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 September 30, 2021March 31, 2022

or

☐
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 October 31, 2021April 30, 2022 was 20,378,57620,403,576.
 
ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS


Forward-Looking Statements
2
Part I.
Financial Information

   
Item 1.
23
   
 23
   
 34
   
 45
   
 56
   
 67
   
 78
   
Item 2.
18
   
Item 4.
2523
   
Part II.Other Information 
   
Item 2.
2624
   
Item 6.
2624
   
 2725

Table of Contents
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. Forward-looking statements are all statements other than those of historical fact. Such forward-looking statements are made based upon management’s current assessments of various risks and uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions of the federal securities laws. Forward-looking statements are inherently subject to various risks and uncertainties and the Company’s actual results could differ materially from the results expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and other subsequent filings made by the Company from time to time with the Securities and Exchange Commission. In addition, other risks and uncertainties not known by us, or that we currently determine to not be material, may materially adversely affect our financial condition, results of operations or cash flows. The Company undertakes no obligation to update any forward-looking statement as a result of subsequent developments, changes in underlying assumptions or facts, or otherwise, except as may be required by law.

2
Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars inIn thousands, except share and per share data)

 
Unaudited
September 30,
2021
  
December 31,
2020
  
Unaudited
March 31,
2022
  
December 31,
2021
 
ASSETSASSETS ASSETS 
Cash and cash equivalents $14,327  $19,319  $15,612  $24,753 
Investments:                
Fixed maturities, available-for-sale, at fair value (amortized cost: $232,974 and $222,461)
  257,011   254,106 
Equity securities, at fair value (cost: $4,907 and $6,393)
  22,688   18,716 
Other invested assets (cost: $3,765 and $3,765)
  3,095   3,238 
Fixed maturities, available-for-sale, at fair value (amortized cost: $239,452 and $238,597)
  240,038   260,986 
Equity securities, at fair value (cost: $4,906 and $4,907)
  21,316   19,124 
Other invested assets (cost: $918 and $698)
  420   198 
Policy loans  1,900   1,975   1,814   1,858 
Real estate  38   38   38   38 
Investment in unconsolidated trusts  1,238   1,238   1,238   1,238 
Total investments  285,970   279,311   264,864   283,442 
Receivables:                
Reinsurance  29,889   29,086   27,036   27,416 
Insurance premiums and other (net of allowance for doubtful accounts: $198 and $198)
  22,479   27,512 
Insurance premiums and other (net of allowance for doubtful accounts: $185 and $188)
  11,550   14,959 
Deferred income taxes, net  321   0   5,447   1,755 
Deferred acquisition costs  38,495   39,611   39,875   38,698 
Other assets  10,052   7,804   8,103   8,719 
Intangibles  2,544   2,544   2,544   2,544 
Total assets $404,077  $405,187  $375,031  $402,286 
                
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES AND SHAREHOLDERS’ EQUITY 
Insurance reserves and policyholder funds:                
Future policy benefits $87,825  $90,872  $85,541  $87,348 
Unearned premiums  29,923   27,131   19,834   27,469 
Losses and claims  87,173   79,147   85,235   85,620 
Other policy liabilities  836   1,526   961   1,360 
Total insurance reserves and policyholder funds  205,757   198,676   191,571   201,797 
Accounts payable and accrued expenses  24,587   26,412   23,299   25,465 
Deferred income taxes, net  0   1,301 
Junior subordinated debenture obligations, net  33,738   33,738   33,738   33,738 
Total liabilities  264,082   260,127   248,608   261,000 
                
Commitments and contingencies (Note 10)  0   0 
Commitments and contingencies (Note 11)  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   55   55 
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,378,576 and 20,415,243
  22,401   22,401 
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,403,576 and 20,378,576
  22,401   22,401 
Additional paid-in capital  57,441   57,437   57,443   57,441 
Retained earnings  48,699   47,790   53,599   51,264 
Accumulated other comprehensive income  18,989   25,000   463   17,688 
Unearned stock grant compensation  (100)  (284)  (117)  (73)
Treasury stock, at cost: 2,022,318 and 1,985,651 shares
  (7,490)  (7,339)
Treasury stock, at cost: 1,997,318 and 2,022,318 shares
  (7,421)  (7,490)
Total shareholders’ equity  139,995   145,060   126,423   141,286 
Total liabilities and shareholders’ equity $404,077  $405,187  $375,031  $402,286 

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

23
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ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars inIn thousands, except per share data)

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021
  2020
  2021  2020 
Revenue:            
Insurance premiums, net $46,092  $44,978  $137,315  $137,027 
Net investment income  2,137   1,828   6,516   5,717 
Realized investment gains, net  349   183   520   432 
Unrealized gains (losses) on equity securities, net  711   (731)  5,458   (7,831)
Other income  1   11   13   71 
Total revenue  49,290   46,269   149,822   135,416 
                 
Benefits and expenses:                
Insurance benefits and losses incurred  35,045   29,219   100,020   89,878 
Commissions and underwriting expenses  11,927   11,202   36,670   34,682 
Interest expense  347   363   1,040   1,253 
Other expense  3,264   3,052   10,178   9,116 
Total benefits and expenses  50,583   43,836   147,908   134,929 
Income (loss) before income taxes  (1,293)  2,433   1,914   487 
Income tax expense (benefit)  (378)  557   298   166 
Net income (loss)  (915)  1,876   1,616   321 
Preferred stock dividends  (100)  (100)  (299)  (299)
Net income (loss) applicable to common shareholders $(1,015) $1,776  $1,317  $22 
Earnings (loss) per common share (basic) $(0.05) $0.09  $0.06  $0 
Earnings (loss) per common share (diluted) $(0.05) $0.09  $0.06  $0 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; Dollars in thousands)

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021
  2020
  2021  2020 
Net income (loss)
 $(915) $1,876  $1,616  $321 
Other comprehensive income (loss):                
Available-for-sale fixed maturity securities:                
Gross unrealized holding gain (loss) arising in the period  (1,281)  3,016   (7,088)  12,133 
Related income tax effect  269   (633)  1,488   (2,548)
Subtotal  (1,012)  2,383   (5,600)  9,585 
Less: reclassification adjustment for net realized gains included in net income (loss)  (349)  (95)  (520)  (344)
Related income tax effect  73   20   109   72 
Subtotal  (276)  (75)  (411)  (272)
Total other comprehensive income (loss), net of tax  (1,288)  2,308   (6,011)  9,313 
Total comprehensive income (loss) $(2,203) $4,184  $(4,395) $9,634 
  
Three Months Ended
March 31,
 
  2022
  2021
 
Revenue:      
Insurance premiums, net $47,081  $46,090 
Net investment income  2,340   2,113 
Realized investment gains (losses), net  (10)  121 
Unrealized gains on equity securities, net  2,193   744 
Other income  4   7 
Total revenue  51,608   49,075 
Benefits and expenses:        
Insurance benefits and losses incurred  31,169   33,272 
Commissions and underwriting expenses  12,836   12,564 
Interest expense  354   346 
Other expense  3,453   3,440 
Total benefits and expenses  47,812   49,622 
Income (loss) before income taxes  3,796   (547)
Income tax expense (benefit)  954   (116)
Net income (loss)  2,842   (431)
Preferred stock dividends  (99)  (99)
Net income (loss) applicable to common shareholders $2,743  $(530)
Earnings (loss) per common share (basic) $0.13  $(0.03)
Earnings (loss) per common share (diluted) $0.13  $(0.03)

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

4
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCOMPREHENSIVE LOSS
(Unaudited; Dollars in thousands except share data)In thousands)

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021
  2020
  2021  2020 
Preferred stock:            
Balance, beginning of period $55  $55  $55  $55 
Balance, end of period  55   55   55   55 
Common stock:                
Balance, beginning of period  22,401   22,401   22,401   22,401 
Balance, end of period  22,401   22,401   22,401   22,401 
Additional paid-in capital:                
Balance, beginning of period  57,439   57,435   57,437   57,820 
Restricted stock grants, net of forfeitures  0   0   0   (377)
Issuance of shares under stock plans
  2   1   4   (7)
Balance, end of period  57,441   57,436   57,441   57,436 
Retained earnings:                
Balance, beginning of period  49,714   34,266   47,790   36,020 
Net income (loss)  (915)  1,876   1,616   321 
Dividends on common stock  0   0   (408)  0 
Dividends accrued on preferred stock  (100)  (100)  (299)  (299)
Balance, end of period  48,699   36,042   48,699   36,042 
Accumulated other comprehensive income:                
Balance, beginning of period  20,277   17,464   25,000   10,459 
Other comprehensive income (loss), net of tax  (1,288)  2,308   (6,011)  9,313 
Balance, end of period  18,989   19,772   18,989   19,772 
Unearned Stock Grant Compensation:                
Balance, beginning of period  (150)  (466)  (284)  (781)
Restricted stock grants, net of forfeitures  0   0   0   61 
Amortization of unearned compensation  50   116   184   370 
Balance, end of period  (100)  (350)  (100)  (350)
Treasury Stock:                
Balance, beginning of period  (7,361)  (7,261)  (7,339)  (7,580)
Restricted stock grants, net of forfeitures  0   0   0   316 
Net shares acquired related to employee share-based compensation plans
  (129)  (81)  (153)  (91)
Issuance of shares under stock plans
  0   1   2   14 
Balance, end of period  (7,490)  (7,341)  (7,490)  (7,341)
                 
Total shareholders’ equity $139,995  $128,015  $139,995  $128,015 
Dividends declared on common stock per share $0  $0  $0.02  $0 
Common shares outstanding:                
Balance, beginning of period  20,410,763
   20,454,001
   20,415,243
   20,472,162
 
Net shares acquired under employee share-based compensation plans  (32,668)  (40,718)  (38,147)  (46,620)
Issuance of shares under stock plans  481
   996
   1,480
   3,737
 
Restricted stock grants, net of forfeitures  0
   0
   0
   (15,000)
Balance, end of period  20,378,576
   20,414,279
   20,378,576
   20,414,279
 
  
Three Months Ended
March 31,
 
  2022
  2021
 
Net income (loss)
 $2,842  $(431)
Other comprehensive loss:        
Available-for-sale fixed maturity securities:        
Gross unrealized holding loss arising in the period  (21,813)  (13,747)
Related income tax effect  4,581   2,887 
Subtotal  (17,232)  (10,860)
Less: reclassification adjustment for net realized (gains) losses included in net income (loss)  10   (121)
Related income tax effect  (3)  25 
Subtotal  7   (96)
Total other comprehensive loss, net of tax  (17,225)  (10,956)
Total comprehensive loss $(14,383) $(11,387)

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

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Table of Contents
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY
(Unaudited; Dollars in thousands)In thousands except share and per share data)

  
Nine Months Ended
September 30,
 
  2021
  2020
 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income
 $1,616  $321 
Adjustments to reconcile net income to net cash used in operating activities:        
Amortization of (additions to) acquisition costs, net  1,116   (908)
Realized investment gains, net  (520)  (432)
Unrealized  (gains) losses on equity securities, net  (5,458)  7,831 
Compensation expense related to share awards  184   370 
Depreciation and amortization  753   772 
Deferred income tax benefit  (25)  (2,841)
Increase in receivables, net  (8,448)  (4,731)
Increase (decrease) in insurance reserves and policyholder funds  7,081   (842)
Decrease in accounts payable and accrued expenses  (3,374)  (1,752)
Other, net  (2,479)  1,308 
Net cash used in operating activities  (9,554)  (904)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Proceeds from investments sold  19,261   8,916 
Proceeds from investments matured, called or redeemed  8,065   5,584 
Investments purchased  (22,120)  (17,277)
Additions to property and equipment  (89)  (188)
Net cash provided by (used in) investing activities  5,117   (2,965)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
    Payment of dividends on common stock
  (408)  0 
Proceeds from shares issued under stock plans  6   7 
Treasury stock acquired — net employee share-based compensation
  (153)  (91)
Net cash used in financing activities  (555)  (84)
         
Net decrease in cash and cash equivalents  (4,992)  (3,953)
Cash and cash equivalents at beginning of period  19,319   12,893 
Cash and cash equivalents at end of period $14,327  $8,940 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Cash paid for interest $1,045  $1,309 
Cash paid for income taxes
 $3,202  $3,310 
  
Three Months Ended
March 31,
 
  2022
  2021
 
Preferred stock:      
Balance, beginning of period $55  $55 
Balance, end of period  55   55 
Common stock:        
Balance, beginning of period  22,401   22,401 
Balance, end of period  22,401   22,401 
Additional paid-in capital:        
Balance, beginning of period  57,441   57,437 
Restricted stock grants, net of forfeitures  2   0 
Issuance of shares under stock plans
  0   1 
Balance, end of period  57,443   57,438 
Retained earnings:        
Balance, beginning of period  51,264   47,790 
Net income (loss)  2,842   (431)
Dividends on common stock  (408)  (408)
Dividends accrued on preferred stock  (99)  (99)
Balance, end of period  53,599   46,852 
Accumulated other comprehensive income:        
Balance, beginning of period  17,688   25,000 
Other comprehensive loss, net of tax  (17,225)  (10,956)
Balance, end of period  463   14,044 
Unearned Stock Grant Compensation:        
Balance, beginning of period  (73)  (284)
Restricted stock grants, net of forfeitures  (71)  0 
Amortization of unearned compensation  27   67 
Balance, end of period  (117)  (217)
Treasury Stock:        
Balance, beginning of period  (7,490)  (7,339)
Restricted stock grants, net of forfeitures  69   0 
Issuance of shares under stock plans
  0   1 
Balance, end of period  (7,421)  (7,338)
Total shareholders’ equity $126,423  $133,235 
Dividends declared on common stock per share $0.02  $0.02 
Common shares outstanding:        
Balance, beginning of period  20,378,576
   20,415,243
 
Issuance of shares under stock plans  0
   539
 
Restricted stock grants, net of forfeitures  25,000
   0
 
Balance, end of period  20,403,576
   20,415,782
 

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

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Table of Contents
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; In thousands)

  
Three Months Ended
March 31,
 
  2022
  2021
 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income (loss)
 $2,842  $(431)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
(Additions to) amortization of acquisition costs, net  (1,177)  1,513 
Realized investment losses (gains), net  10   (121)
Unrealized  gains on equity securities, net  (2,193)  (744)
Earnings from equity method investees
  (2)  0 
Compensation expense related to share awards  27   67 
Depreciation and amortization  240   264 
Deferred income tax expense (benefit)  886   (492)
Decrease in receivables, net  3,789   4,559 
Decrease in insurance reserves and policyholder funds  (10,226)  (6,693)
Decrease in accounts payable and accrued expenses  (2,676)  (2,250)
Other, net  473   (1,716)
Net cash used in operating activities  (8,007)  (6,044)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Proceeds from investments sold  44   13,266 
Proceeds from investments matured, called or redeemed  3,875   4,506 
Investments purchased  (5,052)  (10,564)
Additions to property and equipment  (1)  (39)
Net cash (used in) provided by investing activities  (1,134)  7,169 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from shares issued under stock plans  0   2 
Net cash provided by financing activities  0   2 
         
Net (decrease) increase in cash and cash equivalents  (9,141)  1,127 
Cash and cash equivalents at beginning of period  24,753   19,319 
Cash and cash equivalents at end of period $15,612  $20,446 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Cash paid for interest $346  $351 

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

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ATLANTIC AMERICAN CORPORATION
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 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, 20202021 (the “2020“2021 Annual Report”). The Company’s financial condition and results of operations and cash flows as of and for the three and nine month periodsperiod ended September 30, 2021March 31, 2022 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, 20212022 or for any other future period.



The Company’s significant accounting policies have not changed materially from those set out in the 20202021 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 the ultimate impact cannot be predicted with any 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, and may continue to create, increased volatility in the investment markets. The impact of COVID-19 on the economy and on the Company continues to evolve and its future effects are uncertain. The Company 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.

Note 2.Recently Issued Accounting Standards

Adoption of New Accounting Standards


Income Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020, although earlier adoption is permitted. The Company adopted ASU 2019-12 as of January 1, 2021. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.


Future Adoption of New Accounting Standards


For more information regarding accounting standards that the Company has not yet adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the 20202021 Annual Report.

7
Table of Contents
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 September 30, 2021March 31, 2022 and December 31, 2020.2021.


Fixed maturities were comprised of the following:

  March 31, 2022 
  
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 $47,852  $172  $2,098  $49,778 
Obligations of states and political subdivisions  11,058   228   63   10,893 
Corporate securities:                
Utilities and telecom  27,051   955   695   26,791 
Financial services  65,895   1,868   1,250   65,277 
Other business – diversified  36,107   1,255   823   35,675 
Other consumer – diversified  51,832   1,701   714   50,845 
Total corporate securities  180,885   5,779   3,482   178,588 
Redeemable preferred stocks:                
Other consumer – diversified  243   50   0   193 
Total redeemable preferred stocks  243   50   0   193 
Total fixed maturities $240,038  $6,229  $5,643  $239,452 

8
  September 30, 2021 
  
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 $42,235  $837  $195  $41,593 
Obligations of states and political subdivisions  11,760



862



0



10,898
 
Corporate securities:  












 
Utilities and telecom  30,439



3,098



27



27,368
 
Financial services  73,138



7,509



65



65,694
 
Other business – diversified  40,429



4,833



110



35,706
 
Other consumer – diversified  58,760



7,338



101



51,523
 
Total corporate securities  202,766



22,778



303



180,291
 
Redeemable preferred stocks:  












 
Other consumer – diversified  250



58



0



192
 
Total redeemable preferred stocks  250



58



0



192
 
Total fixed maturities $257,011


$
24,535


$
498


$
232,974
 
  December 31, 2020 
  
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 $30,762  $1,381  $26  $29,407 
Obligations of states and political subdivisions  11,802   898
   0
   10,904
 
Corporate securities:                
Utilities and telecom  30,359   4,423   0   25,936 
Financial services  78,258   9,811   6   68,453 
Other business – diversified  41,145   5,689   15   35,471 
Other consumer – diversified  61,530   9,479   47   52,098 
Total corporate securities  211,292   29,402   68   181,958 
Redeemable preferred stocks:                
Other consumer – diversified  250   58   0   192 
Total redeemable preferred stocks  250   58   0   192 
Total fixed maturities $
254,106  $
31,739  $
94  $222,461 
  December 31, 2021 
  
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 $50,298  $763  $416  $49,951 
Obligations of states and political subdivisions  11,644   749   0   10,895 
Corporate securities:                
Utilities and telecom  29,717   2,961   44   26,800 
Financial services  70,921   6,759   48   64,210 
Other business – diversified  40,216   4,631   106   35,691 
Other consumer – diversified  57,940   7,185   103   50,858 
Total corporate securities  198,794   21,536   301   177,559 
Redeemable preferred stocks:                
Other consumer – diversified  250   58   0   192 
Total redeemable preferred stocks  250   58   0   192 
Total fixed maturities $260,986  $23,106  $717  $238,597 


Bonds having an amortized cost of $10,923$10,879 and $10,670$11,169 and included in the tables above were on deposit with insurance regulatory authorities as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $5,898$4,762 and $1,997$5,371 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta ("FHLB"(“FHLB”) at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.


Equity securities were comprised of the following:

  March 31, 2022 
  
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
 
Equity securities:            
Common and non-redeemable preferred stocks:            
Financial services $878  $605  $0  $273 
Other business – diversified  20,438   15,805   0   4,633 
Total equity securities $21,316  $16,410  $0  $4,906 

  December 31, 2021 
  
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
 
Equity securities:            
Common and non-redeemable preferred stocks:            
Financial services $799   525   0   274 
Other business – diversified  18,325   13,692   0   4,633 
Total equity securities $19,124  $14,217  $0  $4,907 

89

Equity securities were comprised of the following:
  September 30, 2021    
  
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost
 
Equity securities:            
Common and non-redeemable preferred stocks:            
Financial services $754


$
480


$
0


$
274
 
Other business – diversified  21,934



17,301



0



4,633
 
Total equity securities $22,688


$
17,781


$
0


$
4,907
 

  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 September 30, 2021March 31, 2022 and December 31, 20202021 by contractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.
  September 30, 2021  December 31, 2020 
  
Carrying
Value
  
Amortized
Cost
  
Carrying
Value
  
Amortized
Cost
 
Due in one year or less $2,510


$
2,500


$
2,041


$
2,015
 
Due after one year through five years  21,419



20,060



18,373



17,039
 
Due after five years through ten years  80,244



73,420



89,892



79,993
 
Due after ten years  122,463



106,667



124,609



104,527
 
Asset backed securities  30,375



30,327



19,191



18,887
 
Totals $257,011


$
232,974


$
254,106


$
222,461
 

  March 31, 2022  December 31, 2021 
  
Carrying
Value
  
Amortized
Cost
  
Carrying
Value
  
Amortized
Cost
 
Due in one year or less $1,407  $1,403  $1,734  $1,730 
Due after one year through five years  29,051   28,969   24,926   23,593 
Due after five years through ten years  65,067   65,159   73,725   68,338 
Due after ten years  107,568   105,175   122,045   106,181 
Asset backed securities  36,945   38,746   38,556   38,755 
Totals $240,038  $239,452  $260,986  $238,597 


The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of September 30, 2021March 31, 2022 and December 31, 2020.2021.
  September 30, 2021 
  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 $15,275


$
195


$
0


$
0


$
15,275


$
195
 
Corporate securities  6,166



162



1,923



141



8,089



303
 
Total temporarily impaired securities $21,441


$
357


$
1,923


$
141


$
23,364


$
498
 

  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
 
  March 31, 2022 
  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 $33,399  $1,555  $5,041  $543  $38,440  $2,098 
Obligations of states and political subdivisions
  3,394   63   0   0   3,394   63 
Corporate securities  65,680   2,732   4,978   750   70,658   3,482 
Total temporarily impaired securities $102,473  $4,350  $10,019  $1,293  $112,492  $5,643 

  December 31, 2021 
  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 $30,141  $416  $0  $0  $30,141  $416 
Corporate securities  3,326   49   4,761   252   8,087   301 
Total temporarily impaired securities $33,467  $465  $4,761  $252  $38,228  $717 


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.
9

There were 0 OTTI charges recorded during the three month and nine month periods ended September 30, 2021March 31, 2022 and 2020.2021.



As of September 30, 2021March 31, 2022 and December 31, 2020,2021, there were 30141 and 2061 securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the utilities and telecom, financial services, other diversified business and other diversified consumer sectors. The increase in the number of securities in an unrealized loss position during the ninethree month period ended September 30, 2021,March 31, 2022, was primarily attributable to a decline in market values in certain of the Company’s fixed maturity securities as a result of a 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 September 30, 2021.March 31, 2022.

The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2021 and 2020.
  
Three Months Ended
September 30, 2021
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $349  $0  $0  $349 
Losses  0   0   0   0 
Realized investment gains, net $349  $0  $0  $349 

  
Three Months Ended
September 30, 2020
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $95  $88  $0  $183 
Losses  0   0   0   0 
Realized investment gains, net $95  $88  $0  $183 
  
Nine Months Ended
September 30, 2021
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $520  $0  $0  $520 
Losses  0
   0
   0
   0
 
Realized investment gains, net $520  $0  $0  $520 

  
Nine Months Ended
September 30, 2020
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $344  $88  $0  $432 
Losses  0   0   0   0 
Realized investment gains, net $344  $88  $0  $432 
10

The following table is a summary of realized investment gains (losses) for the three month period ended March 31, 2022 and 2021.

  
Three Months Ended
March 31, 2022
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $0  $0  $0  $0 
Losses  (10)  0   0   (10)
Realized investment losses, net $(10) $0  $0  $(10)

  
Three Months Ended
March 31, 2021
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains $121  $0  $0  $121 
Losses  0   0   0   0 
Realized investment gains, net $121  $0  $0  $121 


The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month period ended March 31, 2022 and nine month periods ended September 30, 2021 and 2020.2021.

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021  2020
  2021
  2020 
Net realized and unrealized gains (losses) recognized during the period on equity securities $711  $(643) $5,458  $(7,743)
Less: Net realized gains recognized during the period on equity securities sold during the period  0   88   0   88 
Unrealized gains (losses) recognized during the reporting period on equity securities, net $711  $(731) $5,458  $(7,831)
  
Three Months Ended
March 31,
 
  2022
  2021 
Net realized and unrealized gains recognized during the period on equity securities $2,193  $744 
Less: Net realized gains recognized during the period on equity securities sold during the period  0   0 
Unrealized gains recognized during the reporting period on equity securities, net $2,193  $744 


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 $3,095$420 and $3,238$198 as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238 as of September 30, 2021March 31, 2022 and December 31, 2020.2021.



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 $4,333$1,658 and $4,476,$1,436, as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had outstanding commitments totaling $12,777 and $1,997, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses.

Note 4.Fair Values of Financial Instruments


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



The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.

11
Level 1Observable 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 2Observable 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 September 30, 2021March 31, 2022 and December 31, 2020,2021, the value of the fixed maturities valued using Level 3 criteria was $0 and $0250 in each period., respectively. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the value of the equity security valued using Level 3 criteria was $157156 and $143157, respectively. The equity security is not traded and is valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations.

11
Table of Contents

As of September 30, 2021,March 31, 2022, 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 $250  $256,761  $0  $257,011  $0  $240,038  $0  $240,038 
Equity securities 22,531  0  157  22,688  21,160  0  156  21,316 
Cash equivalents  7,384   0   0   7,384   11,534   0   0   11,534 
Total $30,165  $256,761  $157  $287,083  $32,694  $240,038  $156  $272,888 


As of December 31, 2020,2021, 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  
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  $254,106  $0  $254,106  $250  $260,486  $250  $260,986 
Equity securities 18,573  0  143  18,716  18,967  0  157  19,124 
Cash equivalents  12,010   0   0   12,010   12,713   0   0   12,713 
Total $30,583  $254,106  $143  $284,832  $31,930  $260,486  $407  $292,823 

12

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2021March 31, 2022 and December 31, 2020.2021.

    September 30, 2021  December 31, 2020    March 31, 2022  December 31, 2021 
 
Level in Fair
Value
Hierarchy (1)
  
Carrying
Amount
  
Estimated
Fair Value
  
Carrying
Amount
  
Estimated
Fair Value
 
Level in Fair
Value
Hierarchy (1)
  
Carrying
Amount
  
Estimated
Fair Value
  
Carrying
Amount
  
Estimated
Fair Value
 
Assets:                             
Cash and cash equivalents Level 1  $14,327  $14,327  $19,319  $19,319 Level 1  $15,612  $15,612  $24,753  $24,753 
Fixed maturities  (1)

  257,011   257,011   254,106   254,106  
(1)   240,038   240,038   260,986   260,986 
Equity securities  (1)   22,688   22,688   18,716   18,716 
(1) 
  21,316   21,316   19,124   19,124 
Other invested assets Level 3   3,095   3,095   3,238   3,238 Level 3   420   420   198   198 
Policy loans Level 2   1,900   1,900   1,975   1,975 Level 2   1,814   1,814   1,858   1,858 
Investment in unconsolidated trusts Level 2   1,238   1,238   1,238   1,238 Level 2   1,238   1,238   1,238   1,238 
                                      
Liabilities:                                      
Junior subordinated debentures, net Level 2   33,738
   34,061   33,738   32,297 Level 2   33,738
   33,115   33,738   33,728 

(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.

12
Table of Contents
Note 5.Insurance Reserves for Losses and Claims


The roll-forward of insurance reserves for losses and claims for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 is as follows:

 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021
  2020
  2022
  2021
 
Beginning insurance reserves for losses and claims, gross $79,147  $81,448  $85,620  $79,147 
Less: Reinsurance recoverable on unpaid losses  (17,600)  (18,339)  (17,690)  (17,600)
Beginning insurance reserves for losses and claims, net
  61,547   63,109   67,930   61,547 
                
Incurred related to:                
Current accident year  98,972   91,788   32,542   32,928 
Prior accident year development (1)
  678
(2)  (2,740
)(3)
  (1,523)(2)  475
(3) 
Total incurred  99,650   89,048   31,019   33,403 
                
Paid related to:                
Current accident year  59,492   57,676   10,629   10,917 
Prior accident years  33,060   34,435   19,966   20,984 
Total paid  92,552   92,111   30,595   31,901 
Ending insurance reserves for losses and claims, net
  68,645   60,046   68,354   63,049 
Plus: Reinsurance recoverable on unpaid losses  18,528   18,111   16,881   18,236 
Ending insurance reserves for losses and claims, gross
 $87,173  $78,157  $85,235  $81,285 

(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.

(2)
Prior years’ development was primarily the result of favorable development in both the life and health and the property and casualty operations.

(3)
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.

13
(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.


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

 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021
  2020
  2022
  2021
 
Total incurred losses $99,650  $89,048  $31,019  $33,403 
Cash surrender value and matured endowments  1,961   962   362   247 
Benefit reserve changes  (1,591)  (132)  (212)  (378)
Total insurance benefits and losses incurred $100,020  $89,878  $31,169  $33,272 

Note 6.Credit Arrangements



The Company is preparing for the expected discontinuation of LIBOR by identifying, assessing and monitoring risks associated with LIBOR transition. Preparation includes taking steps to update operational processes to support alternative reference  rates and models, as well as evaluating legacy contracts for any changes that may be required, including the determination of applicable fallbacks.



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 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%.



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 September 30, 2021,March 31, 2022, the Company does 0t have any outstanding borrowings under the Credit Agreement.


13

Junior Subordinated Debentures


The Company has 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 September 30, 2021March 31, 2022 was as follows:

 
Atlantic American
Statutory Trust I
  
Atlantic American
Statutory Trust II
  
Atlantic American
Statutory Trust I
  
Atlantic American
Statutory Trust II
 
JUNIOR SUBORDINATED DEBENTURES (1) (2)
            
Principal amount owed September 30, 2021 $18,042  $23,196 
Principal amount owed March 31, 2022 $18,042  $23,196 
Less: Treasury debt (3)
  0   (7,500)  0   (7,500)
Net balance September 30, 2021 $18,042  $15,696 
Net balance December 31, 2020 $18,042  $15,696 
Net balance March 31, 2022 $18,042  $15,696 
Net balance December 31, 2021 $18,042  $15,696 
Coupon rate 
LIBOR + 4.00%
  
LIBOR + 4.10%
  
LIBOR + 4.00%
  
LIBOR + 4.10%
 
Interest payable Quarterly  Quarterly  Quarterly  Quarterly 
Maturity date December 4, 2032  May 15, 2033  December 4, 2032  May 15, 2033 
Redeemable by issuer Yes  Yes  Yes  Yes 
TRUST PREFERRED SECURITIES                
Issuance date December 4, 2002  May 15, 2003  December 4, 2002  May 15, 2003 
Securities issued  17,500   22,500   17,500   22,500 
Liquidation preference per security $1  $1  $1  $1 
Liquidation value $17,500  $22,500  $17,500  $22,500 
Coupon rate 
LIBOR + 4.00%
  LIBOR + 4.10%  
LIBOR + 4.00%
  LIBOR + 4.10% 
Distribution payable Quarterly  Quarterly  Quarterly  Quarterly 
Distribution guaranteed by (4)
 Atlantic American Corporation  Atlantic American Corporation  Atlantic American Corporation  Atlantic American Corporation 

(1)
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.

14
(2)
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.

(3)
On August 4, 2014, the Company acquired $7,500$7,500 of the Junior Subordinated Debentures.

(4)
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.

14
Table of Contents
Note 77..
Earnings (Loss) Per Common Share



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


  
Three Months Ended
September 30, 2021
 
  Loss  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:        
Net loss $(915)  20,401
   
Less preferred stock dividends  (100)  —
    
   Net loss applicable to common shareholders $(1,015)  20,401
 $(0.05)
  
Three Months Ended
March 31, 2022
 
  Income
  
Weighted
Average
Shares
(In thousands)
  
Per Share
Amount
 
Basic Earnings Per Common Share:         
Net income
 $2,842   20,380  
 
Less preferred stock dividends  (99)  —    
Net income applicable to common shareholders  2,743   20,380  $0.13 
Diluted Earnings Per Common Share:
            
Effect of Series D preferred stock
  99   1,378     
Net income applicable to common shareholders
 $2,842   21,758  $0.13 


  
Three Months Ended
September 30, 2020
 
  Income  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic Earnings Per Common Share:        
Net income $1,876   20,438
 
 
Less preferred stock dividends  (100)
  —
 
 
   Net income applicable to common shareholders  1,776
   20,438
 $0.09
 
Diluted Earnings Per Common Share:           
Effect of Series D preferred stock  100
   1,378
    
Net income applicable to common shareholders $1,876   21,816
 $0.09
 
  
Three Months Ended
March 31, 2021
 
  Loss  
Weighted
Average
Shares
(In thousands)
  
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:         
Net loss $(431)  20,415   
 
Less preferred stock dividends  (99)  —   
 
Net loss applicable to common shareholders $(530)  20,415   (0.03)

  
Nine Months Ended
September 30, 2021
 
  Income  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:        
Net income $1,616   20,410
  
 
Less preferred stock dividends  (299)  —
    
Net income applicable to common shareholders $1,317   20,410
 $0.06 

  
Nine Months Ended
September 30, 2020
 
  Income  
Weighted
Average
Shares
(In thousands)
  
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:         
Net income $321  20,450
   
 
Less preferred stock dividends  (299)  —
     
Net income applicable to common shareholders $22  20,450
  $0


The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss)loss per common share calculation for all periods presented, except for the three month period ended September 30, 2020,March 31, 2021 since its impact would have been antidilutive.



Note 8.          Equity Incentive Plan



On May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the grant of up to 2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for superior performance. During the three month period ended March 31, 2022, a total of 25,000 restricted shares, with an estimated fair value of $69 were issued under the 2012 Plan.  During 2021, there were 0 restricted shares issued under the 2012 Plan. The estimated fair value of the restricted shares issued under the 2012 Plan for 2022 and 2021 was based on the common stock price at date of grant. Stock grants are generally issued from treasury shares. Vesting of restricted shares generally occurs after a one to three year period. The Company accounts for forfeitures as they occur. There were 0 stock options granted or outstanding under the 2012 Plan in 2022 or 2021. Shares available for future grant at March 31, 2022 and December 31, 2021 were 910,200 and 935,200, respectively.

15
Note 8.9.Income Taxes



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


  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021
  2020
  2021
  2020
 
Federal income tax provision at statutory rate of 21%
 $(271) $511  $402  $102 
Dividends-received deduction  (7)  (3)  (21)  (9)
Meals & entertainment  8   3   22   16 
Vested stock & club dues  (27)  24   (32)  27 
Parking disallowance  4   4   12   12 
Adjustment for prior years' estimates to actual
  (85)  18
   (85)  18
 
Income tax expense (benefit) $(378) $557  $298  $166 

  
Three Months Ended
March 31,
 
  2022
  2021
 
Federal income tax provision at statutory rate of 21%
 $797  $(115)
Dividends-received deduction  (6)  (9)
Meals and entertainment
  10   4 
Parking disallowance
  4   4 
Penalties and fines
  149   0 
Income tax expense (benefit) $954  $(116)


The components of income tax expense (benefit) were:


  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021
  2020
  2021
  2020
 
Current – Federal $(746) $705  $323  $3,007 
Deferred – Federal  368   (148)  (25)  (2,841)
Total $(378) $557  $298  $166 



  
Three Months Ended
March 31,
 
   2022
   2021
 
Current – Federal $68  $376 
Deferred – Federal  886   (492)
Total $954  $(116)
In addition, the Company determined there were no significant tax implications as a result of the CARES Act.

Note 9.10.Leases


The Company has 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 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 ninethree months ended September 30,March 31, 2022 and March 31, 2021 and September 30, 2020 was $761.$254.



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

 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
Other information on operating leases: 2021
  2020
  2022
  2021
 
Cash payments included in the measurement of lease liabilities reported in operating cash flows $760  $726  $255  $251 
Right-of-use assets included in other assets on the condensed consolidated balance sheet
 4,320  4,997  3,963  4,664 
Weighted average discount rate 6.8% 6.8% 6.8% 6.8%
Weighted average remaining lease term in years 5.1 years  6.1 years  4.6 years  5.6 years 


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

 Lease Liability  Lease Liability 
 
Remainder of 2021
 $255 
2022 1,031 
Remainder of 2022
 $776 
2023 1,048   1,048 
2024 1,065   1,065 
2025 1,083   1,083 
2026  942 
Thereafter  942   0 
Total undiscounted lease payments 5,424   4,914 
Less: present value adjustment  867   717 
Operating lease liability included in accounts payable and accrued expenses on the condensed consolidated balance sheet
 $4,557  $4,197 


As of September 30, 2021,March 31, 2022, the Company has no operating leases that have not yet commenced.

16
Table of Contents
Note 10.11.Commitments and Contingencies

Litigation



From time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and in the ordinary course of its businesses.business. In the opinion of management, any such known claims are not expected to have a material effect on the financial condition or results of operations of the Company.



Regulatory Matters



Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to regulation and supervision in the jurisdictions in which they do business.  Statutes typically delegate regulatory, supervisory, and administrative powers to state insurance commissioners.  From time to time, and in the ordinary course of business, the Company receives notices and inquiries from state insurance departments with respect to various matters.



In November 2021, the Company was made aware by a state regulatory authority of alleged violations relating to certain sales of insurance policies and that the Company may be subject to regulatory action, including fines.  Subsequent to March 31, 2022, the Company agreed to settle the matter through a consent order which included a penalty that has been recorded as a liability in the financial statements as of March 31, 2022.

Note 11.12.Segment Information


The Parent’s primary insurance subsidiaries, American Southern and Bankers Fidelity, operate in 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 20212022 and 2020.2021.
Assets 
September 30,
2021
  
December 31,
2020
 
American Southern $
160,651
  $
158,808
 
Bankers Fidelity  
231,346
   
236,197
 
Corporate and Other  
12,080
   
10,182
 
Total assets $
404,077
  $
405,187
 


Revenues
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 2021  2020  
2021
  2020 
Assets 
March 31,
2022
 
December 31,
2021
 
American Southern 
$
18,206
  
$
15,649
  $53,254  $47,772  $141,480  $161,788 
Bankers Fidelity  
31,181
   
30,875
   96,401   88,619  217,617  227,395 
Corporate and Other  
(97
)
  
(255
)
  167   (975)  15,934   13,103 
Total revenue 
$
49,290
  
$
46,269
  $149,822  $135,416 
Total assets $375,031  $402,286 
 
 

 Income (Loss) Before Income Taxes 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 

 2021  2020
  
2021
  2020 
American Southern 
$
1,682
  
$
1,857
  $5,245  $4,822 
Bankers Fidelity  
(1,149
)
  
2,765
   2,362   2,023 
Corporate and Other  
(1,826
)
  
(2,189
)
  (5,693)  (6,358)
Income (loss) before income taxes 
$
(1,293
)
 
$
2,433
  $1,914  $487 

 
Three Months Ended
March 31,
 
Revenues
 2022
  2021
 
American Southern $18,506  $17,526 
Bankers Fidelity  32,889   31,540 
Corporate and Other  213   9
Total revenue $51,608  $49,075 


 
Three Months Ended
March 31,
 
Income (Loss) Before Income Taxes 2022  2021
 
American Southern $2,085  $1,490 
Bankers Fidelity  3,451   134
Corporate and Other  (1,740)  (2,171)
Income (loss) before income taxes $3,796 $(547)

17
Item 2.

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

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, 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 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, except as may be required by law.

Overview

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periodsperiod ended September 30, 2021.March 31, 2022. 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, 20202021 (the “2020“2021 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 20202021 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 20202021 Annual Report.

18
Overall Corporate Results

The following presents the Company’s revenue, expenses and net income (loss) for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 and the comparable periodsperiod in 2020:2021:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021  2020  2021  2020  2022  2021 
             (In thousands) 
Insurance premiums, net 
$
46,092
  
$
44,978
  
$
137,315
  
$
137,027
  
$
47,081
  
$
46,090
 
Net investment income 
2,137
  
1,828
  
6,516
  
5,717
  
2,340
  
2,113
 
Realized investment gains, net 
349
  
183
  
520
  
432
 
Unrealized gains (losses) on equity securities, net 
711
  
(731
)
 
5,458
  
(7,831
)
Realized investment gains (losses), net 
(10
)
 
121
 
Unrealized gains on equity securities, net 
2,193
  
744
 
Other income  
1
   
11
   
13
   
71
   
4
   
7
 
Total revenue  
49,290
   
46,269
   
149,822
   
135,416
   
51,608
   
49,075
 
Insurance benefits and losses incurred 
35,045
  
29,219
  
100,020
  
89,878
  
31,169
  
33,272
 
Commissions and underwriting expenses 
11,927
  
11,202
  
36,670
  
34,682
  
12,836
  
12,564
 
Interest expense 
347
  
363
  
1,040
  
1,253
  
354
  
346
 
Other expense  
3,264
   
3,052
   
10,178
   
9,116
   
3,453
   
3,440
 
Total benefits and expenses  
50,583
   
43,836
   
147,908
   
134,929
   
47,812
   
49,622
 
Income (loss) before income taxes 
$
(1,293
)
 
$
2,433
  
$
1,914
  
$
487
  
$
3,796
  
$
(547
)
Net income (loss) 
$
(915
)
 
$
1,876
  
$
1,616
  
$
321
  
$
2,842
  
$
(431
)

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).

18
A reconciliation of net income (loss) to operating income (loss) for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 and the comparable periodsperiod in 20202021 is as follows:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
Reconciliation of Non-GAAP Financial Measure 2021 2020 2021 2020  2022 2021 
 (In thousands)  (In thousands) 
Net income (loss) 
$
(915
)
 
$
1,876
  
$
1,616
  
$
321
  
$
2,842
  
$
(431
)
Income tax expense (benefit) 
(378
)
 
557
  
298
  
166
  
954
  
(116
)
Realized investment gains, net 
(349
)
 
(183
)
 
(520
)
 
(432
)
Unrealized (gains) losses on equity securities, net  
(711
)
  
731
   
(5,458
)
  
7,831
 
Realized investment (gains) losses, net 
10
  
(121
)
Unrealized gains on equity securities, net  
(2,193
)
  
(744
)
Non-GAAP operating income (loss) 
$
(2,353
)
 
$
2,981
  
$
(4,064
)
 
$
7,886
  
$
1,613
  
$
(1,412
)

On a consolidated basis, the Company had net lossincome of $0.9$2.8 million, or $0.05$0.13 per diluted share, for the three month period ended September 30, 2021,March 31, 2022, compared to net incomeloss of $1.9$0.4 million, or $0.09$0.03 per diluted share, for the three month period ended September 30, 2020.  The Company had net income of $1.6 million, or $0.06 per diluted share,March 31, 2021.  Premium revenue for the nine month period ended September 30, 2021, compared to net income of $0.3 million, or $0.00 per diluted share, for the nine month period ended September 30, 2020.  For the three month period ended September 30, 2021, premium revenueMarch 31, 2022 increased $1.1$1.0 million, or 2.5%2.2%, to $46.1$47.1 million from $45.0$46.1 million in the comparable period in 2020. For the ninethree month period ended September 30, 2021, premium revenue increased $0.3 million, or 0.2%, to $137.3 million from $137.0 million in the comparable period in 2020.March 31, 2021.   The increase in premium revenue was primarily attributable to an increase in the automobile physical damage coverage resulting from existing agencies and an increase in general liability as a resultline of a new programbusiness in the property and casualty operations.  Partially offsettingAlso contributing to this increase in premium revenue was a decreasean increase in the Medicare supplement line of businesslife insurance premiums in the life and health operations.

Operating income decreased $5.3increased $3.0 million in the three month period ended September 30, 2021March 31, 2022 from the three month period ended September 30, 2020.  For the nine month period ended September 30, 2021, operating income decreased $12.0 million from the comparable period in 2020.March 31, 2021.  The decreaseincrease in operating income was primarily due to lessfavorable loss experience in the property and casualty operations due to a decrease in the frequency and severity of claims within the automobile physical damage line of business. Also contributing to the increase in operating income was favorable loss experience in the life and health operations, resulting fromprimarily as a significantresult of an increase in the number of incurred claimsearned premium within the Medicare supplement linegroup lines of business.  During 2021, utilization of Medicare supplement insurance benefits has increased, returning to historical averages relative to the exceptionally low utilization experienced after the onset of the COVID-19 pandemic when many policyholders were sheltered in place.

19
A more detailed analysis of the individual operating segments and other corporate activities follows.

American Southern

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 and the comparable periodsperiod in 2020:2021:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021 2020 2021 2020  2022 2021 
 (Dollars in thousands)  (Dollars in thousands) 
Gross written premiums 
$
13,945
  
$
11,574
  
$
58,460
  
$
54,512
  
$
11,558
  
$
11,462
 
Ceded premiums  
(1,625
)
  
(1,519
)
  
(4,874
)
  
(4,364
)
  
(1,617
)
  
(1,684
)
Net written premiums 
$
12,320
  
$
10,055
  
$
53,586
  
$
50,148
  
$
9,941
  
$
9,778
 
Net earned premiums 
$
17,320
  
$
14,770
  
$
50,297
  
$
45,516
  
$
17,343
  
$
16,615
 
Insurance benefits and losses incurred 
11,651
  
9,131
  
33,557
  
28,686
  
10,478
  
11,749
 
Commissions and underwriting expenses  
4,873
   
4,662
   
14,452
   
14,264
   
5,943
   
4,286
 
Underwriting income 
$
796
  
$
977
  
$
2,288
  
$
2,566
  
$
922
  
$
580
 
Loss ratio 
67.3
%
 
61.8
%
 
66.7
%
 
63.0
%
 
60.4
%
 
70.7
%
Expense ratio  
28.1
   
31.6
   
28.7
   
31.3
   
34.3
   
25.8
 
Combined ratio  
95.4
%
  
93.4
%
  
95.4
%
  
94.3
%
  
94.7
%
  
96.5
%

Gross written premiums at American Southern increased $2.4$0.1 million, or 20.5%0.8%, during the three month period ended September 30, 2021 and $3.9 million, or 7.2%, during the nine month period ended September 30, 2021,March 31, 2022 from the comparable periodsperiod in 2020.2021. The increase in gross written premiums during the three month and nine month periods ended September 30, 2021 was primarily attributable to an increase in premiums written in the automobile physical damage line of business from existing agencies, as well as anincreases in the surety line of business.  Partially offsetting the increase in gross written premiums in the general liability line of business as a result of a new program that started in the second half of 2020.  Partially offsetting the increase during the nine month period ended September 30, 2021 was a decrease in premiums written in the automobileauto liability line of business resulting from a decline in gross premiums written within a certain program, as well asand retro premium adjustments.

Ceded premiums increaseddecreased $0.1 million, or 7.0%4.0%, during the three month period ended September 30, 2021 and $0.5 million, or 11.7%, during the nine month period ended September 30, 2021,March 31, 2022 from the comparable periodsperiod in 2020. American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally increase or2021. The decrease as earned premiums increase or decrease.  Also contributing to the increase in ceded premiums in 20212022 was an increaseprimarily due to a decrease in earned premiums and reinsuranceceding rates for two large programs in certain accounts within the automobile physical damage and generalauto liability linesline of business, which are subject to reinsurance.business.

19
The following presents American Southern’s net earned premiums by line of business for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 and the comparable periodsperiod in 2020:2021:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021 2020 2021 2020  2022 2021 
 (In thousands)  (In thousands) 
Automobile liability 
$
7,616
  
$
6,804
  
$
22,629
  
$
22,167
  
$
7,625
  
$
7,737
 
Automobile physical damage 
5,992
  
4,499
  
17,009
  
13,519
  
6,023
  
5,534
 
General liability 
1,463
  
1,008
  
4,140
  
2,747
  
1,429
  
1,253
 
Surety 
1,404
  
1,417
  
4,048
  
4,463
  
1,465
  
1,317
 
Other lines  
845
   
1,042
   
2,471
   
2,620
   
801
   
774
 
Total 
$
17,320
  
$
14,770
  
$
50,297
  
$
45,516
  
$
17,343
  
$
16,615
 

Net earned premiums increased $2.6$0.7 million, or 17.3%4.4%, during the three month period ended September 30, 2021, and $4.8 million, or 10.5%, during the nine month period ended September 30, 2021,March 31, 2022 over the comparable periodsperiod in 2020.2021. The increase in net earned premiums was primarily attributable to an increase in automobile physical damage coverage resulting from existing agencies and an increase in general liability as a result of a new program as previously mentioned.  Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

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

20
Insurance benefits and losses incurred at American Southern increased $2.5decreased $1.3 million, or 27.6%10.8%, during the three month period ended September 30, 2021, and increased $4.9 million, or 17.0%, during the nine month period ended September 30, 2021,March 31, 2022 over the comparable periodsperiod in 2020.2021. As a percentage of earned premiums, insurance benefits and losses incurred were 67.3%60.4% in the three month period ended September 30, 2021,March 31, 2022, compared to 61.8%70.7% in the three month period ended September 30, 2020.  For the nine month period ended September 30, 2021, this ratio increased to 66.7% from 63.0% in the comparable period in 2020.March 31, 2021. The increasedecrease in the loss ratio during the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 was mainlyprimarily due to an increasea decrease in the frequency and severity of claims in the automobile physical damage line of business, as well as increased costs related toin the auto liabilityinland marine segment of the other line of business.

Commissions and underwriting expenses increased $0.2$1.7 million, or 4.5%38.7%, during the three month period ended September 30, 2021, and increased $0.2 million, or 1.3% during the nine month period ended September 30, 2021,March 31, 2022, over the comparable periodsperiod in 2020.2021. As a percentage of earned premiums, underwriting expenses were 28.1%34.3% in the three month period ended September 30, 2021,March 31, 2022, compared to 31.6%25.8% in the three month period ended September 30, 2020. For the nine month period ended September 30, 2021, this ratio decreased to 28.7% from 31.3% in the comparable period in 2020.March 31, 2021. The decreaseincrease in the expense ratio during the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 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 period ended March 31, 2022, variable commissions at American Southern increased by $1.1 million from the comparable period in 2021 due to more favorable loss experience from accounts subject to variable commissions.

Bankers Fidelity

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 and the comparable periodsperiod in 2020:2021:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2021 2020 2021 2020  2022 2021 
 (Dollars in thousands)  (Dollars in thousands) 
Medicare supplement 
$
40,372
  
$
43,573
  
$
122,230
  
$
131,675
  
$
37,971
  
$
40,992
 
Other health products 
2,777
  
2,385
  
7,532
  
6,880
  
2,973
  
2,387
 
Life insurance  
2,378
   
2,256
   
7,715
   
7,070
   
4,517
   
2,887
 
Gross earned premiums 
45,527
  
48,214
  
137,477
  
145,625
  
45,461
  
46,266
 
Ceded premiums  
(16,755
)
  
(18,006
)
  
(50,459
)
  
(54,114
)
  
(15,723
)
  
(16,791
)
Net earned premiums  
28,772
   
30,208
   
87,018
   
91,511
   
29,738
   
29,475
 
Insurance benefits and losses incurred 
23,394
  
20,088
  
66,463
  
61,192
  
20,691
  
21,523
 
Commissions and underwriting expenses  
8,936
   
8,021
   
27,576
   
25,403
   
8,746
   
9,885
 
Total expenses  
32,330
   
28,109
   
94,039
   
86,595
   
29,437
   
31,408
 
Underwriting income (loss) 
$
(3,558
)
 
$
2,099
  
$
(7,021
)
 
$
4,916
  
$
301
  
$
(1,933
)
Loss ratio 
81.3
%
 
66.5
%
 
76.4
%
 
66.9
%
 
69.6
%
 
73.0
%
Expense ratio  
31.1
   
26.6
   
31.7
   
27.8
   
29.4
   
33.5
 
Combined ratio  
112.4
%
  
93.1
%
  
108.1
%
  
94.7
%
  
99.0
%
  
106.5
%

20
Net earned premium revenue at Bankers Fidelity decreased $1.4increased $0.3 million, or 4.8%0.9%, during the three month period ended September 30, 2021, and $4.5 million, or 4.9%, during the nine month period ended September 30, 2021,March 31, 2022, from the comparable periodsperiod in 2020.2021. Gross earned premiums from the Medicare supplement line of business decreased $3.2$3.0 million, or 7.3%7.4%, during the three month period ended September 30, 2021, and $9.4 million, or 7.2%, during the nine month period ended September 30, 2021,March 31, 2022, due primarily to non-renewals exceeding the level of new business writings. Other health product premiums increased $0.4$0.6 million, or 16.4%24.5%, during the three month period ended September 30, 2021, and $0.7 million, or 9.5%, during the nine month period ended September 30, 2021,March 31, 2022, over the comparable periodsperiod in 2020,2021, primarily as a result of new sales of the company’s group health and individual cancer  products. Gross earned premiums from the life insurance line of business increased $0.1$1.6 million, or 5.4%56.5%, during the three month period ended September 30, 2021, and increased $0.6 million, or 9.1%, during the nine month period ended September 30, 2021,March 31, 2022 over the comparable periodsperiod in 2020, primarily2021 due to an increase in the group life product premiums.products premium. Partially offsetting thisthe increase in gross earned premiums from the life insurance line was a declinedecrease 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.  Premiums ceded decreased $1.3$1.1 million, or 6.9%6.4%, during the three month period ended September 30, 2021 and $3.7 million, or 6.8%, duringMarch 31, 2022, from the nine monthcomparable period ended September 30,in 2021.  The decrease in ceded premiums for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 was due to a decrease in Medicare supplement premiums subject to reinsurance.

21
Insurance benefits and losses incurred increased $3.3decreased $0.8 million, or 16.5%3.9%, during the three month period ended September 30, 2021, and $5.3 million, or 8.6%, during the nine month period ended September 30, 2021,March 31, 2022, from the comparable periodsperiod in 2020.2021.  As a percentage of earned premiums, insurance benefits and losses incurred were 81.3%69.6% in the three month period ended September 30, 2021,March 31, 2022, compared to 66.5%73.0% in the three month period ended September 30, 2020.  For the nine month period ended September 30, 2021, this ratio increased to 76.4% from 66.9% in the comparable period in 2020.March 31, 2021.  The increasedecrease in the loss ratio for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 was primarily due to an increasea decrease in the number of incurred claims incurred inwithin the Medicare supplement line of business. During 2021, utilization of Medicare supplement insurance benefits has increased, returning to historical averages relative to the exceptionally low utilization experienced after the onset of the COVID-19 pandemic when many policyholders were sheltered in place.

Commissions and underwriting expenses increased $0.9decreased $1.1 million, or 11.4%11.5%, during the three month period ended September 30, 2021, and $2.2 million, or 8.6%, during the nine month period ended September 30, 2021,March 31, 2022, over the comparable periodsperiod in 2020.2021.  As a percentage of earned premiums, underwriting expenses were 31.1%29.4% in the three month period ended September 30, 2021,March 31, 2022, compared to 26.6%33.5% in the three month period ended September 30, 2020.  For the nine month period ended September 30, 2021, this ratio increased to 31.7% from 27.8% in the comparable period in 2020.March 31, 2021.  The increasedecrease in the expense ratio for the three month and nine month periodsperiod ended September 30, 2021March 31, 2022 was primarily due to the amortization of deferred acquisition costs ("DAC") exceeding the level of additions to DAC. The increase indeferred acquisition costs (“DAC”) exceeding 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.DAC.

Net Investment Income and Realized Gains

Investment income increased $0.3$0.2 million, or 16.9%10.7%, during the three month period ended September 30, 2021, and $0.8 million, or 14.0%, during the nine month period ended September 30, 2021, overMarch 31, 2022, from the comparable periodsperiod in 2020.2021. The increase in investment income was attributable to an increase in the equity in earnings from investments in the Company'sCompany’s limited partnerships and limited liability companies of $0.3 million and $0.7 million, respectively.$0.1 million.

The Company had net realized investment gainslosses of $0.3$0.01 million during the three month period ended September 30, 2021,March 31, 2022, compared to net realized investment gains of $0.2$0.1 million during the three month period ended September 30, 2020.March 31, 2021.   The Company had net realized investment gains of $0.5 millionlosses during the ninethree month period ended September 30, 2021 and net realizedMarch 31, 2022 resulted primarily from the redemption of the Company’s investment gains of $0.4 during the nine month period ended September 30, 2020.in a fixed maturity. The net realized investment gains during the three month and nine month periodsperiod ended September 30,March 31, 2021 resulted primarily from the disposition of several of the Company’s investments in fixed maturity securities. The net realized investment gains during the three month and nine month periods ended September 30, 2020 resulted from the disposition of several of the Company’s investments in fixed maturity and equity securities.maturities. 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.period. The Company recognized net unrealized gains on equity securities of $2.2 million during the three month period ended March 31, 2022 and unrealized gains on equity securities of $0.7 million during the three month period ended September 30, 2021 and unrealized losses on equity securities of $0.7 million during the three month period ended September 30, 2020.  The Company recognized net unrealized gains on equity securities of $5.5 million during the nine month period ended September 30, 2021 and unrealized losses on equity securities of $7.8 million during the nine month period ended September 30, 2020.March 31, 2021.  Changes in unrealized gains on equity securities for the applicable periods are primarily the result of fluctuations in the market value of certain of the Company’s equity securities.

Interest Expense

Interest expense remained relatively consistentincreased slightly during the three month period ended September 30, 2021, and decreased $0.2 million, or 17.0%, during the nine month period ended September 30, 2021,March 31, 2022, from the comparable periodsperiod in 2020.2021. 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.  The Company is preparing for the expected discontinuation of LIBOR by identifying, assessing and monitoring risks associated with LIBOR transition. Preparation includes taking steps to update operational processes to support alternative reference rates and models, as well as evaluating legacy contracts for any changes that may be required, including the determination of applicable fallbacks.

21
Liquidity and Capital Resources

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

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At September 30, 2021,March 31, 2022, the Parent had approximately $3.7$3.5 million of unrestricted cash and investments.

22
The Parent’s insurance subsidiaries reported statutory net income of $0.8$1.3 million for the ninethree month period ended September 30, 2021,March 31, 2022, compared to statutory net income of $8.5$2.1 million for the ninethree month period ended September 30, 2020.March 31, 2021. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At September 30, 2021,March 31, 2022, American Southern had $50.4$53.4 million of statutory capital and surplus and Bankers Fidelity had $38.5 million of statutory capital and surplus. In 2021,2022, dividend payments by the Parent’s insurance subsidiaries in excess of $9.6$5.6 million would require prior approval. Through September 30, 2021,March 31, 2022, the Parent received dividends of $6.9$1.5 million from its subsidiaries.

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

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. At September 30, 2021,March 31, 2022, the effective interest rate was 4.18%4.57%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. As of September 30, 2021,March 31, 2022, the Company has not made such an election.

The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from existing or potential future financing arrangements.

At September 30, 2021,March 31, 2022, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. At September 30, 2021,March 31, 2022, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3$0.1 million.

22
Bankers Fidelity Life Insurance Company (''BFLIC"(‘‘BFLIC”) is a member of the Federal Home Loan Bank of Atlanta ("FHLB"(“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 initialprovides for credit availability of five percent of statutory admitted assets, or approximately $8 million.$8.1 million, as of March 31, 2022. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB.  As of March 31, 2022, BFLIC wouldhas pledged bonds having an amortized cost of $4.8 million to the FHLB.  BFLIC may be required to post additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB.  As of September 30, 2021,2022, BFLIC does not have any outstanding borrowings from the FHLB.

See Note 6On 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 outstanding revolving loans at the NotesLIBOR Rate (as defined in the Credit Agreement) plus 2.00%, subject to Condensed Consolidated Financial Statements for a discussionLIBOR floor rate of 1.00%.

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 available creditconsolidated 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 its newthe 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 credit facility.commitments.  As of March 31, 2022, the Company does not have any outstanding borrowings under the Credit Agreement.

Cash and cash equivalents decreased from $19.3$24.8 million at December 31, 20202021 to $14.3$15.6 million at September 30, 2021.March 31, 2022. The decrease in cash and cash equivalents during the ninethree month period ended September 30, 2021March 31, 2022 was primarily attributable to net cash used in operating activities of $9.6$8.0 million. Partially offsettingAlso contributing to the decrease in cash and cash equivalents was net cash used in operating activities was net cash provided by investing activities of $5.1$1.1 million as a result of investment purchases exceeding investment sales and maturity of securities exceeding investment purchases.securities.

23
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 remains 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 requirements 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 any 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.

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.  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 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. During 2020, the Company's individual policyholders were subject to various degrees of shelter in place orders. As a result, the Company  experienced lower utilization of certain accident and health benefits, particularly in the Medicare supplement line of business.  However, during 2021, utilization of policyholder benefits have returned to historical averages. As a result, and although the 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, 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.

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Item 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.

2523
PART II. OTHER INFORMATION


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

On October 31, 2016, the Board of Directors of the Company approved a plan that allows for the repurchase of up to 750,000 shares of the Company’s common stock (the “Repurchase Plan”) on the open market or in privately negotiated transactions, as determined by an authorized officer of the Company. Any such repurchases can be made from time to time in accordance with applicable securities laws and other requirements.

Other than pursuant to the Repurchase Plan, no purchases of common stock of the Company were made by or on behalf of the Company during the periods described below.

The table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthly basis during the three month period ended September 30, 2021.March 31, 2022.

Period 
Total Number
of Shares
Purchased
  
Average
Price Paid
per Share
  
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
  
Maximum Number
of Shares that
May Yet be
Purchased
Under the Plans
or Programs
 
JulyJanuary 1 – JulyJanuary 31, 20212022  
—
  
$
—
   
—
   
325,129
 
AugustFebruary 1 – August 31, 2021February 28, 2022  
—
   
—
   
—
   
325,129
 
SeptemberMarch 1 – September 30, 2021March 31, 2022  
—
   
—
   
—
   
325,129
 
Total  
—
  
$
—
   
—
     

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.
  
101. INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
  
101. SCH
Inline XBRL Taxonomy Extension Schema Document.
  
101. CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
  
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
  
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
  
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
  
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

2624
SIGNATURES

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

 
ATLANTIC AMERICAN CORPORATION
 (Registrant) 
    
Date: November 10, 2021May 11, 2022
By:
/s/ J. Ross Franklin
 
  
J. Ross Franklin
  
Vice President and Chief Financial Officer
  
(Principal Financial and Accounting Officer)


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