize realized investment gains (losses) for the three month period ended June 30, 2019 and the six month periods ended June 30, 2020 and June 30, 2019.~~

	Three Months Ended June 30, 2019								Three Months Ended June 30, 2021
	Fixed Maturities		Equity Securities		Other Invested Assets		Total		Fixed Maturities		Equity Securities		Other Invested Assets		Total
Gains	$	610	$	—	$	—	$	610	$	50	$	0	$	0	$	50
Losses		—		—		—		—		0		0		0		0
Realized investment gains, net	$	610	$	—	$	—	$	610	$	50	$	0	$	0	$	50

	Six Months Ended June 30, 2021
	Fixed Maturities		Equity Securities		Other Invested Assets		Total
Gains	$	171	$	0	$	0	$	171
Losses		0		0		0		0
Realized investment gains, net	$	171	$	0	$	0	$	171

~~-11-~~

	Six Months Ended June 30, 2020
	Fixed Maturities		Equity Securities		Other Invested Assets		Total
Gains	$	249	$	0	$	0	$	249
Losses		0		0		0		0
Realized investment gains, net	$	249	$	0	$	0	$	249

~~Table of Contents~~

Six Months Ended
June 30, 2020

Fixed
Maturities

Equity
Securities

Other
Invested
Assets
Total
Gains

$
249

$
—

$
—

$
249

Losses

—

—

—

—

Realized investment gains, net

$
249

$
—

$
—

$
249

Six Months Ended
June 30, 2019

Fixed
Maturities

Equity
Securities

Other
Invested
Assets
Total
Gains

$
882

$
1,113

$
—

$
1,995

Losses

—

—

—

—

Realized investment gains, net

$
882

$
1,113

$
—

$
1,995

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month and six month periods ended June 30, ~~2020~~2021 and ~~2019.~~2020.

	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019			2020			2019		2021		2020		2021		2020
Net realized and unrealized gains (losses) recognized during the period on equity securities	$	1,355	$	(5,337	)	$	(7,100	)	$	2,265	$	4,003	$	1,355	$	4,747	$	(7,100	)
Less: Net realized gains (losses) recognized during the period on equity securities sold during the period		-		-			-			1,113		0		0		0		0
Unrealized gains (losses) recognized during the reporting period on equity securities, net	$	1,355	$	(5,337	)	$	(7,100	)	$	1,152	$	4,003	$	1,355	$	4,747	$	(7,100	)

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 ~~$11,454~~$3,117 and ~~$9,960~~$3,238 as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238 as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Table of Contents

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 ~~$12,692~~$4,355 and ~~$11,198,~~$4,476, as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. As of June 30, ~~2020, the Company had no outstanding commitments~~2021 and ~~as of~~ December 31, ~~2019,~~2020, the Company had outstanding commitments totaling $1,997, 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.

Note 4.

Fair Values of Financial Instruments

The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

~~-12-~~

~~Table of Contents~~

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 two fixed maturity securities and one equity security. As of June 30, 2021 and December 31, 2020, the value of the fixed maturities valued using Level 3 criteria was $124 and $0, respectively. As of June 30, 2021 and December 31, 2020, the value of the equity security valued using Level 3 criteria was $83 and $143, respectively. The equity security is not traded and valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations.

As of June 30, 2021, financial instruments carried at fair value were measured on a recurring basis as summarized below:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Fixed maturities	$	0	$	257,684	$	124	$	257,808
Equity securities		21,820		0		83		21,903
Cash equivalents		7,121		0		0		7,121
Total	$	28,941	$	257,684	$	207	$	286,832

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As of December 31, 2020, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
Assets:

Fixed maturities

$
250

$
235,937

$
—

$
236,187

Equity securities

15,822

—

143

15,965

Cash equivalents

8,429

—

—

8,429

Total

$
24,501

$
235,937

$
143

$
260,581

~~As of December 31, 2019, financial instruments carried at fair value were measured on a recurring basis as summarized below:~~

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Fixed maturities	$	—	$	232,472	$	—	$	232,472	$	0	$	254,106	$	0	$	254,106
Equity securities		22,922		—		—		22,922		18,573		0		143		18,716
Cash equivalents		7,173		—		—		7,173		12,010		0		0		12,010
Total	$	30,095	$	232,472	$	—	$	262,567	$	30,583	$	254,106	$	143	$	284,832

~~The Company does not have any fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June 30, 2020 and December 31, 2019.~~

~~-13-~~

~~Table of Contents~~

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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

June 30, 2020 December 31, 2019

Level in Fair
Value
Hierarchy ⁽¹⁾

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Assets:

Cash and cash equivalents
Level 1
$
16,354

$
16,354

$
12,893

$
12,893

Fixed maturities

⁽¹⁾

236,187

236,187

232,472

232,472

Equity securities

⁽¹⁾

15,965

15,965

22,922

22,922

Other invested assets
Level 3
11,454

11,454

9,960

9,960

Policy loans
Level 2
2,018

2,018

2,007

2,007

Real estate
Level 2
38

38

38

38

Investment in unconsolidated trusts
Level 2
1,238

1,238

1,238

1,238

Liabilities:

Junior subordinated debentures, net
Level 2
33,738

30,321

33,738

35,977

			June 30, 2021				December 31, 2020
	Level in Fair Value Hierarchy ⁽¹⁾		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1		$	9,532	$	9,532	$	19,319	$	19,319
Fixed maturities		⁽¹⁾		257,808		257,808		254,106		254,106
Equity securities		⁽¹⁾		21,903		21,903		18,716		18,716
Other invested assets	Level 3			3,117		3,117		3,238		3,238
Policy loans	Level 2			1,920		1,920		1,975		1,975
Investment in unconsolidated trusts	Level 2			1,238		1,238		1,238		1,238

Liabilities:
Junior subordinated debentures, net	Level 2			33,738		34,259		33,738		32,297

(1)

⁽¹⁾

See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.

~~-14-~~

~~Table of Contents~~

Note 5.

Liabilities for Unpaid Losses, Claims and Loss Adjustment Expenses

The roll-forward of liabilities for unpaid losses, claims and loss adjustment expenses for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

Six Months Ended
June 30,

2020 2019
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross
$
81,448

$
72,612

Less: Reinsurance recoverable on unpaid losses

(18,339
)

(14,354
)
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net
63,109

58,258

Incurred related to:
Current accident year

62,262

68,157

Prior accident year development ⁽¹⁾

(2,302
)⁽²⁾

103

Total incurred

59,960

68,260

Paid related to:
Current accident year

33,911

38,875

Prior accident years

29,587

28,576

Total paid

63,498

67,451

Ending liabilities for unpaid losses, claims and loss adjustment expenses, net
59,571

59,067

Plus: Reinsurance recoverable on unpaid losses

16,927

16,088

Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross
$
76,498

$
75,155

	Six Months Ended June 30,
	2021			2020
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross	$	79,147		$	81,448
Less: Reinsurance recoverable on unpaid losses		(17,600	)		(18,339	)
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net		61,547			63,109

Incurred related to:
Current accident year		63,836			62,262

Prior accident year development ⁽¹⁾		589	⁽²⁾		(2,302	)⁽³⁾
Total incurred		64,425			59,960

Paid related to:
Current accident year		33,295			33,911
Prior accident years		28,429			29,587
Total paid		61,724			63,498
Ending liabilities for unpaid losses, claims and loss adjustment expenses, net		64,248			59,571
Plus: Reinsurance recoverable on unpaid losses		17,225			16,927
Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross	$	81,473		$	76,498

(1)

⁽¹⁾

In establishing property and casualty reserves, the Company initially reserves for losses at the higher end of the reasonable range if no other value within the range is determined to be more probable. Selection of such an initial loss estimate is an attempt by management to give recognition that initial claims information received generally is not conclusive with respect to legal liability, is generally not comprehensive with respect to magnitude of loss and generally, based on historical experience, will develop more adversely as time passes and more information becomes available. Accordingly, the Company generally experiences reserve redundancies when analyzing the development of prior year losses in a current period.

Table of Contents

(2)	⁽²⁾ Prior years’ development was primarily the result of unfavorable development in the loss and claim reserves for the Medicare supplement line of business in Bankers Fidelity. Partially offsetting the unfavorable development was favorable development in the property and casualty operations.

(3)	Prior years’ development was primarily the result of favorable development in the loss and claim reserves for the Medicare supplement line of business in Bankers Fidelity. Rate increases on existing business and the resultant improvement in rate adequacy was more favorable than expected.

Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred:

Six Months Ended
June 30,

2020 2019
Total incurred losses

$
59,960

$
68,260

Cash surrender value and matured endowments

697

588

Benefit reserve changes

2

610

Total insurance benefits and losses incurred

$
60,659

$
69,458

	Six Months Ended June 30,
	2021			2020
Total incurred losses	$	64,425		$	59,960
Cash surrender value and matured endowments		1,692			697
Benefit reserve changes		(1,142	)		2
Total insurance benefits and losses incurred	$	64,975		$	60,659

~~-15-~~

~~Table~~

Note 6.

Credit Arrangements

Bank Debt

On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with Truist Bank as the lender (the “Lender”). The Credit Agreement provides for an unsecured $10 million revolving credit facility that matures on April 12, 2024. Under the Credit Agreement, the Company will pay interest on the unpaid principal balance of ~~Contents~~

outstanding revolving loans at the LIBOR Rate (as defined in the Credit Agreement) plus 2.00%, subject to a LIBOR floor rate of 1.00%.

~~Note 6.~~

~~Junior Subordinated Debentures~~

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. 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 June 30, 2021, the Company does 0t have any outstanding borrowings under the Credit Agreement.

Junior Subordinated Debentures

TheCompany has ~~two~~2 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 Atlantic American; and (iii) engaging in those activities necessary or incidental thereto.

The financial structure of each of Atlantic American Statutory Trust I and II as of June 30, ~~2020~~2021 was as follows:

JUNIOR SUBORDINATED DEBENTURES ^{(1) (2)}

Less: Treasury debt ⁽³⁾

Distribution guaranteed by ⁽⁴⁾

For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities.

The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries.

On August 4, 2014, the Company acquired ~~$7,500~~$7,500 of the Junior Subordinated Debentures.

The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation.

Note 7.7.

Earnings (Loss) Per Common Share

A reconciliation of the numerator and denominator used in the earnings (loss) per common share calculations is as follows:

Three Months Ended
June 30, 2020

Income
Weighted
Average
Shares
(In thousands)

Per Share
Amount

Basic Earnings Per Common Share:
Net income
$
6,532

20,440

Less preferred stock dividends
(100
)
—
Net income applicable to common shareholders
6,432

20,440

$
.31

Diluted Earnings Per Common Share:
Effect of Series D preferred stock
100

1,378

Net income applicable to common shareholders
$
6,532

21,818

$
.30

Three Months Ended
June 30, 2019

Loss
Weighted
Average
Shares
(In thousands)

Per Share Amount
Basic and Diluted Loss Per Common Share:

Net loss

$
(4,426
)

20,146

Less preferred stock dividends

(100
)

—

Net loss applicable to common shareholders

$
(4,526
)

20,146

$ (.22 )

	Three Months Ended June 30, 2021
	Income			Weighted Average Shares (In thousands)		Per Share Amount
Basic Earnings Per Common Share:
Net income	$	2,962			20,414
Less preferred stock dividends		(100	)		—
Net income applicable to common shareholders		2,862			20,414		$	0.14
Diluted Earnings Per Common Share:
Effect of Series D preferred stock		100			1,378
Net income applicable to common shareholders	$	2,962			21,792		$	0.14

Six Months Ended
June 30, 2020

Loss
Weighted
Average
Shares
(In thousands)

Per Share Amount
Basic and Diluted Loss Per Common Share:

Net loss

$
(1,555
)

20,455

Less preferred stock dividends

(199
)

—

Net loss applicable to common shareholders

$
(1,754
)

20,455

$
(.09 )

	Three Months Ended June 30, 2020
	Income			Weighted Average Shares (In thousands)		Per Share Amount
Basic Earnings Per Common Share:
Net income	$	6,532			20,440
Less preferred stock dividends		(100	)		—
Net income applicable to common shareholders		6,432			20,440		$	0.31
Diluted Earnings Per Common Share:
Effect of Series D preferred stock		100			1,378
Net income applicable to common shareholders	$	6,532			21,818		$	0.30

	Six Months Ended June 30, 2021
	Income			Weighted Average Shares (In thousands)		Per Share Amount
Basic and Diluted Earnings Per Common Share:
Net income	$	2,531			20,415
Less preferred stock dividends		(199	)		—
Net income applicable to common shareholders	$	2,332			20,415	$	0.11

	Six Months Ended June 30, 2020
	Loss			Weighted Average Shares (In thousands)		Per Share Amount
Basic and Diluted Loss Per Common Share:
Net loss	$	(1,555	)		20,455
Less preferred stock dividends		(199	)		—
Net loss applicable to common shareholders	$	(1,754	)		20,455	$	(0.09	)

The assumed conversion of the Company’s Series D preferred stock was included in the earnings (loss) per common share calculation for the three month periods ended June 30, 2021 and 2020. The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for ~~all~~the six month periods ~~presented, except for the three month period~~ ended June 30, 2021 and 2020 since its impact would have been antidilutive.

Note 8.

Income Taxes

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and income tax expense (benefit) is as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,

2020 2019 2020 2019
Federal income tax provision at statutory rate of 21%
$
1,739

$
(1,174
)

$
(409
)

$
(64
)
Dividends-received deduction

(3
)

(5
)

(6
)

(14
)
Other permanent differences

13

16

24

38

Income tax expense (benefit)

$
1,749

$
(1,163
)

$
(391
)

$
(40
)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Federal income tax provision at statutory rate of 21%	$	788		$	1,739		$	673		$	(409	)
Dividends-received deduction		(5	)		(3	)		(14	)		(6	)
Meals & entertainment		10			6			14			13
Vested stock & club dues		(5	)		3			(5	)		3
Parking disallowance		4			4			8			8
Income tax expense (benefit)	$	792		$	1,749		$	676		$	(391	)

The components of income tax ~~benefit~~expense (benefit) were:

Three Months Ended
June 30,

Six Months Ended
June 30,

2020 2019 2020 2019
Current – Federal

$
2,173

$
572

$
2,302

$
572

Deferred – Federal

(424
)

(1,735
)

(2,693
)

(612
)
Total

$
1,749

$
(1,163
)

$
(391
)

$
(40
)

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021			2020
Current – Federal	$	693	$	2,173		$	1,069		$	2,302
Deferred – Federal		99		(424	)		(393	)		(2,693	)
Total	$	792	$	1,749		$	676		$	(391	)

In addition, the Company determined there were no significant tax implications as a result of the CARES Act.

Note 9.

Leases

The Company has ~~identified two~~2 operating lease agreements, each for the use of office space in the ordinary course of business.

The first lease renews annually on an automatic basis and based on original assumptions, management is reasonably certain to exercise the renewal option ~~for an additional eight years from the January 1, 2019 effective date of the new lease guidance.~~through 2026. The original term of the second lease was ten years and amended in January 2017 to provide for an additional seven years, with a termination date on September 30, 2026. The rate used in determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 was $507.

~~-18-~~

~~Table of Contents~~

Additional information regarding the Company’s real estate operating leases is as follows:

Six Months Ended
June 30,

Other information on operating leases:

2020

2019

Cash payments included in the measurement of lease liabilities reported in operating cash flows

$
475

$
450

Right-of-use assets included in other assets on the condensed consolidated balance sheet

5,159

5,785

Weighted average discount rate

6.8
%

6.8
%
Weighted average remaining lease term in years

6.4 years

7.4 years

	Six Months Ended June 30,
Other information on operating leases:	2021			2020
Cash payments included in the measurement of lease liabilities reported in operating cash flows	$	504		$	475
Right-of-use assets included in other assets on the condensed consolidated balance sheet		4,493			5,159
Weighted average discount rate		6.8	%		6.8	%
Weighted average remaining lease term in years	5.4 years			6.4 years

Table of Contents

The following table presents maturities and present value of the Company’s lease liabilities:

Lease Liability
Remainder of 2020
$
503

2021

1,015

2022

1,031

2023

1,048

2024

1,065

Thereafter

2,025

Total undiscounted lease payments

6,687

Less: present value adjustment

1,297

Operating lease liability included in accounts payable and accrued expenses on the condensed consolidated balance sheet
$
5,390

	Lease Liability
Remainder of 2021	$	511
2022		1,031
2023		1,048
2024		1,065
2025		1,083
Thereafter		942
Total undiscounted lease payments		5,680
Less: present value adjustment		948
Operating lease liability included in accounts payable and accrued expenses on the condensed consolidated balance sheet	$	4,732

As of June 30, ~~2020,~~2021, the Company has no operating leases that have not yet commenced.

Note 10.

Commitments and Contingencies

From time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and in the ordinary course of its businesses. 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.

~~-19-~~

~~Table of Contents~~

Note 11.

Segment Information

The Parent’s primary insurance subsidiaries, American Southern and Bankers Fidelity, operate in ~~two~~2 principal business units, each focusing on specific products. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each business unit is managed independently and is evaluated on its individual performance. The following sets forth the assets, revenue and income (loss) before income taxes for each business unit as of and for the periods ended ~~2020~~2021 and ~~2019.~~2020.

Assets	June 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
American Southern	$	153,632	$	141,524	$	162,761	$	158,808
Bankers Fidelity		220,111		224,122		230,595		236,197
Corporate and Other		11,994		11,980		11,130		10,182
Total assets	$	385,737	$	377,626	$	404,486	$	405,187

Revenues
Three Months Ended
June 30,

Six Months Ended
June 30,

2020 2019 2020 2019
American Southern

$
16,896

$
15,740

$
32,123

$
30,975

Bankers Fidelity

32,871

31,244

57,744

65,620

Corporate and Other

(30
)

(3,857
)

(720
)

1,550

Total revenue

$
49,737

$
43,127

$
89,147

$
98,145

Income (Loss) Before Income Taxes
Three Months Ended
June 30,

Six Months Ended
June 30,

2020 2019 2020 2019
American Southern

$
2,087

$
1,396

$
2,965

$
3,378

Bankers Fidelity

8,039

(1,998
)

(742
)

(2,494
)
Corporate and Other

(1,845
)

(4,987
)

(4,169
)

(1,188
)
Income (loss) before income taxes

$
8,281

$
(5,589
)

$
(1,946
)

$
(304
)

~~Note 12.~~

~~Related Party Transactions~~

Revenues	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021		2020
American Southern	$	17,522	$	16,896		$	35,048	$	32,123
Bankers Fidelity		33,680		32,871			65,220		57,744
Corporate and Other		255		(30	)		264		(720	)
Total revenue	$	51,457	$	49,737		$	100,532	$	89,147

Income (Loss) Before Income Taxes	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
American Southern	$	2,073		$	2,087		$	3,563		$	2,965
Bankers Fidelity		3,377			8,039			3,511			(742	)
Corporate and Other		(1,696	)		(1,845	)		(3,867	)		(4,169	)
Income (loss) before income taxes	$	3,754		$	8,281		$	3,207		$	(1,946	)

~~During the six month period ended June 30, 2019, the Company transferred its remaining fractional interest in an aircraft arrangement to Gray Television, Inc., a related party, for $151.~~

~~Note 13.~~

~~Subsequent Events~~

Since June 30, 2020, the COVID-19 pandemic continues to cause material disruption to financial markets and the economy. As a result of the pandemic, the Company could experience future losses in its investment portfolio as a result of the weakened and volatile markets. Additionally, the Company can experience increased risk of loss any time unforeseen infectious diseases impact large portions of a population. Specifically, the Company’s life and health business could experience significant loss due to increased claims volume arising from COVID-19. The duration and impact of the COVID-19 pandemic is unknown at this time and it is not possible to reliably estimate the impact on the financial condition, operating results or liquidity of the Company and its operating subsidiaries in future periods.

~~-20-~~16

Table of Contents

~~Item~~ 2.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and six month periods ended June 30, ~~2020.~~2021. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report”).

Atlantic American is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries: American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”). Each operating company is managed separately, offers different products and is evaluated on its individual performance.

Recent Events and Outlook

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. In March 2020, the impact of COVID-19 and related actions to attempt to control its spread began to impact our business operations, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating results. See “Expected Impact of COVID-19 on the Company’s Financial Condition and Results of Operations.”

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the ~~2019~~2020 Annual Report. Except as disclosed in Note 2 of Notes to Condensed Consolidated Financial Statements, the Company’s critical accounting policies are consistent with those disclosed in the ~~2019~~2020 Annual Report.

Overall Corporate Results

The following presents the Company’s revenue, expenses and net income (loss) for the three month and six month periods ended June 30, ~~2020~~2021 and the comparable ~~period~~periods in ~~2019:~~2020:

	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019			2020			2019			2021		2020		2021		2020
	(In thousands)
Insurance premiums, net	$	46,499	$	45,469		$	92,049		$	90,251		$	45,133	$	46,499	$	91,223	$	92,049
Net investment income		1,850		2,313			3,889			4,647			2,266		1,850		4,379		3,889
Realized investment gains, net		-		610			249			1,995			50		—		171		249
Unrealized gains (losses) on equity securities, net		1,355		(5,337	)		(7,100	)		1,152			4,003		1,355		4,747		(7,100	)
Other income		33		72			60			100			5		33		12		60
Total revenue		49,737		43,127			89,147			98,145			51,457		49,737		100,532		89,147
Insurance benefits and losses incurred		27,076		34,151			60,659			69,458			31,703		27,076		64,975		60,659
Commissions and underwriting expenses		10,854		11,509			23,480			22,524			12,179		10,854		24,743		23,480
Interest expense		414		545			890			1,091			347		414		693		890
Other expense		3,112		2,511			6,064			5,376			3,474		3,112		6,914		6,064
Total benefits and expenses		41,456		48,716			91,093			98,449			47,703		41,456		97,325		91,093
Income (loss) before income taxes	$	8,281	$	(5,589	)	$	(1,946	)	$	(304	)	$	3,754	$	8,281	$	3,207	$	(1,946	)
Net income (loss)	$	6,532	$	(4,426	)	$	(1,555	)	$	(264	)	$	2,962	$	6,532	$	2,531	$	(1,555	)

~~-21-~~17

Table of Contents

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income (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 taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).

A reconciliation of net income (loss) to operating income (loss) for the three month and six month periods ended June 30, ~~2020~~2021 and the comparable ~~period~~periods in ~~2019~~2020 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
Reconciliation of Non-GAAP Financial Measure	2020			2019			2020			2019			2021			2020			2021			2020
	(In thousands)												(In thousands)
Net income (loss)	$	6,532		$	(4,426	)	$	(1,555	)	$	(264	)	$	2,962		$	6,532		$	2,531		$	(1,555	)
Income tax expense (benefit)		1,749			(1,163	)		(391	)		(40	)		792			1,749			676			(391	)
Realized investment gains, net		-			(610	)		(249	)		(1,995	)		(50	)		—			(171	)		(249	)
Unrealized (gains) losses on equity securities, net		(1,355	)		5,337			7,100			(1,152	)		(4,003	)		(1,355	)		(4,747	)		7,100
Non-GAAP operating income (loss)	$	6,926		$	(862	)	$	4,905		$	(3,451	)	$	(299	)	$	6,926		$	(1,711	)	$	4,905

On a consolidated basis, the Company had net income of $3.0 million, or $0.14 per diluted share, for the three month period ended June 30, 2021, compared to net income of $6.5 million, or $0.30 per diluted share, for the three month period ended June 30, ~~2020, compared to~~2020. The Company had net ~~loss~~income of ~~$4.4~~$2.5 million, or ~~$0.22~~$0.11 per diluted share, for the ~~three~~six month period ended June 30, ~~2019. The Company had~~2021, compared to net loss of $1.6 million, or $0.09 per diluted share, for the six month period ended June 30, ~~2020, compared to net loss of $0.3~~2020. For the three month period ended June 30, 2021, premium revenue decreased $1.4 million, or ~~$0.02 per diluted share, for~~2.9%, to $45.1 million from $46.5 million in the comparable period in 2020. For the six month period ended June 30, ~~2019. Premium~~2021, premium revenue ~~for the three month period ended June 30, 2020 increased $1.0~~decreased $0.8 million, or ~~2.3%~~0.9%, to ~~$46.5~~$91.2 million from ~~$45.5~~$92.0 million in the comparable period in 2020. The decrease in premium revenue was primarily attributable to a decrease in the Medicare supplement line of business in the life and health operations.

Operating income decreased $7.2 million in the three month period ended June 30, ~~2019.~~2021 from the three month period ended June 30, 2020. For the six month period ended June 30, ~~2020, premium revenue increased $1.8~~2021, operating income decreased $6.6 million ~~or 2.0%, to $92.0 million~~ from ~~$90.3 million in~~ the comparable period in ~~2019.~~2020. The ~~increase in premium revenue was primarily attributable to an increase in the automobile physical damage line of business in the property and casualty operations.~~

Operating income increased $7.8 million in the three month period ended June 30, 2020 from the three month period ended June 30, 2019. For the six month period ended June 30, 2020, operating income increased $8.4 million over the comparable period in 2019. The increasedecrease in operating income was primarily due to less favorable loss experience in the life and health operations, resulting from a significant ~~decrease~~increase in the number of incurred claims within the Medicare supplement line of business. ~~This decrease in the number~~During 2021, utilization of ~~incurred claims was primarily attributable~~Medicare supplement insurance benefits has increased, returning to historical averages relative to the ~~Company’s individual policy holders being subject to varying degrees~~exceptionally low utilization experienced after the onset of ~~shelter~~the COVID-19 pandemic when many policyholders were sheltered in ~~place orders instituted throughout the United States during the second quarter of 2020 as a result of COVID-19.~~place.

A more detailed analysis of the individual operating segments and other corporate activities follows.

American Southern

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, ~~2020~~2021 and the comparable periods in ~~2019:~~2020:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(Dollars in thousands)												(Dollars in thousands)
Gross written premiums	$	33,320		$	32,581		$	42,938		$	40,275		$	33,053		$	33,320		$	44,515		$	42,938
Ceded premiums		(1,451	)		(1,313	)		(2,845	)		(2,688	)		(1,565	)		(1,451	)		(3,249	)		(2,845	)
Net written premiums	$	31,869		$	31,268		$	40,093		$	37,587		$	31,488		$	31,869		$	41,266		$	40,093
Net earned premiums	$	15,824		$	14,754		$	30,746		$	28,560		$	16,362		$	15,824		$	32,977		$	30,746
Net loss and loss adjustment expenses		10,021			9,863			19,555			18,906
Insurance benefits and losses incurred														10,157			10,021			21,906			19,555
Commissions and underwriting expenses		4,788			4,480			9,602			8,690			5,293			4,788			9,579			9,602
Underwriting income	$	1,015		$	411		$	1,589		$	964		$	912		$	1,015		$	1,492		$	1,589
Loss ratio		63.3	%		66.8	%		63.6	%		66.2	%		62.1	%		63.3	%		66.4	%		63.6	%
Expense ratio		30.3			30.4			31.2			30.4			32.3			30.3			29.0			31.2
Combined ratio		93.6	%		97.2	%		94.8	%		96.6	%		94.4	%		93.6	%		95.4	%		94.8	%

~~-22-~~18

Table of Contents

Gross written premiums at American Southern ~~increased $0.7~~decreased $0.3 million, or ~~2.3%~~0.8%, during the three month period ended June 30, ~~2020~~2021 and ~~$2.7~~increased $1.6 million, or ~~6.6%~~3.7%, during the six month period ended June 30, ~~2020,~~2021, from the comparable periods in ~~2019.~~2020. The decrease in gross written premiums during the three month period ended June 30, 2021 was primarily due to decreases in the automobile liability line of business resulting from a decline in gross premiums written within a certain agency, as well as retro premium adjustments. The increase in gross written premiums during the six month period ended June 30, 2021 was primarily attributable to an increase in premiums written in the automobile physical damage line of business ~~due to~~from existing agencies, as well as an increase in gross written premiums in the general liability line of business as a result of a new ~~agency~~program that started in the second half of ~~2019,~~2020. Partially offsetting the increase was a decline in premiums written in the automobile liability line of business as ~~well as increased writings from certain existing agencies.~~

previously discussed.

Ceded premiums increased $0.1 million, or ~~10.5%~~7.9%, during the three month period ended June 30, ~~2020~~2021 and ~~$0.2~~$0.4 million, or ~~5.8%~~14.2%, during the six month period ended June 30, ~~2020,~~2021, from the comparable periods in ~~2019.~~2020. 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. Also contributing to the increase in ceded premiums in ~~2020~~2021 was an increase in earned premiums and reinsurance rates in certain accounts within the automobile physical damage and general liability lines of business, which are subject to reinsurance.

The following presents American Southern’s net earned premiums by line of business for the three month and six month periods ended June 30, ~~2020~~2021 and the comparable periods in ~~2019:~~2020:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
	(In thousands)								(In thousands)
Automobile liability	$	8,223	$	7,813	$	15,363	$	14,837	$	7,276	$	8,223	$	15,013	$	15,363
Automobile physical damage		4,472		3,799		9,020		7,401		5,483		4,472		11,017		9,020
General liability		888		819		1,739		1,603		1,424		888		2,677		1,739
Surety		1,441		1,608		3,046		3,295		1,327		1,441		2,644		3,046
Other lines		800		715		1,578		1,424		852		800		1,626		1,578
Total	$	15,824	$	14,754	$	30,746	$	28,560	$	16,362	$	15,824	$	32,977	$	30,746

Net earned premiums increased ~~$1.1~~$0.5 million, or ~~7.3%~~3.4%, during the three month period ended June 30, ~~2020,~~2021, and ~~increased~~ $2.2 million, or ~~7.7%~~7.3%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. The increase in net earned premiums was primarily attributable to an increase in automobile physical damage coverage resulting from ~~the~~existing agencies and an increase in general liability as a result of a new ~~agency~~program as previously ~~mentioned, as well as a rate increase on a large automobile liability account.~~mentioned. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

The performance of an insurance company is often measured by its combined ratio. The combined ratio represents the percentage of losses, loss adjustment expenses and other expenses that are incurred for each dollar of premium earned by the company. A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss. The combined ratio is divided into two components, the loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

~~Net loss~~Insurance benefits and ~~loss adjustment expenses~~losses incurred at American Southern increased ~~$0.2~~$0.1 million, or ~~1.6%~~1.4%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.6~~increased $2.4 million, or ~~3.4%~~12.0%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. As a percentage of earned premiums, ~~net loss~~insurance benefits and ~~loss adjustment expenses~~losses incurred were 62.1% in the three month period ended June 30, 2021, compared to 63.3% in the three month period ended June 30, ~~2020, compared to 66.8% in the three month period ended June 30, 2019.~~2020. For the six month period ended June 30, ~~2020,~~2021, this ratio ~~decreased~~increased to ~~63.6%~~66.4% from ~~66.2%~~63.6% in the comparable period in ~~2019.~~2020. The decrease in the loss ratio during the three month ~~and six month periods~~period ended June 30, ~~2020~~2021 was primarily ~~due~~attributable to ~~a decrease~~an increase in earned premiums in the ~~severity of claims in the automobile~~general liability line of business. ~~Partially offsetting the decrease~~The increase in the loss ratio during the ~~three month and~~ six month ~~periods~~period ended June 30, ~~2020~~2021 was ~~less favorable loss experience~~mainly due to an increase in the frequency of claims in the automobile physical damage line of business, ~~due to an increase~~as well as in ~~frequency~~the inland marine segment of ~~claims from~~ the ~~new agency.~~other line of business.

Commissions and underwriting expenses increased ~~$0.3~~$0.5 million, or ~~6.9%~~10.5%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.9 million, or 10.5%,~~remained consistent during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. As a percentage of earned premiums, underwriting expenses were 32.3% in the three month period ended June 30, 2021, compared to 30.3% in the three month period ended June 30, ~~2020, compared to 30.4% in the three month period ended June 30, 2019.~~2020. For the six month period ended June 30, ~~2020,~~2021, this ratio ~~increased~~decreased to ~~31.2%~~29.0% from ~~30.4%~~31.2% in the comparable period in ~~2019.~~2020. The increase in the expense ratio during the three month period ended June 30, 2021 and the decrease in the expense ratio during the six month period ended June 30, ~~2020~~2021 was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. During the three month and six month periods ended June 30, 2020, variable commissions at American Southern remained relatively consistent and increased by $0.2 million, respectively, from the comparable periods in 2019 due to favorable loss experience from accounts subject to variable commissions.

~~-23-~~19

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Bankers Fidelity

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, ~~2020~~2021 and the comparable periods in ~~2019:~~2020:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(Dollars in thousands)												(Dollars in thousands)
Medicare supplement	$	43,787		$	44,541		$	88,102		$	88,870		$	40,866		$	43,787		$	81,858		$	88,102
Other health products		2,311			1,896			4,495			3,886			2,368			2,311			4,755			4,495
Life insurance		2,557			2,154			4,814			4,296			2,450			2,557			5,337			4,814
Gross earned premiums		48,655			48,591			97,411			97,052			45,684			48,655			91,950			97,411
Ceded premiums		(17,980	)		(17,876	)		(36,108	)		(35,361	)		(16,913	)		(17,980	)		(33,704	)		(36,108	)
Net earned premiums		30,675			30,715			61,303			61,691			28,771			30,675			58,246			61,303
Insurance benefits and losses		17,055			24,288			41,104			50,552
Insurance benefits and losses incurred														21,546			17,055			43,069			41,104
Commissions and underwriting expenses		7,778			8,954			17,382			17,562			8,756			7,778			18,640			17,382
Total expenses		24,833			33,242			58,486			68,114			30,302			24,833			61,709			58,486
Underwriting income (loss)	$	5,842		$	(2,527	)	$	2,817		$	(6,423	)	$	(1,531	)	$	5,842		$	(3,463	)	$	2,817
Loss ratio		55.6	%		79.1	%		67.1	%		81.9	%		74.9	%		55.6	%		73.9	%		67.1	%
Expense ratio		25.4			29.2			28.4			28.5			30.4			25.4			32.0			28.4
Combined ratio		81.0	%		108.3	%		95.5	%		110.4	%		105.3	%		81.0	%		105.9	%		95.5	%

Net earned premium revenue at Bankers Fidelity ~~remained relatively consistent~~decreased $1.9 million, or 6.2%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.4~~$3.1 million, or ~~0.6%~~5.0%, during the six month period ended June 30, ~~2020,~~2021, from the comparable periods in ~~2019.~~2020. Gross earned premiums from the Medicare supplement line of business decreased ~~$0.8~~$2.9 million, or ~~1.7%~~6.7%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.8~~$6.2 million, or ~~0.9%~~7.1%, during the six month period ended June 30, ~~2020,~~2021, due primarily to non-renewals exceeding the level of new business writings. Other health product premiums increased ~~$0.4~~$0.1 million, or ~~21.9%~~2.5%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.6~~$0.3 million, or ~~15.7%~~5.8%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019,~~2020, primarily as a result of new sales of the company’s group health products. Gross earned premiums from the life insurance line of business ~~increased $0.4~~decreased $0.1 million, or ~~18.7%~~4.2%, during the three month period ended June 30, ~~2020, and $0.5 million, or 12.1%, during the six month period ended June 30, 2020 over the comparable periods in 2019~~2021, due to ~~an increase in the group life products premium. Partially offsetting the increase in gross earned premiums from the life insurance line was~~ a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual life sales. Gross earned premiums from the life insurance line of business increased $0.5 million, or 10.9%, during the six month period ended June 30, 2021 over the comparable periods in 2020 due to an increase in the group life products premium, partially offset by a decrease in individual life products premium as previously mentioned. Premiums ceded ~~increased $0.1~~decreased $1.1 million, or ~~0.6%~~5.9%, during the three month period ended June 30, ~~2020~~2021 and ~~$0.7~~$2.4 million, or ~~2.1%~~6.7%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. The ~~increase~~decrease in ceded premiums for the three month and six month periods ended June 30, ~~2020~~2021 was due to ~~an increase~~a decrease in Medicare supplement premiums subject to reinsurance.

~~Benefits~~Insurance benefits and losses ~~decreased $7.2~~incurred increased $4.5 million, or ~~29.8%~~26.3%, during the three month period ended June 30, ~~2020,~~2021, and ~~$9.4~~$2.0 million, or ~~18.7%~~4.8%, during the six month period ended June 30, ~~2020,~~2021, from the comparable periods in ~~2019.~~2020. As a percentage of earned premiums, benefits and losses were 74.9% in the three month period ended June 30, 2021, compared to 55.6% in the three month period ended June 30, ~~2020, compared to 79.1% in the three month period ended June 30, 2019.~~2020. For the six month period ended June 30, ~~2020,~~2021, this ratio ~~decreased~~increased to ~~67.1%~~73.9% from ~~81.9%~~67.1% in the comparable period in ~~2019.~~2020. The ~~decrease~~increase in the loss ratio for the three month and six month periods ended June 30, ~~2020~~2021 was primarily due to ~~a significantly lower~~an increase in the number of claims incurred in the Medicare supplement line of ~~business due~~business. During 2021, utilization of Medicare supplement insurance benefits has increased, returning to historical averages relative to the ~~Company’s individual policy holders being subject to varying degrees~~exceptionally low utilization experienced after the onset of ~~shelter~~the COVID-19 pandemic when many policyholders were sheltered in ~~place orders instituted throughout the United States during the second quarter of 2020 as a result of COVID-19.~~place.

Commissions and underwriting expenses ~~decreased $1.2~~increased $1.0 million, or ~~13.1%~~12.6%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.2~~$1.3 million, or ~~1.0%~~7.2%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. As a percentage of earned premiums, underwriting expenses were 30.4% in the three month period ended June 30, 2021, compared to 25.4% in the three month period ended June 30, ~~2020, compared to 29.2% in the three month period ended June 30, 2019.~~2020. For the six month period ended June 30, ~~2020,~~2021, this ratio ~~decreased~~increased to ~~28.4%~~32.0% from ~~28.5%~~28.4% in the comparable period in ~~2019.~~2020. The ~~decrease~~increase in the expense ratio for the three month and six month periods ended June 30, ~~2020~~2021 was primarily due to the amortization of deferred acquisition costs ("DAC") exceeding the level of additions to DAC. The increase in the net amortization of DAC during 2021 is primarily due to non-renewals exceeding the level of new business writings in the Medicare supplement line of business, as previously mentioned. Partially offsetting the increase in the expense ratio was a decrease in ~~agent incentive costs and realization of costs saving initiatives~~expenses related to ~~postage and printing.~~servicing the Medicare supplement line of business.

~~-24-~~20

Table of Contents

Net Investment Income and Realized Gains (Losses)

Investment income ~~decreased $0.5~~increased $0.4 million, or ~~20.0%~~22.5%, during the three month period ended June 30, ~~2020,~~2021, and ~~$0.8~~$0.5 million, or ~~16.3%~~12.6%, during the six month period ended June 30, ~~2020,~~2021, over the comparable periods in ~~2019.~~2020. The ~~decrease~~increase in investment income was ~~primarily~~ attributable to ~~net losses~~an increase in the ~~Company’s other invested assets coupled with slightly lower investment yields on fixed maturity securities.~~equity in earnings from investments in the Company's limited partnerships and limited liability companies of $0.3 million and $0.4 million, respectively.

The Company had net realized investment gains of $0.1 million during the three month period ended June 30, 2021, compared to no ~~net~~ realized investment gains during the three month period ended June 30, ~~2020, compared to net realized investment gains of $0.6 million during the three month period ended June 30, 2019.~~2020. The Company had net realized investment gains of $0.2 million ~~during~~in each of the six month ~~period~~periods ended June 30, ~~2020, compared to net realized investment gains of $2.0 million during the six month period ended June 30, 2019.~~2021 and 2020. The net realized investment gains during the three month and six month ~~period~~periods ended June 30, ~~2020~~2021 resulted primarily from the disposition of several of the Company’s investments in ~~equity~~fixed maturity securities. Management continually evaluates the Company’s investment portfolio and makes adjustments for impairments and/or divests investments as may be determined to be appropriate.

Unrealized Gains (Losses) on Equity Securities

Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period, with certain exceptions. The Company recognized net unrealized gains on equity securities of $4.0 million during the three month period ended June 30, 2021 and unrealized gains on equity securities of $1.4 million during the three month period ended June 30, ~~2020 and~~2020. The Company recognized net unrealized ~~losses~~gains on equity securities of ~~$5.3~~$4.7 million during the ~~three~~six month period ended June 30, ~~2019. The Company recognized net~~2021 and unrealized losses on equity securities of $7.1 million during the six month period ended June 30, ~~2020 and unrealized gains on equity securities of $1.2 million during the six month period ended June 30, 2019.~~2020. Changes in unrealized gains on equity securities for the applicable periods are primarily the result of fluctuations in the market ~~values~~value of certain of the Company’s equity ~~investments.~~securities.

Interest Expense

Interest expense decreased $0.1 million, or ~~24.0%~~16.2%, during the three month period ended June 30, ~~2020,~~2021, and $0.2 million, or ~~18.4%~~22.1%, during the six month period ended June 30, ~~2020,~~2021, from the comparable periods in ~~2019.~~2020. Changes in interest expense were primarily due to changes in the London Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) are directly related to LIBOR.

Liquidity and Capital Resources

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements. Current and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges. The Company’s primary sources of cash are written premiums, investment income and proceeds from the sale and maturity of its invested assets. The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At June 30, ~~2020,~~2021, the Parent had approximately ~~$5.2~~$3.9 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $1.5 million for the six month period ended June 30, 2021, compared to statutory net income of $4.7 million for the six month period ended June 30, ~~2020, compared to statutory net loss of $1.7 million for the six month period ended June 30, 2019.~~2020. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At June 30, ~~2020,~~2021, American Southern had ~~$42.9~~$50.0 million of statutory capital and surplus and Bankers Fidelity had ~~$32.2~~$41.7 million of statutory capital and surplus. In ~~2020,~~2021, dividend payments by the Parent’s insurance subsidiaries in excess of ~~$4.6~~$9.6 million would require prior approval. Through June 30, ~~2020,~~2021, the Parent received dividends of ~~$1.8~~$5.4 million from its subsidiaries.

~~-25-~~

~~Table of Contents~~

The Parent provides certain administrative and other services to each of its insurance subsidiaries. The amounts charged to and paid by the subsidiaries include reimbursements for various shared services and other expenses incurred directly on behalf of the subsidiaries by the Parent. In addition, there is in place a formal tax-sharing agreement between the Parent and its insurance subsidiaries. As a result of the Parent’s tax loss, it is anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.

Table of Contents

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 three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. At June 30, ~~2020,~~2021, the effective interest rate was ~~4.42%~~4.20%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. As of June 30, ~~2020,~~2021, 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 June 30, ~~2020,~~2021, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. At June 30, ~~2020,~~2021, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.2 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 established initial credit availability of five percent of statutory admitted assets, or approximately $8 million. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB. BFLIC would be required to post acceptable forms of collateral for any borrowings it makes from the FHLB. As of June 30, 2021, BFLIC does not have any outstanding borrowings from the FHLB.

See Note 6 of the Notes to Condensed Consolidated Financial Statements for a discussion of the Company’s available credit under its new revolving credit facility.

Cash and cash equivalents ~~increased~~decreased from ~~$12.9~~$19.3 million at December 31, ~~2019~~2020 to ~~$16.4~~$9.5 million at June 30, ~~2020.~~2021. The ~~increase~~decrease in cash and cash equivalents during the six month period ended June 30, ~~2020~~2021 was primarily attributable to net cash used in operating activities of $13.9 million. Partially offsetting the cash used in operating activities was net cash provided by investing activities of $4.5 million as a ~~$3.1 million increase resulting from~~result of investment sales and maturity of securities exceeding ~~purchases of securities in addition to net cash provided by operating activities of $0.6 million.~~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, borrowings under its credit facilities or additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatory authorities, which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

Expected Impact of COVID-19 on the Company’s Financial Condition and Results of Operations

The duration and ultimate impact of the COVID-19 pandemic isremains unknown at this time and it is not possible for us to reliably estimate the impact on the financial condition, operating results or liquidity of the Company and its operating subsidiaries in future periods. However, we do not currently expect a significant decline in liquidity or operating results as a result of the disruption caused by the ongoing COVID-19 pandemic. To date, the most significant impact of COVID-19 on the Company’s financial position has been volatility in the fair value of the Company’s fixed maturity and equity investments due to disruption in the financial markets.

We expect that earned premiums could be adversely impacted by a weakened economy leading to a slowdown in new sales and reduced retention of insureds. Additionally, a number of states have issued bulletins that either encourage or require premium leniency such as extension of grace periods or moratoriums on cancellation of policies for non-payment. The Company does not expect a significant reduction or delay in payments and continues to monitor state required actions as they develop.

For the Company’s property and casualty operations, the majority of premium revenue is derived from automobile liability and automobile physical damage lines of business written on a multi-year contract basis with state and local governments. Although we cannot predict with certainty at this time, we do not expect a significant level of cancellations or non-renewals of our property and casualty contracts in the short term but recognize that a prolonged economic slowdown could adversely affect future results. However, the Company expects the aforementioned decline in usage to be temporary in nature.

~~-26-~~22

Table of Contents

Benefits and losses in our property and casualty operations could be adversely impacted as a result of disruption caused by the COVID-19 pandemic. However, due to the nature of our primary product lines, the impact is not currently expected to be material. ~~Additionally, we expect to see a reduction in frequency and severity of claims in the automobile lines of business as fewer miles are driven and less people are on the roads.~~ As a result, we do not currently expect a material adverse effect on operating results or liquidity in the property and casualty operations.

The majority of premium revenue in our life and health operations are derived from the senior market segment of the population, or those individuals age sixty-five and up, who maintain Medicare supplement and to a lesser extent, whole life insurance policies with the Company. We expect that earned premiums could be adversely impacted by ~~the rise in unemployment and~~an economic slowdown related to the COVID-19 pandemic and individual, business and government responses thereto, which could lead to a decline in new sales and reduced retention of insureds. As a result, we currently anticipate that the life and health operations may experience a marginal decline in earned premiums although the actual impact cannot be predicted with certainty at this time.

Unforeseen infectious diseases that impact large portions of a population can have an adverse impact on mortality and morbidity, and resultant benefits and losses incurred by the Company’s life and health operations. Accordingly, the Company does anticipate incurring higher costs, potentially similar to prior influenza seasons, as it relates to life insurance claims. However, ~~with much~~due to the Company's individual policyholders being subject to various degrees of ~~the country sheltering~~shelter in place ~~over an extended period,~~orders, the Company ~~expects a decrease~~has experienced lower utilization of certain accident and health benefits, particularly in ~~non-medically necessary services being performed with many~~the Medicare supplement line of the services deferred until a later date when these procedures are allowed to take place. Additionally, the Company expects there will be some routine medical services that are deferred indefinitely.business. As a result, and although the ~~actual~~ultimate impact cannot be predicted with certainty at this time, the Company does not expect significant adverse development in total benefits and losses incurred in its life and health operations.

In addition to the information set forth in this report, you should carefully consider the discussions of the COVID-19 pandemic and related economic developments presented in our Annual Report on Form 10-K for the year ended December 31, ~~2019, our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020, and in other reports we file with the SEC from time to time, all of which could materially affect our business, financial condition or future results.

~~-27-~~

~~Table of Contents~~

ItemItem 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the intentional acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and may not be detected. 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 our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and references certain information that constitutes forward-looking statements as that term is defined in the federal securities laws. Statements, to the extent they are not statements of historical facts, ~~should be~~are considered forward-looking statements, and are subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s current assessments of various risks and uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions of the federal securities laws. The Company’s actual results could differ materially from the results ~~anticipated~~expressed in or implied by these forward-looking statements as a result of such risks and uncertainties, including those identified in filings made by the Company from time to time with the Securities and Exchange Commission. In addition, other risks and uncertainties not known by us, or that we currently determine to not be material, may materially adversely affect our financial condition, results of operations or cash flows. The Company undertakes no obligation to update any forward-looking statement as a result of subsequent developments, changes in underlying assumptions or facts, or ~~otherwise.~~otherwise, except as may be required by law.

~~-28-~~23

Table of Contents

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

April 1 – April 30, ~~2020~~
2021

~~Total~~
May 1 – May 31, 2021

June 1 – June 30, 2021

I~~tem~~Item 6. Exhibits

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.

Inline XBRL Instance ~~Document.~~Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

Inline XBRL Taxonomy Extension ~~Schema.~~Schema Document.

Inline XBRL Taxonomy Extension Calculation ~~Linkbase.~~Linkbase Document.

Inline XBRL Taxonomy Extension Definition ~~Linkbase.~~Linkbase Document.

Inline XBRL Taxonomy Extension Label ~~Linkbase.~~Linkbase Document.

Inline XBRL Taxonomy Extension Presentation ~~Linkbase.~~Linkbase Document.

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

ATLANTIC AMERICAN CORPORATION

Date: August ~~11, 2020~~10, 2021

/s/ J. Ross Franklin

Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)


Part I.	Financial Information

Item 1.	Financial Statements:	2

	Condensed Consolidated Balance Sheets Atas of and June 30, ~~2020 And~~2021 December 31, ~~2019~~2020	2

	Condensed Consolidated Statements Ofof Operations for the three months and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	3

	Condensed Consolidated Statements Ofof Comprehensive Income for the three months and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements Ofof Shareholders’ Equity for the three months and six months ended June 30, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements Ofof Cash Flows for the six months ended June 30, ~~2020~~2021 and ~~2019~~2020	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21 17

Item 4.	Controls and Procedures	2823

Part II.	Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2924

Item 6.	Exhibits	2924

Signatures		30 25

	Atlantic American Statutory Trust I			Atlantic American Statutory Trust II
JUNIOR SUBORDINATED DEBENTURES ^{(1) (2)}
Principal amount owed June 30, 2020	$	18,042		$	23,196
Less: Treasury debt ⁽³⁾		—			(7,500	)
Net balance June 30, 2020	$	18,042		$	15,696
Net balance December 31, 2019	$	18,042		$	15,696
Coupon rate	LIBOR + 4.00		%	LIBOR + 4.10		%
Interest payable	Quarterly			Quarterly
Maturity date	December 4, 2032			May 15, 2033
Redeemable by issuer	Yes			Yes
TRUST PREFERRED SECURITIES
Issuance date	December 4, 2002			May 15, 2003
Securities issued		17,500			22,500
Liquidation preference per security	$	1		$	1
Liquidation value	$	17,500		$	22,500
Coupon rate	LIBOR + 4.00		%	LIBOR + 4.10		%
Distribution payable	Quarterly			Quarterly
Distribution guaranteed by ⁽⁴⁾	Atlantic American Corporation			Atlantic American Corporation

	Atlantic American Statutory Trust I		Atlantic American Statutory Trust II
JUNIOR SUBORDINATED DEBENTURES ^{(1) (2)}
Principal amount owed June 30, 2021	$	18,042	$	23,196
Less: Treasury debt ⁽³⁾		0		(7,500	)
Net balance June 30, 2021	$	18,042	$	15,696
Net balance December 31, 2020	$	18,042	$	15,696
Coupon rate	LIBOR + 4.00%		LIBOR + 4.10%
Interest payable	Quarterly		Quarterly
Maturity date	December 4, 2032		May 15, 2033
Redeemable by issuer	Yes		Yes
TRUST PREFERRED SECURITIES
Issuance date	December 4, 2002		May 15, 2003
Securities issued		17,500		22,500
Liquidation preference per security	$	1	$	1
Liquidation value	$	17,500	$	22,500
Coupon rate	LIBOR + 4.00%		LIBOR + 4.10%
Distribution payable	Quarterly		Quarterly
Distribution guaranteed by ⁽⁴⁾	Atlantic American Corporation		Atlantic American Corporation

ASSETS

	Unaudited June 30, 2020			December 31, 2019
Cash and cash equivalents	$	16,354		$	12,893
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost: $214,080 and $219,233)		236,187			232,472
Equity securities, at fair value (cost: $7,311 and $7,168)		15,965			22,922
Other invested assets (cost: $11,905 and $9,908)		11,454			9,960
Policy loans		2,018			2,007
Real estate		38			38
Investment in unconsolidated trusts		1,238			1,238
Total investments		266,900			268,637
Receivables:
Reinsurance		27,562			32,135
Insurance premiums and other (net of allowance for doubtful accounts: $197 and $183)		23,785			13,134
Deferred income taxes, net		1,144			314
Deferred acquisition costs		39,148			38,861
Other assets		8,300			9,108
Intangibles		2,544			2,544
Total assets	$	385,737		$	377,626

LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance reserves and policyholder funds:
Future policy benefits	$	91,927		$	92,490
Unearned premiums		35,091			26,035
Losses and claims		76,498			81,448
Other policy liabilities		1,195			1,933
Total insurance reserves and policyholder funds		204,711			201,906
Accounts payable and accrued expenses		23,394			23,588
Junior subordinated debenture obligations, net		33,738			33,738
Total liabilities		261,843			259,232

Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value		55			55
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,454,001 and 20,472,162		22,401			22,401
Additional paid-in capital		57,435			57,820
Retained earnings		34,266			36,020
Accumulated other comprehensive income		17,464			10,459
Unearned stock grant compensation		(466	)		(781	)
Treasury stock, at cost: 1,946,893 and 1,928,732 shares		(7,261	)		(7,580	)
Total shareholders’ equity		123,894			118,394
Total liabilities and shareholders’ equity	$	385,737		$	377,626

	Six Months Ended June 30, 2019
	Fixed Maturities		Equity Securities		Other Invested Assets		Total
Gains	$	882	$	1,113	$	—	$	1,995
Losses		—		—		—		—
Realized investment gains, net	$	882	$	1,113	$	—	$	1,995

	Lease Liability
Remainder of 2020	$	503
2021		1,015
2022		1,031
2023		1,048
2024		1,065
Thereafter		2,025
Total undiscounted lease payments		6,687
Less: present value adjustment		1,297
Operating lease liability included in accounts payable and accrued expenses on the condensed consolidated balance sheet	$	5,390

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 ~~Number~~ of Shares that May Yet be Purchased Under the Plans ~~Plans~~ or Programs
April 1 – April 30, ~~2020~~ 2021		-—	$	-—		-		~~325,129~~
~~May 1 – May 31, 2020~~		-		-		-		~~325,129~~
~~June 1 – June 30, 2020~~		-		-		-—		325,129
~~Total~~ May 1 – May 31, 2021		-—		—		—		325,129
June 1 – June 30, 2021		—		—		—		325,129
Total		—	$	-—		-—

10.1	Revolving Credit Agreement, dated as of May 12, 2021, by and between Atlantic American Corporation and Truist Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 13, 2021).

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101. INS	Inline XBRL Instance ~~Document.~~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.~~Schema Document.

101. CAL	Inline XBRL Taxonomy Extension Calculation ~~Linkbase.~~Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition ~~Linkbase.~~Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label ~~Linkbase.~~Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation ~~Linkbase.~~Linkbase Document.

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

	ATLANTIC AMERICAN CORPORATION
	(Registrant)

Date: August ~~11, 2020~~10, 2021	By:	/s/ J. Ross Franklin
		J. Ross Franklin
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)