What changed in this filing

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Item 1. Financial Statements

2021-08-10 compared with 2021-05-11 · 441 added, 331 removed, 477 unchanged (62% of the section changed)

30 unchanged sentences

Preferred stock, $ 1 par, 4,000,000 shares authorized;

Series D preferred, 55,000 shares issued and outstanding;

Series D preferred, 55,000

shares issued and outstanding;

$ 5,500 redemption value

16 unchanged sentences

Three Months Ended

Six Months Ended

Insurance premiums, net

9 unchanged sentences

Total benefits and expenses

Loss before income taxes

Income tax benefit

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Preferred stock dividends

Net loss applicable to common shareholders

Loss per common share (basic and diluted)

Net income (loss) applicable to common shareholders

Earnings (loss) per common share (basic)

Earnings (loss) per common share (diluted)

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

3 unchanged sentences

Three Months Ended

Other comprehensive loss:

Six Months Ended

Net income (loss)

Other comprehensive income (loss):

Available-for-sale fixed maturity securities:

Gross unrealized holding loss arising in the period

Gross unrealized holding gain (loss) arising in the period

Related income tax effect

reclassification adjustment for net realized gains included in net loss

reclassification adjustment for net realized gains included in net income (loss)

Related income tax effect

Total other comprehensive loss, net of tax

Total comprehensive loss

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

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

3 unchanged sentences

Three Months Ended

Six Months Ended

Preferred stock:

11 unchanged sentences

Balance, beginning of period

Net income (loss)

Dividends on common stock

1 unchanged sentence

Balance, end of period

Accumulated other comprehensive income (loss):

Accumulated other comprehensive income:

Balance, beginning of period

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Balance, end of period

7 unchanged sentences

Restricted stock grants, net of forfeitures

Net shares acquired of 5,479 and 5,902 in 2021 and 2020, respectively related to employee share-based

compensation plans

Issuance of 999 and 2,741 shares, as of 2021 and 2020, respectively, under stock plans

6 unchanged sentences

Dollars in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of acquisition costs, net

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Amortization of (additions to) acquisition costs, net

Realized investment gains, net

3 unchanged sentences

Deferred income tax benefit

Decrease in receivables, net

Decrease in insurance reserves and policyholder funds

Increase in receivables, net

Increase in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

Net cash used in operating activities

Net cash (used in) provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends on common stock

Proceeds from shares issued under stock plans

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Treasury stock acquired — net employee share-based compensation

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash paid for interest

Cash paid for income taxes

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

3 unchanged sentences

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

The Parent’s primary operating subsidiaries, American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance

Company (together known as “Bankers Fidelity”), operate in two principal business units.

American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market.

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, 2020 (the “2020 Annual Report”).

The Company’s financial

condition and results of operations and cash flows as of and for the three month period ended March 31, 2021 are not necessarily indicative of the financial condition or results of operations and cash flows that may be expected for the year ending

December 31, 2021 or for any other future period.

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

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of

contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”).

The Parent’s primary operating subsidiaries,

American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), operate in

two 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, 2020

(the “2020 Annual Report”).

The Company’s financial condition and results of operations and cash flows as of and for the three and six month periods ended June 30, 2021 are not necessarily indicative of the financial condition or results of

operations and cash flows that may be expected for the year ending December 31, 2021 or for any other future period.

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

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

Although the ultimate impact cannot be predicted with certainty at this time, the Company’s insurance subsidiaries do not expect a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses, but that may

change as more information becomes available.

In addition, economic uncertainty related to COVID-19 has led to, 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.

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 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.

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

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.

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.

of New Accounting Standards

– 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

The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020, although earlier adoption is permitted.

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

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 2020 Annual Report.

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 March 31, 2021 and December 31, 2020.

The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

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 2020 Annual Report.

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortized cost of

the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of June 30, 2021 and December 31, 2020.

Fixed maturities were comprised of the following:

March 31, 2021

June 30, 2021

Fixed maturities:

27 unchanged sentences

Total fixed maturities

Bonds having an amortized cost of $10,444 and $10,670 and included in the tables above were on deposit with insurance regulatory authorities as of March 31, 2021 and December 31, 2020, respectively, in accordance with

statutory requirements.

Additionally, bonds having an amortized cost of $6,391 and $1,997 and included in the tables above were pledged as collateral to FHLB at March 31, 2021 and December 31, 2020, respectively.

Bonds having an amortized cost of $ 10,923

and $ 10,670 and included in the tables above were on deposit with insurance regulatory authorities as of June 30, 2021 and December 31,

2020, respectively, in accordance with statutory requirements.

Additionally, bonds having an amortized cost of $ 6,394 and $ 1,997 and included in the tables above were pledged as collateral to FHLB at June 30, 2021 and December 31, 2020, respectively.

Equity securities were comprised of the following:

March 31, 2021

June 30, 2021

Equity securities:

9 unchanged sentences

Total equity securities

The carrying value and amortized cost of the Company’s investments in fixed maturities at March 31, 2021 and December 31, 2020 by contractual maturity were as follows.

Actual maturities may differ

from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

March 31, 2021

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

maturity were as follows.

Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

June 30, 2021

December 31, 2020

4 unchanged sentences

Asset backed securities

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 March 31, 2021 and

December 31, 2020.

March 31, 2021

The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous

unrealized loss position as of June 30, 2021 and December 31, 2020.

June 30, 2021

Less than 12 months

11 unchanged sentences

Total temporarily impaired securities

The evaluation for an other than temporary impairment (“OTTI”) is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the

fair value of investments are other than temporary.

Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in

interest rates.

In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the

issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings

actions that may affect the issuer’s credit status.

There were no OTTI charges recorded during the three month periods ended March 31, 2021 and 2020.

As of March 31, 2021 and December 31, 2020, there were thirty-seven and twenty 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 three month period ended

March 31, 2021, 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 March 31, 2021.

The following table is a summary of realized investment gains for the three month period ended March 31, 2021 and 2020.

The evaluation for an other than temporary impairment (“OTTI”) is a quantitative and qualitative process, which is subject to risks and

uncertainties in the determination of whether declines in the fair value of investments are other than temporary.

Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition

or near term recovery prospects and the effects of changes in interest rates.

In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature

of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s

ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status.

There were no OTTI charges

recorded during the three month and six month periods ended June 30, 2021 and 2020.

As of June 30, 2021 and December 31, 2020, there were twenty-six

and twenty securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in

fixed maturities within the financial services, other diversified business and other diversified consumer sectors.

The increase in the number of securities in an unrealized loss position during the six month period ended June 30, 2021, 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 June 30, 2021.

The following tables summarize realized investment gains for the three month period ended June 30, 2021 and the six month periods ended June 30, 2021 and 2020.

were no realized investment gains (losses) in the three month period ended June 30, 2020.

Three Months Ended

March 31, 2021

June 30, 2021

Realized investment gains, net

Three Months Ended

March 31, 2020

Six Months Ended

June 30, 2021

Realized investment gains, net

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month period ended March 31, 2021 and 2020.

Six Months Ended

June 30, 2020

Realized investment gains, net

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month and six month

periods ended June 30, 2021 and 2020.

Three Months Ended

Six Months Ended

Net realized and unrealized gains (losses) recognized during the period on equity securities

3 unchanged sentences

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 $3,183 and $3,238 as of March 31,

2021 and December 31, 2020, respectively.

The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238 as of March 31, 2021 and December 31, 2020.

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.

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 $ 3,117 and $ 3,238

as of June 30, 2021 and December 31, 2020, respectively.

The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238 as of June 30, 2021 and December 31, 2020.

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.

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 $4,421 and $4,476, as of March 31, 2021 and December 31, 2020, respectively.

As of March 31,

2021 and December 31, 2020, the Company had outstanding commitments totaling $1,997, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new

investments and partnership expenses.

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 $ 4,355 and $ 4,476 , as of June 30, 2021 and December 31, 2020,

respectively.

As of June 30, 2021 and December 31, 2020, the Company had outstanding commitments totaling $ 1,997 , whereby the Company

is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses.

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.

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.

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

The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.

Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

The Company’s financial instruments valued using Level 1 criteria

include cash equivalents and exchange traded common stocks.

Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities.

The Company’s financial instruments valued using Level 2 criteria include significantly most of its

fixed maturities, which consist of U.S.

Observable inputs that reflect

quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange

traded common stocks.

Observable inputs, other than quoted

prices included in Level 1, for an asset or liability or prices for similar assets or liabilities.

The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S.

Treasury securities, U.S.

Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks.

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

interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

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.

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.

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.

The Company’s financial instruments valued using Level 3 criteria consist of two fixed maturity securities and one equity security.

As of March 31, 2021 and December 31, 2020, the value of the fixed maturities valued

using Level 3 criteria was $250 and $0, respectively.

As of March 31, 2021 and December 31, 2020, the value of the equity security valued using Level 3 criteria was $83 and $143, respectively.

The equity security is not traded and valued

The use of different criteria or assumptions regarding data may have yielded materially different valuations.

As of March 31, 2021, financial instruments carried at fair value were measured on a recurring basis as summarized below:

As of June 30, 2021 and December 31, 2020, the value of the fixed maturities valued using

Level 3 criteria was $ 124 and $ 0 , respectively.

As of June 30, 2021

and December 31, 2020, the value of the equity security valued using Level 3 criteria was $ 83 and $ 143 , respectively.

The equity security is not traded and valued at cost.

The use of different criteria or assumptions regarding data may have yielded materially different

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

Quoted Prices

3 unchanged sentences

Cash equivalents

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

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

Quoted Prices in

4 unchanged sentences

Cash equivalents

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 March 31, 2021 and December 31, 2020.

March 31, 2021

following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of June 30, 2021 and December 31, 2020.

June 30, 2021

December 31, 2020

9 unchanged sentences

Liabilities for Unpaid Losses, Claims and Loss Adjustment Expenses

The roll-forward of liabilities for unpaid losses, claims and loss adjustment expenses for the three months ended March 31, 2021 and 2020 is as follows:

Three Months Ended

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

Six Months Ended

Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross

11 unchanged sentences

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

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.

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.

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.

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

Partially offsetting the unfavorable development was favorable development in the property and casualty operations.

Prior years’ development was primarily the result of favorable development in the loss and claim reserves for the Medicare supplement line of business in Bankers Fidelity.

Rate increases on existing business and the resultant

improvement in rate adequacy was more favorable than expected.

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

Three Months Ended

Rate increases on existing business and the resultant improvement in rate adequacy was more favorable than expected.

Following is a

reconciliation of total incurred losses to total insurance benefits and losses incurred:

Six Months Ended

Total incurred losses

2 unchanged sentences

Total insurance benefits and losses incurred

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 June 30, 2021, the Company does no t have any outstanding borrowings under the Credit Agreement.

Junior Subordinated Debentures

The Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of:

(i) issuing trust preferred securities (“Trust Preferred Securities”)

representing undivided beneficial interests in the assets of the trusts;

(ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic

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 March 31, 2021 was as follows:

(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;

(iii) engaging in those activities necessary or incidental thereto.

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

Atlantic American

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JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed March 31, 2021

Principal amount owed June 30, 2021

Treasury debt (3)

Net balance March 31, 2021

Net balance June 30, 2021

Net balance December 31, 2020

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Distribution guaranteed by (4)

Atlantic American

For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the

debentures’ respective maturity dates.

During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal,

interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures.

The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated

Debentures to be distributed to the holders of the Trust Preferred Securities.

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

Atlantic American Corporation

For each of the respective debentures, the Company has the right at any time, and from time to time, to defer

payments of interest on the Junior Subordinated Debentures for a period not exceeding 20

consecutive quarters up to the debentures’ respective maturity dates.

During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s

common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures.

The Company has the right at any time to dissolve each of the

trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities.

The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all

senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries.

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

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

upon dissolution, winding up or liquidation.

Loss Per Common Share

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

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.

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

March 31, 2021

June 30, 2021

(In thousands)

Basic and Diluted Loss Per Common Share:

Basic Earnings Per Common Share:

Less preferred stock dividends

Net loss applicable to common shareholders

Net income applicable to common shareholders

Diluted Earnings Per Common Share:

Effect of Series D preferred stock

Net income applicable to common shareholders

Three Months Ended

March 31, 2020

June 30, 2020

(In thousands)

Basic Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Diluted Earnings Per Common Share:

Effect of Series D preferred stock

Net income applicable to common shareholders

Six Months Ended

June 30, 2021

(In thousands)

Basic and Diluted Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Six Months Ended

June 30, 2020

(In thousands)

Basic and Diluted Loss Per Common Share:

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Net loss applicable to common shareholders

The assumed conversion of the Company’s Series D preferred stock was excluded from the loss per common share calculation for all periods presented since its impact would have been antidilutive.

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

The assumed conversion of the Company’s Series D preferred stock was included in the earnings (loss) per common share calculation for the three month periods ended June 30, 2021 and 2020.

The assumed conversion of the

Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for the six month periods ended June 30, 2021 and 2020 since its impact would have been antidilutive.

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

Six Months Ended

Federal income tax provision at statutory rate of 21 %

Dividends-received deduction

Other permanent differences

Income tax benefit

The components of income tax benefit were:

Meals & entertainment

Vested stock & club dues

Parking disallowance

Income tax expense (benefit)

The components of income tax expense (benefit) were:

Three Months Ended

Six Months Ended

Current – Federal

Deferred – Federal

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

In addition, the Company determined there were no significant tax implications as a

result of the CARES Act.

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

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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 three months ended March

31, 2021 and March 31, 2020 was $254.

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

Three Months Ended

The original term of the second lease was ten years

and amended in January 2017 to provide for an additional seven years , with a termination date on September 30, 2026.

The rate used in

determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

These leases are accounted for as operating leases, whereby

lease expense is recognized on a straight-line basis over the term of the lease.

Lease expense reported for the six months ended June 30, 2021 and June 30, 2020 was $ 507 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Six Months Ended

Other information on operating leases:

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

Cash payments included in the measurement of lease

liabilities reported in operating cash flows

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

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Weighted average remaining lease term in years

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

The following table presents maturities and present value of

the Company’s lease liabilities:

Lease Liability

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

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

As of June 30, 2021, the Company has no operating leases that

have not yet commenced.

Commitments and Contingencies

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

In the opinion of management,

any such known claims are not expected to have a material effect on the financial condition or results of operations of the Company.

From time to time, the

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

In the opinion of management, any such known claims are not expected to have a material effect on the

financial condition or results of operations of the Company.

Segment Information

The Parent’s primary insurance subsidiaries, American Southern and Bankers Fidelity, operate in two principal business units, each focusing on specific products.

American Southern operates in the

property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market.

Each business unit is managed independently and is evaluated on its individual performance.

The following sets forth the assets,

revenue and loss before income taxes for each business unit as of and for the periods ended 2021 and 2020.

The Parent’s primary

insurance subsidiaries, American Southern and Bankers Fidelity, operate in two principal business units, each focusing on specific

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

The following sets forth the assets, revenue and income (loss) before income

taxes for each business unit as of and for the periods ended 2021 and 2020.

American Southern

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Three Months Ended

Six Months Ended

American Southern

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Total revenue

In come (Loss) Before Income Taxes

Three Months Ended

Loss Before Income Taxes

Six Months Ended

American Southern

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Corporate and Other

Loss before income taxes

Income (loss) before income taxes

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively

with the Parent, the “Company”) as of and for three month period ended March 31, 2021.

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as

well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its

subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and six month periods ended June 30, 2021.

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and

notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).

Atlantic American is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries:

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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.

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Overall Corporate Results

The following presents the Company’s revenue, expenses and net loss for the three month period ended March 31, 2021 and the comparable period in 2020:

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

Three Months Ended

(In thousands)

Six Months Ended

Insurance premiums, net

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Total benefits and expenses

Loss before income taxes

Income (loss) before income taxes

Net income (loss)

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

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are, to a limited extent, subject to discretion in terms of timing of realization).

A reconciliation of net loss to operating loss for the three month period ended March 31, 2021 and the comparable period in 2020 is as follows:

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

Three Months Ended

Six Months Ended

Reconciliation of Non-GAAP Financial Measure

(In thousands)

Income tax benefit

Net income (loss)

Income tax expense (benefit)

Realized investment gains, net

Unrealized (gains) losses on equity securities, net

Non-GAAP operating loss

On a consolidated basis, the Company had net loss of $0.4 million, or $0.03 per diluted share, for the three month period ended March 31, 2021, compared to net loss of $8.1 million, or $0.40 per

diluted share, for the three month period ended March 31, 2020.

Premium revenue for the three month period ended March 31, 2021 increased $0.5 million, or 1.2%, to $46.1 million from $45.6 million in the three month period ended March 31, 2020.

The increase in premium revenue was primarily attributable to an increase in the automobile physical damage and automobile liability lines of business in the property and casualty operations.

Partially offsetting this increase in premium revenue

was a decrease in the Medicare supplement premiums in the life and health operations.

Operating loss decreased $0.6 million in the three month period ended March 31, 2021 from the three month period ended March 31, 2020.

The decrease in operating loss was primarily due to favorable

loss experience in the life and health operations, resulting from improved rate adequacy coupled with a decrease in the number of incurred claims within the Medicare supplement line of business.

This decrease in the number of incurred claims was

primarily attributable to the Company’s individual policy holders being subject to varying degrees of shelter in place orders instituted throughout the United States as a result of the COVID-19 pandemic.

Non-GAAP operating income (loss)

On a consolidated basis, the Company had net income of $3.0 million, or $0.14 per diluted share, for the three month period ended June 30, 2021, compared to net income of $6.5 million, or $0.30 per

diluted share, for the three month period ended June 30, 2020.

The Company had net income of $2.5 million, or $0.11 per diluted share, for the six month period ended June 30, 2021, compared to net loss of $1.6 million, or $0.09 per diluted share,

for the six month period ended June 30, 2020.

For the three month period ended June 30, 2021, premium revenue decreased $1.4 million, or 2.9%, to $45.1 million from $46.5 million in the comparable period in 2020.

For the six month period ended

June 30, 2021, premium revenue decreased $0.8 million, or 0.9%, to $91.2 million from $92.0 million in the comparable period in 2020.

The decrease in premium revenue was primarily attributable to a decrease in the Medicare supplement line of

business in the life and health operations.

Operating income decreased $7.2 million in the three month period ended June 30, 2021 from the three month period ended June 30, 2020.

For the six month period ended June 30, 2021, operating income decreased $6.6

million from the comparable period in 2020.

The decrease in operating income was primarily due to less favorable loss experience in the life and health operations, resulting from a significant increase in the number of incurred claims within 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.

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 period ended March 31, 2021 and the comparable period in 2020:

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

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Combined ratio

Gross written premiums at American Southern increased $1.8 million, or 19.2%, during the three month period ended March 31, 2021 from the comparable period in 2020.

The increase in gross written

premiums was primarily attributable to an increase in premiums written in the automobile physical damage line of business from existing agencies, as well as increases in the automobile liability line of business due to retro premium adjustments.

Also contributing to the increase in gross written premiums was an increase in premiums written in the general liability line of business as a result of a new program that started in the second half of 2020.

Ceded premiums increased $0.3 million, or 20.8%, during the three month period ended March 31, 2021 from the comparable period in 2020.

American Southern’s ceded premiums are typically determined

as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.

Also contributing to the increase in ceded premiums in 2021 was an increase in earned premiums and reinsurance rates in certain accounts

within the automobile physical damage and general liability lines of business, which are subject to reinsurance.

The following presents American Southern’s net earned premiums by line of business for the three month period ended March 31, 2021 and the comparable periods in 2020:

Gross written premiums at American Southern decreased $0.3 million, or 0.8%, during the three month period ended June 30, 2021 and increased $1.6 million, or 3.7%, during the six month period ended

June 30, 2021, from the comparable periods in 2020.

The decrease in gross written premiums during the three month period ended June 30, 2021 was primarily due to decreases in the automobile liability line of business resulting from a decline in

gross premiums written within a certain agency, as well as retro premium adjustments.

The increase in gross written premiums during the six month period ended June 30, 2021 was primarily attributable to an increase in premiums written in the

automobile physical damage line of business from existing agencies, as well as an increase in gross written premiums in the general liability line of business as a result of a new program that started in the second half of 2020.

offsetting the increase was a decline in premiums written in the automobile liability line of business as previously discussed.

Ceded premiums increased $0.1 million, or 7.9%, during the three month period ended June 30, 2021 and $0.4 million, or 14.2%, during the six month period ended June 30, 2021, from the comparable

periods in 2020.

American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.

Also contributing to the increase in ceded premiums in 2021

was an increase in earned premiums and reinsurance rates in certain accounts within the automobile physical damage and general liability lines of business, which are subject to reinsurance.

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

Three Months Ended

Six Months Ended

(In thousands)

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General liability

Net earned premiums increased $1.7 million, or 11.3%, during the three month period ended March 31, 2021 over the comparable period in 2020.

The increase in net earned premiums was primarily

attributable to an increase in automobile physical damage coverage resulting from existing agencies as previously mentioned, as well as premium adjustments on a large automobile liability account.

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.

Net earned premiums increased $0.5 million, or 3.4%, during the three month period ended June 30, 2021, and $2.2 million, or 7.3%, during the six month period ended June 30, 2021, over the

comparable periods in 2020.

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.

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loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

Insurance benefits and losses incurred at American Southern increased $2.2 million, or 23.2%, during the three month period ended March 31, 2021 over the comparable period in 2020.

As a percentage

of earned premiums, insurance benefits and losses incurred were 70.7% in the three month period ended March 31, 2021, compared to 63.9% in the three month period ended March 31, 2020.

The increase in the loss ratio during the three month period

ended March 31, 2021 was primarily due to an increase in the frequency of claims in the automobile physical damage line of business, as well as in the inland marine segment of the other line of business.

Commissions and underwriting expenses decreased $0.5 million, or 11.0%, during the three month period ended March 31, 2021, over the comparable period in 2020.

As a percentage of earned premiums,

underwriting expenses were 25.8% in the three month period ended March 31, 2021, compared to 32.3% in the three month period ended March 31, 2020.

The decrease in the expense ratio during the three month period ended March 31, 2021 was primarily

due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write.

During periods in which the loss ratio decreases,

commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease.

During the three month period ended March 31, 2021,

variable commissions at American Southern decreased by $0.4 million, respectively, from the comparable periods in 2020 due to less favorable loss experience from accounts subject to variable commissions.

Insurance benefits and losses incurred at American Southern increased $0.1 million, or 1.4%, during the three month period ended June 30, 2021, and increased $2.4 million, or 12.0%, during the six

month period ended June 30, 2021, over the comparable periods in 2020.

As a percentage of earned premiums, insurance benefits and losses incurred were 62.1% in the three month period ended June 30, 2021, compared to 63.3% in the three month period

ended June 30, 2020.

For the six month period ended June 30, 2021, this ratio increased to 66.4% from 63.6% in the comparable period in 2020.

The decrease in the loss ratio during the three month period ended June 30, 2021 was primarily

attributable to an increase in earned premiums in the general liability line of business.

The increase in the loss ratio during the six month period ended June 30, 2021 was mainly due to an increase in the frequency of claims in the automobile

physical damage line of business, as well as in the inland marine segment of the other line of business.

Commissions and underwriting expenses increased $0.5 million, or 10.5%, during the three month period ended June 30, 2021, and remained consistent during the six month period ended June 30, 2021,

over the comparable periods in 2020.

As a percentage of earned premiums, underwriting expenses were 32.3% in the three month period ended June 30, 2021, compared to 30.3% in the three month period ended June 30, 2020.

For the six month period ended

June 30, 2021, this ratio decreased to 29.0% from 31.2% in the comparable period in 2020.

The increase in the expense ratio during the three month period ended June 30, 2021 and the decrease in the expense ratio during the six month period ended

June 30, 2021 was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write.

During periods in which the

loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease.

Bankers Fidelity

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

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

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Total expenses

Underwriting loss

Underwriting income (loss)

Expense ratio

Combined ratio

Net earned premium revenue at Bankers Fidelity decreased $1.2 million, or 3.8%, during the three month period ended March 31, 2021, from the comparable period in 2020.

Gross earned premiums from

the Medicare supplement line of business decreased $3.3 million, or 7.5%, during the three month period ended March 31, 2021, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.2

million, or 9.3%, during the three month period ended March 31, 2021, over the comparable period in 2020, primarily as a result of new sales of the company’s group health products.

Gross earned premiums from the life insurance line of business

increased $0.6 million, or 27.9%, during the three month period ended March 31, 2021 over the comparable period in 2020 due to an increase in the group life products premium.

Partially offsetting the increase in gross earned premiums from the life

insurance line was a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual life sales.

Premiums ceded decreased $1.3 million,

or 7.4%, during the three month period ended March 31, 2021, from the comparable period in 2020.

The decrease in ceded premiums for the three month period ended March 31, 2021 was due to a decrease in Medicare supplement premiums subject to

Insurance benefits and losses incurred decreased $2.5 million, or 10.5%, during the three month period ended March 31, 2021, from the comparable period in 2020.

As a percentage of earned premiums,

insurance benefits and losses incurred were 73.0% in the three month period ended March 31, 2021, compared to 78.5% in the three month period ended March 31, 2020.

The decrease in the loss ratio for the three month period ended March 31, 2021 was

primarily due to improved rate adequacy coupled with a decrease in the number of incurred claims within the Medicare supplement line of business.

This decrease in the number of incurred claims was primarily attributable to the Company’s individual

policy holders being subject to varying degrees of shelter in place orders instituted throughout the United States as a result of the COVID-19 pandemic.

Commissions and underwriting expenses increased $0.3 million, or 2.9%, during the three month period ended March 31, 2021, over the comparable period in 2020.

As a percentage of earned premiums,

underwriting expenses were 33.5% in the three month period ended March 31, 2021, compared to 31.4% in the three month period ended March 31, 2020.

The increase in the expense ratio for the three month period ended March 31, 2021 was primarily due

to the amortization of deferred acquisition costs (“DAC”) exceeding the level of additions to DAC.

The increase in the net amortization of DAC during 2021 is primarily due to non-renewals exceeding the level of new business writings in the Medicare

supplement line of business, as previously mentioned.

Net earned premium revenue at Bankers Fidelity decreased $1.9 million, or 6.2%, during the three month period ended June 30, 2021, and $3.1 million, or 5.0%, during the six month period ended June

30, 2021, from the comparable periods in 2020.

Gross earned premiums from the Medicare supplement line of business decreased $2.9 million, or 6.7%, during the three month period ended June 30, 2021, and $6.2 million, or 7.1%, during the six month

period ended June 30, 2021, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.1 million, or 2.5%, during the three month period ended June 30, 2021, and $0.3 million, or 5.8%,

during the six month period ended June 30, 2021, over the comparable periods in 2020, primarily as a result of new sales of the company’s group health products.

Gross earned premiums from the life insurance line of business decreased $0.1 million,

or 4.2%, during the three month period ended June 30, 2021, due to a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual

Gross earned premiums from the life insurance line of business increased $0.5 million, or 10.9%, during the six month period ended June 30, 2021 over the comparable periods in 2020 due to an increase in the group life products premium,

partially offset by a decrease in individual life products premium as previously mentioned.

Premiums ceded decreased $1.1 million, or 5.9%, during the three month period ended June 30, 2021 and $2.4 million, or 6.7%, during the six month period

ended June 30, 2021, over the comparable periods in 2020.

The decrease in ceded premiums for the three month and six month periods ended June 30, 2021 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred increased $4.5 million, or 26.3%, during the three month period ended June 30, 2021, and $2.0 million, or 4.8%, during the six month period ended June 30,

2021, from the comparable periods in 2020.

As a percentage of earned premiums, benefits and losses were 74.9% in the three month period ended June 30, 2021, compared to 55.6% in the three month period ended June 30, 2020.

For the six month period

ended June 30, 2021, this ratio increased to 73.9% from 67.1% in the comparable period in 2020.

The increase in the loss ratio for the three month and six month periods ended June 30, 2021 was primarily due to an increase in the number of claims

incurred in 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 $1.0 million, or 12.6%, during the three month period ended June 30, 2021, and $1.3 million, or 7.2%, during the six month period ended June 30,

2021, over the comparable periods in 2020.

As a percentage of earned premiums, underwriting expenses were 30.4% in the three month period ended June 30, 2021, compared to 25.4% in the three month period ended June 30, 2020.

For the six month

period ended June 30, 2021, this ratio increased to 32.0% from 28.4% in the comparable period in 2020.

The increase in the expense ratio for the three month and six month periods ended June 30, 2021 was primarily due to the amortization of deferred

acquisition costs ("DAC") exceeding the level of additions to DAC.

The increase in the net amortization of DAC during 2021 is primarily due to non-renewals exceeding the level of new business writings in the Medicare supplement line of business, as

previously mentioned.

Partially offsetting the increase in the expense ratio was a decrease in expenses related to servicing the Medicare supplement line of business.

Net Investment Income and Realized Gains

Investment income increased $0.1 million, or 3.6%, during the three month period ended March 31, 2021, from the comparable period in 2020.

The increase in investment income was attributable to an

increase in the equity in earnings from investments in the Company’s limited partnerships and limited liability companies of $0.1 million.

The Company had net realized investment gains of $0.1 million during the three month period ended March 31, 2021, compared to net realized investment gains of $0.2 million during the three month

period ended March 31, 2020.

The net realized investment gains during the three month periods ended March 31, 2021 and March 31, 2020 resulted primarily from the disposition of several of the Company’s investments in fixed maturities.

continually evaluates the Company’s investment portfolio and makes adjustments for impairments and/or divests investments as may be determined to be appropriate.

Net Investment Income and Realized Gains (Losses)

Investment income increased $0.4 million, or 22.5%, during the three month period ended June 30, 2021, and $0.5 million, or 12.6%, during the six month period ended June 30, 2021, over the

comparable periods in 2020.

The increase in investment income was attributable to an increase in the equity in earnings from investments in the Company's limited partnerships and limited liability companies of $0.3 million and $0.4 million,

respectively.

The Company had net realized investment gains of $0.1 million during the three month period ended June 30, 2021, compared to no realized investment gains during the three month period ended June

The Company had net realized investment gains of $0.2 million in each of the six month periods ended June 30, 2021 and 2020.

The net realized investment gains during the three month and six month periods ended June 30, 2021 resulted

primarily from the disposition of several of the Company’s investments in fixed maturity securities.

Management continually evaluates the Company’s investment portfolio and makes adjustments for impairments and/or divests investments as may be

determined to be appropriate.

Unrealized Gains (Losses) on Equity Securities

Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period.

The Company recognized net

unrealized gains on equity securities of $0.7 million during the three month period ended March 31, 2021 and unrealized losses on equity securities of $8.5 million during the three month period ended March 31, 2020.

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.

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.

Company recognized net unrealized gains on equity securities of $4.0 million during the three month period ended June 30, 2021 and unrealized gains on equity securities of $1.4 million during the three month period ended June 30, 2020.

recognized net unrealized gains on equity securities of $4.7 million during the six month period ended June 30, 2021 and unrealized losses on equity securities of $7.1 million during the six month period ended June 30, 2020.

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 decreased $0.1 million, or 27.3%, during the three month period ended March 31, 2021, from the comparable period in 2020.

Changes in interest expense were primarily due to changes

in the London Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) are directly related to LIBOR.

Interest expense decreased $0.1 million, or 16.2%, during the three month period ended June 30, 2021, and $0.2 million, or 22.1%, during the six month period ended June 30, 2021, from the

comparable periods in 2020.

Changes in interest expense were primarily due to changes in the London Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior

Subordinated Debentures”) are directly related to LIBOR.

Liquidity and Capital Resources

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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.

March 31, 2021, the Parent had approximately $3.8 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $2.1 million for the three month period ended March 31, 2021, compared to statutory net income of $0.2 million for the three

month period ended March 31, 2020.

June 30, 2021, the Parent had approximately $3.9 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $1.5 million for the six month period ended June 30, 2021, compared to statutory net income of $4.7 million for the six month

period ended June 30, 2020.

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

In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under

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.

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recognizing realized investment gains of the individual insurance subsidiaries.

At March 31, 2021, American Southern had $49.3 million of statutory capital and surplus and Bankers Fidelity had $42.1 million of statutory capital and surplus.

At June 30, 2021, American Southern had $50.0 million of statutory capital and surplus and Bankers Fidelity had $41.7 million of statutory capital and surplus.

dividend payments by the Parent’s insurance subsidiaries in excess of $9.6 million would require prior approval.

Through March 31, 2021, the Parent received dividends of $3.9 million from its subsidiaries.

Through June 30, 2021, the Parent received dividends of $5.4 million from its subsidiaries.

The Parent provides certain administrative and other services to each of its insurance subsidiaries.

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The margin ranges from 4.00% to 4.10%.

At March 31, 2021, the effective interest rate was 4.25%.

At June 30, 2021, the effective interest rate was 4.20%.

The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities.

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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 March 31, 2021,

As of June 30, 2021,

the Company has not made such an election.

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

potential future financing arrangements.

At March 31, 2021, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

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

or potential future financing arrangements.

At June 30, 2021, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

All of the shares of Series D Preferred Stock are held by an affiliate of the

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The Series D Preferred Stock is not currently convertible.

At March 31, 2021, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.1 million.

At June 30, 2021, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.2 million.

Bankers Fidelity Life Insurance Company (''BFLIC") is a member of the Federal Home Loan Bank of Atlanta ("FHLB"), for the primary purpose of enhancing financial flexibility.

As a member, BFLIC can obtain access to

low-cost funding and also receive dividends on FHLB stock.

As a member, BFLIC can

obtain access to low-cost funding and also receive dividends on FHLB stock.

The membership arrangement established initial credit availability of five percent of statutory admitted assets, or approximately $8 million.

Additional FHLB stock purchases may be required

based upon the amount of funds borrowed from the FHLB.

Additional FHLB stock

purchases may be required based upon the amount of funds borrowed from the FHLB.

BFLIC would be required to post acceptable forms of collateral for any borrowings it makes from the FHLB.

To date, BFLIC has not made any borrowings from the FHLB.

Cash and cash equivalents increased from $19.3 million at December 31, 2020 to $20.4 million at March 31, 2021.

The increase in cash and cash equivalents during the three month period ended

March 31, 2021 was primarily attributable to net cash provided by investing activities of $7.2 million as a result of investment sales and maturity of securities exceeding investment purchases.

Largely offsetting the net cash provided by

investing activities was $6.0 million in net cash used in operating activities.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, additional borrowings from

financial institutions, will enable the Company to meet its liquidity requirements for the 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.

As of June 30, 2021, BFLIC does not have any outstanding

borrowings from the FHLB.

See Note 6 of the Notes to Condensed Consolidated Financial Statements for a discussion of the Company’s available credit

under its new revolving credit facility.

Cash and cash equivalents decreased from $19.3 million at December 31, 2020 to $9.5 million at June 30, 2021.

The decrease in cash and cash equivalents during the six month period ended June 30,

2021 was primarily attributable to net cash used in operating activities of $13.9 million.

Partially offsetting the cash used in operating activities was net cash provided by investing activities of $4.5 million as a result of investment sales and

maturity of securities exceeding investment purchases.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, 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

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monitor state required actions as they develop.

For the Company’s property and casualty operations, the majority of premium revenue is derived from automobile liability and automobile physical damage lines of business written on a multi-year contract basis with

state and local governments.

Although we cannot predict with certainty at this time, we do not expect a significant level of cancellations or non-renewals of our property and casualty contracts in the short term but recognize that a prolonged

economic slowdown could adversely affect future results.

For the Company’s property and casualty operations, the majority of premium revenue is derived from automobile liability and automobile physical damage lines of business written on a multi-year

contract basis with state and local governments.

Although we cannot predict with certainty at this time, we do not expect a significant level of cancellations or non-renewals of our property and casualty contracts in the short term but recognize

that a prolonged economic slowdown could adversely affect future results.

However, the Company expects the aforementioned decline in usage to be temporary in nature.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements