ATLANTIC AMERICAN CORP 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page ATLANTIC AMERICAN CORPORATION Report of Independent Registered Public Accounting Firm ( Dixon Hughes Goodman, LLP , Atlanta, GA PCAOB Firm ID No. 57 ) 22 Consolidated Balance Sheets as of December 31, 2021 and 2020 24 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 25 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020 26 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020 27 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 28 Notes to Consolidated Financial Statements 29 21 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Atlantic American Corporation Atlanta, Georgia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Atlantic American Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2021 and the related notes and schedules (collectively, referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles (GAAP). Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Insurance Reserves for Losses and Claims (Claim Reserves) As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for losses and claims (claim reserves), were $85.6 million as of December 31, 2021. The Company’s claim reserves relate primarily to its property casualty lines of business and Medicare supplement business. The process of establishing claim reserves requires the use of estimates and judgments based on circumstances underlying the insured loss at the date of accrual. Management’s judgments include claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, estimates of incurred but not reported (IBNR) claims based on past experience and estimates of loss adjustment expenses. The principal considerations for our determination that the valuation of claim reserves is a critical audit matter are the high degree of judgment and subjectivity in auditing the actuarial methods and assumptions used in the valuation process, including assumptions around expected loss ratios and reported and paid loss emergence patterns. 22 Table of Contents Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating the appropriateness of management’s actuarial reserving methodologies and assumptions; o Evaluating management’s hindsight analyses; o Comparing management’s carried reserve to the range calculated by management’s specialist for property casualty claim reserves; • Testing the completeness and accuracy of data provided by management that served as the basis for the actuarial analyses on a sample basis; and • Evaluating movement of the Company’s recorded property casualty claim reserves within the Company’s estimated reserve range year over year. Valuation of Insurance Reserves for Future Policy Benefits (Policy Reserves) As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for future policy benefits (policy reserves) were $87.3 million as of December 31, 2021. Policy reserves are related to life and health insurance policies and are based upon significant assumptions including future investment yields, mortality rates, withdrawal rates and expenses after giving effect to possible risks of unexpected claim experience. These assumptions are based on historical experience modified as necessary to reflect anticipated trends and are generally established at contract inception. The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment required to assess certain assumptions that impact policy reserves and the complexity of the actuarial calculations. Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with GAAP; o Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions; o Performing an independent recalculation of policy reserves for a sample of contracts for comparison to management’s estimate; and o Evaluating management’s loss recognition testing of aggregate reserve sufficiency. • Testing the completeness and accuracy of data used by management in developing assumptions on a sample basis. /s/ Dixon Hughes Goodman, LLP We have served as the Company’s auditor since 2018. Atlanta, Georgia March 25, 2022 23 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (In thousands, except share and per share data) ASSETS Cash and cash equivalents $ 24,753 $ 19,319 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost: $ 238,597 and $ 222,461 ) 260,986 254,106 Equity securities, at fair value (cost: $ 4,907 and $ 6,393 ) 19,124 18,716 Other invested assets (cost: $ 698 and $ 3,765 ) 198 3,238 Policy loans 1,858 1,975 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 283,442 279,311 Receivables: Reinsurance 27,416 29,086 Insurance premiums and other, net of allowance for doubtful accounts of $ 188 and $ 198 as of 2021 and 2020 , respectively 14,959 27,512 Deferred income taxes, net 1,755 — Deferred acquisition costs 38,698 39,611 Other assets 8,719 7,804 Intangibles 2,544 2,544 Total assets $ 402,286 $ 405,187 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds Future policy benefits $ 87,348 $ 90,872 Unearned premiums 27,469 27,131 Losses and claims 85,620 79,147 Other policy liabilities 1,360 1,526 Total insurance reserves and policyholder funds 201,797 198,676 Accounts payable and accrued expenses 25,465 26,412 Deferred income taxes, net — 1,301 Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 261,000 260,127 Commitments and contingencies (Note 16) Shareholders’ equity: Preferred stock, $ 1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $ 5,500 redemption value 55 55 Common stock, $ 1 par, 50,000,000 shares authorized; 22,400,894 shares issued; 20,378,576 and 20,415,243 shares outstanding as of 2021 and 2020 , respectively 22,401 22,401 Additional paid-in capital 57,441 57,437 Retained earnings 51,264 47,790 Accumulated other comprehensive income 17,688 25,000 Unearned stock grant compensation ( 73 ) ( 284 ) Treasury stock, at cost, 2,022,318 and 1,985,651 shares as of 2021 and 2020 , respectively ( 7,490 ) ( 7,339 ) Total shareholders’ equity 141,286 145,060 Total liabilities and shareholders’ equity $ 402,286 $ 405,187 See the accompanying notes to the consolidated financial statements. 24 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 (In thousands, except per share data) Revenue: Insurance premiums, net $ 184,216 $ 183,539 Net investment income 8,528 7,744 Realized investment gains, net 4,903 7,420 Unrealized gains (losses) on equity securities, net 1,894 ( 3,431 ) Other income 13 76 Total revenue 199,554 195,348 Benefits and expenses: Insurance benefits and losses incurred 131,694 119,876 Commissions and underwriting expenses 47,496 46,811 Interest expense 1,387 1,610 Other expense 13,675 11,548 Total benefits and expenses 194,252 179,845 Income before income taxes 5,302 15,503 Income tax expense 1,021 3,334 Net Income 4,281 12,169 Preferred stock dividends ( 399 ) ( 399 ) Net Income applicable to common shareholders $ 3,882 $ 11,770 Earnings per common share (basic) 0.19 0.58 Earnings per common share (diluted) $ 0.19 $ 0.56 See the accompanying notes to the consolidated financial statements. 25 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2021 2020 (In thousands) Net income $ 4,281 $ 12,169 Other comprehensive income: Available-for-sale fixed maturity securities: Gross unrealized holding gain (loss) arising in the period ( 8,686 ) 18,791 Related income tax effect 1,824 ( 3,946 ) Subtotal ( 6,862 ) 14,845 Less: reclassification adjustment for net realized gains included in net income ( 570 ) ( 385 ) Related income tax effect 120 81 Subtotal ( 450 ) ( 304 ) Total other comprehensive income (loss), net of tax ( 7,312 ) 14,541 Total comprehensive income (loss) $ ( 3,031 ) $ 26,710 See the accompanying notes to the consolidated financial statements. 26 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year Ended December 31, (In thousands, except share and per share data) 2021 2020 Preferred stock: Balance, beginning of year $ 55 $ 55 Balance, end of year 55 55 Common stock: Balance, beginning of year 22,401 22,401 Balance, end of year 22,401 22,401 Additional paid-in capital: Balance, beginning of year 57,437 57,820 Restricted stock grants, net of forfeitures — ( 376 ) Issuance of shares under stock plans 4 ( 7 ) Balance, end of year 57,441 57,437 Retained earnings: Balance, beginning of year 47,790 36,020 Net income 4,281 12,169 Dividends on common stock ( 408 ) — Dividends accrued on preferred stock ( 399 ) ( 399 ) Balance, end of year 51,264 47,790 Accumulated other comprehensive income: Balance, beginning of year 25,000 10,459 Other comprehensive income (loss), net of tax ( 7,312 ) 14,541 Balance, end of year 17,688 25,000 Unearned stock grant compensation: Balance, beginning of year ( 284 ) ( 781 ) Restricted stock grants, net of forfeitures — 60 Amortization of unearned compensation 211 437 Balance, end of year ( 73 ) ( 284 ) Treasury stock: Balance, beginning of year ( 7,339 ) ( 7,580 ) Restricted stock grants, net of forfeitures — 316 Net shares acquired related to employee share-based compensation plans ( 153 ) ( 91 ) Issuance of shares under stock plans 2 16 Balance, end of year ( 7,490 ) ( 7,339 ) Total shareholders’ equity $ 141,286 $ 145,060 Dividends declared on common stock per share $ 0.02 $ — Common shares outstanding: Balance, beginning of year 20,415,243 20,472,162 Net shares acquired under employee share-based compensation plans ( 38,147 ) ( 46,620 ) Issuance of shares under stock plans 1,480 4,701 Restricted stock grants, net of forfeitures — ( 15,000 ) Balance, end of year 20,378,576 20,415,243 See the accompanying notes to the consolidated financial statements. 27 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 (In thousands) Cash flows from operating activities: Net Income $ 4,281 $ 12,169 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 24,064 19,393 Acquisition costs deferred ( 23,151 ) ( 20,143 ) Realized investment gains, net ( 4,903 ) ( 7,420 ) Unrealized (gains) losses on equity securities, net ( 1,894 ) 3,431 Distributions received from equity method investees 290 — Compensation expense related to share awards 211 437 Depreciation and amortization 1,003 980 Deferred income tax benefit ( 1,112 ) ( 2,250 ) Decrease in receivables, net 1,545 1,349 Increase (decrease) in insurance reserves and policyholder funds 3,121 ( 3,230 ) (Decrease) increase in accounts payable and accrued expenses ( 947 ) 2,324 Other, net ( 1,420 ) 1,931 Net cash provided by operating activities 1,088 8,971 Cash flows from investing activities: Proceeds from investments sold 29,184 18,541 Proceeds from investments matured, called or redeemed 11,515 7,117 Investments purchased ( 35,292 ) ( 27,489 ) Additions to property and equipment ( 107 ) ( 233 ) Net cash provided by (used in) investing activities 5,300 ( 2,064 ) Cash flows from financing activities: Payment of dividends on Series D preferred stock ( 399 ) ( 399 ) Payment of dividends on common stock ( 408 ) — Proceeds from shares issued under stock plans 6 9 Treasury stock acquired — net employee share-based compensation ( 153 ) ( 91 ) Net cash used in financing activities ( 954 ) ( 481 ) Net increase in cash 5,434 6,426 Cash and cash equivalents at beginning of year 19,319 12,893 Cash and cash equivalents at end of year $ 24,753 $ 19,319 Supplemental cash flow information: Cash paid for interest $ 1,389 $ 1,665 Cash paid for income taxes $ 3,202 $ 3,883 Non-cash investing activities: Receivable from sale of other invested assets $ — $ 12,678 See the accompanying notes to the consolidated financial statements. 28 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Note 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which, for insurance companies, differ in some respects from the statutory accounting practices prescribed or permitted by regulatory authorities. These financial statements include the accounts of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results achieved in any historical period are not necessarily indicative of results to be expected in any future period. At December 31, 2021, the Parent owned four insurance subsidiaries, Bankers Fidelity Life Insurance Company and its wholly-owned subsidiary, Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), and American Southern Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company (together known as “American Southern”), in addition to one non-insurance subsidiary, xCalibre Risk Services, Inc. The Parent has issued a guarantee of all liabilities of Bankers Fidelity. Premium Revenue and Cost Recognition Life insurance premiums are recognized as revenue when due; accident and health insurance premiums are recognized as revenue over the premium paying period and property and casualty insurance premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided. Losses, benefits and expenses are accrued as incurred and are associated with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. For traditional life insurance and long-duration health insurance, this association is accomplished by the provision of a future policy benefits reserve and the deferral and subsequent amortization of the costs of acquiring business, which are referred to as “deferred policy acquisition costs” (principally commissions, premium taxes, and other incremental direct costs of issuing policies). Deferred policy acquisition costs (“DAC”) are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the future policy benefits reserve. The Company provides for insurance benefits and losses on accident, health, and property-casualty claims based upon estimates of projected ultimate losses. DAC for property and casualty insurance and short-duration health insurance is amortized over the effective period of the related insurance policies. Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued as earned. In periods in which revisions are made to the estimated loss reserves related to the particular insurance contract or group of insurance contracts subject to such commissions, corresponding adjustments are also made to the related accruals. DAC is expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance). Intangibles Intangibles consist of goodwill and other indefinite-lived intangible assets. Goodwill represents the excess of cost over the fair value of net assets acquired and is not amortized. Other indefinite-lived intangibles represent the value of licenses and are not amortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverse conditions exist that could indicate impairment. Conditions that could trigger impairment include, but are not limited to, a significant change in business climate that could affect the value of the related asset, an adverse action, or an assessment by a regulator. No impairment of the Company’s recorded intangibles was identified during any of the periods presented. Investments The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and, accordingly, are carried at fair value with the after-tax difference from amortized cost, as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss. The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income. The fair values of fixed maturities and equity securities are largely determined from publicly quoted market prices, when available, or independent broker quotations. As of December 31, 2021, the Company owned a certain equity security in the amount of $ 157 , with a valuation that was derived from techniques in which one or more of the significant inputs are unobservable. As of December 31, 2021, the Company owned a certain fixed maturity in the amount of $ 250 , with a valuation that was derived from techniques in which one or more of the significant inputs are unobservable. Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market prices. Policy loans are carried at unpaid principal balance and real estate is carried at historical cost. Other invested assets are comprised of investments in limited partnerships and limited liability companies and are accounted for using the equity method. If the value of a fixed maturity security or other invested asset declines below its cost or amortized cost, as applicable, and the decline is considered to be other than temporary, a realized loss is recorded to reduce the carrying value of the investment to its estimated fair value, which becomes the new cost basis. 29 Table of Contents Premiums and discounts related to investments are amortized or accreted over the life of the related investment as an adjustment to yield using the effective interest method. Dividends and interest income are recognized when earned or declared. The cost of securities sold is based on specific identification. Unrealized gains (losses) in the value of fixed maturities are accounted for as a direct increase (decrease) in accumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effect on net income. Income Taxes Deferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. They arise from differences between the financial reporting and tax basis of assets and liabilities and are adjusted for changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount of income taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance is recognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a deferred tax asset will not be realized. Earnings Per Common Share Basic earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period. Diluted earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period, plus options outstanding, if applicable, using the treasury stock method and the assumed conversion of the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per common share amounts are presented on a diluted basis. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with original maturities of three months or less from date of purchase. Reinsurance The Company enters into reinsurance agreements with other companies in the normal course of business. For each reinsurance agreement, the Company determines if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, benefits and DAC are reported net of insurance ceded. Reinsurance premiums from assumed business are estimated based on information received from ceding companies and reinsureds. Any subsequent differences that arise regarding such estimates are recorded in the period in which they are determined. Share-Based Transactions For employee and director share-based compensation awards, the Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award. For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date. Treasury Stock Treasury stock is reflected as a reduction of shareholders’ equity at cost. The Company uses the first-in-first-out (“FIFO”) purchase cost to determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additional paid-in capital when treasury stock is reissued. 30 Table of Contents 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 Reference Rate Reform . In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. The Company is currently assessing the effect of adopting this guidance on its financial condition and results of operations. Accounting for Long-Duration Contracts. In August 2018, the FASB issued ASU No. 2018-12, Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). This guidance (1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplifies the amortization of deferred acquisition costs, and (4) improves the effectiveness of the required disclosures. ASU 2018-12 is effective for interim and annual reporting periods beginning after December 15, 2024, although earlier adoption is permitted. The Company is currently evaluating the new guidance, but has not yet determined the method or timing for adoption or estimated the impact on the Company’s consolidated financial statements. Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to measure all expected credit losses for financial instruments (including reinsurance recoverable and policy loans) held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. ASU 2016-13 will remove all recognition thresholds and will require entities to recognize an allowance for credit losses equal to the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale (“AFS”) debt securities and beneficial interests in securitized financial assets. Credit losses on AFS debt securities carried at fair value will continue to be measured as an other than temporary impairment (“OTTI”) when incurred; however, the losses will be recognized through an allowance and no longer as an adjustment to the cost basis. Recoveries of OTTI will be recognized as reversals of valuation allowances and no longer accreted as investment income through an adjustment to the investment yield. The allowance on AFS debt securities cannot cause the net carrying value to be below fair value and, therefore, it is possible that increases in fair value due to decreases in market interest rates could cause the reversal of a valuation allowance and increase net income. The new guidance will also require purchased financial assets with a more-than-insignificant amount of credit deterioration since original issuance to be recorded based on contractual amounts due and an initial allowance recorded at the date of purchase. For the Company, the amendments in ASU 2016-13 will be effective for interim and annual reporting periods beginning after December 15, 2022. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt on January 1, 2023. Implementation matters yet to be addressed include determining the impact of valuation allowances on the effective interest method for recognizing interest income from AFS debt securities as well as updating our investment accounting system functionality to adjust valuation allowances based on changes in fair value. The estimated effect on the Company’s consolidated financial statements can only be estimated based on the current investment portfolio at any given point in time, and accordingly, has not currently been determined. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates and assumptions are used in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves, investments, and receivables, among others, and actual results could differ materially from management’s estimates. 31 Table of Contents Note 2. 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 December 31, 2021 and December 31, 2020. Fixed maturities were comprised of the following: 2021 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses 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 — 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 — 192 Total redeemable preferred stocks 250 58 — 192 Total fixed maturities $ 260,986 $ 23,106 $ 717 $ 238,597 2020 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses 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 — 10,904 Corporate securities: Utilities and telecom 30,359 4,423 — 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 — 192 Total redeemable preferred stocks 250 58 — 192 Total fixed maturities $ 254,106 $ 31,739 $ 94 $ 222,461 Bonds having an amortized cost of $ 11,169 and $ 10,670 and included in the tables above were on deposit with insurance regulatory authorities at December 31, 2021 and 2020, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $ 5,371 and $ 1,997 and included in the tables above were pledged as collateral to FHLB at December 31, 2021 and 2020, respectively. 32 Table of Contents 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 — 274 Other business – diversified 18,325 13,692 — 4,633 Total equity securities $ 19,124 $ 14,217 $ — $ 4,907 2020 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost or Amortized Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 2,111 351 — 1,760 Other business – diversified 16,605 11,972 — 4,633 Total equity securities $ 18,716 $ 12,323 $ — $ 6,393 The carrying value and amortized cost of the Company’s investments in fixed maturities at December 31, 2021 and 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. 2021 2020 Carrying Value Amortized Cost Carrying Value Amortized Cost Due in one year or less $ 1,734 $ 1,730 $ 2,041 $ 2,015 Due after one year through five years 24,926 23,593 18,373 17,039 Due after five years through ten years 73,725 68,338 89,892 79,993 Due after ten years 122,045 106,181 124,609 104,527 Asset backed securities 38,556 38,755 19,191 18,887 Totals $ 260,986 $ 238,597 $ 254,106 $ 222,461 The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of December 31, 2021 and 2020. 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 $ — $ — $ 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 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 $ — $ — $ 7,045 $ 26 Corporate securities 4,602 68 — — 4,602 68 Total temporarily impaired securities $ 11,647 $ 94 $ — $ — $ 11,647 $ 94 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. 33 Table of Contents There were no OTTI charges recorded during the years ended December 31, 2021 and 2020. As of December 31, 2021 and 2020, there were sixty-one 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 and value of securities in an unrealized loss position during the year ended December 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 December 31, 2021. Investment income was earned from the following sources: 2021 2020 Fixed maturities $ 8,640 $ 8,646 Equity securities 300 141 Other ( 111 ) ( 788 ) 8,829 7,999 Investment expenses 301 255 Net investment income $ 8,528 $ 7,744 A summary of realized investment gains (losses) follows: 2021 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 570 $ — $ 4,333 $ 4,903 Losses — — — — Realized investment gains, net $ 570 $ — $ 4,333 $ 4,903 2020 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 835 $ 88 $ 6,948 $ 7,871 Losses ( 450 ) ( 1 ) — ( 451 ) Realized investment gains, net $ 385 $ 87 $ 6,948 $ 7,420 Proceeds from the sales of available-for-sale fixed maturities were as follows: 2021 2020 Sales proceeds $ 9,244 $ 18,504 Gross gains 454 835 Gross losses — ( 450 ) Proceeds from the sales of equity securities were as follows: 2021 2020 Sales proceeds $ 61 $ 5 Gross gains — — Gross losses — ( 1 ) 34 Table of Contents Proceeds from the sales of other invested assets were as follows: 2021 2020 Sales proceeds $ 19,761 $ — Gross gains 4,333 6,948 Gross losses — — Sales of available-for-sale securities in 2021 and 2020 were primarily a result of improving the overall risk versus return profile of the portfolio. In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party. The transaction closed prior to December 31, 2020. The Company recorded gross realized gains on this sale of $ 6.9 million and proceeds of $ 12.7 million which settled after year end. The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2021 and 2020. 2021 2020 Net realized and unrealized gains (losses) recognized during the period on equity securities $ 1,894 $ ( 3,344 ) Less: Net realized gains recognized during the period on equity securities sold during the period — 87 Unrealized gains (losses) on equity securities, net $ 1,894 $ ( 3,431 ) The Company’s bond portfolio included 99 % investment grade securities, as defined by the NAIC, at December 31, 2021. 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 $ 198 and $ 3,238 at December 31, 2021 and 2020, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled $ 1,238 at December 31, 2021 and 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. 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 $ 1,436 and $ 4,476 , at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Company had outstanding commitments totaling $ 1,997 , whereby the Company is committed to fund these investments and may be called by such VIEs during the commitment period to fund the purchase of new investments and partnership expenses. Note 3. Disclosures About Fair Value of Financial Instruments The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels. Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks. Level 2 Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. 35 Table of Contents Level 3 Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. The Company’s financial instruments valued using Level 3 criteria consist of one fixed maturity security and one equity security. As of December 31, 2021 and December 31, 2020, the value of the fixed maturity valued using Level 3 criteria was $ 250 and $ 0 , respectively. As of December 31, 2021 and December 31, 2020, the value of the equity security valued using Level 3 criteria was $ 157 and $ 143 , respectively. The equity security is not traded and valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations. Recurring Fair Value Measurements Cash Equivalents . The carrying amount approximates fair value due to the short-term nature of the instruments. Fixed Maturities and Common and Non-Redeemable Preferred Stocks . The carrying amount is determined from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information is also considered, as applicable. Nonrecurring Fair Value Measurements Non-publicly Traded Invested Assets . The fair value of investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships. Policy Loans . Policy loans, which are categorized as Level 2 fair value measurements, are carried at the unpaid principal balances. Junior Subordinated Debentures . The fair value is estimated based on observable interest rates and yields for debt instruments having similar characteristics. As of December 31, 2021, financial instruments carried at fair value were measured on a recurring basis as summarized below: 36 Table of Contents Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ 250 $ 260,486 $ 250 $ 260,986 Equity securities 18,967 — 157 19,124 Cash equivalents 12,713 — — 12,713 Total $ 31,930 $ 260,486 $ 407 $ 292,823 As of December 31, 2020, financial instruments carried at fair value were measured on a recurring basis as summarized below: Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ — $ 254,106 $ — $ 254,106 Equity securities 18,573 — 143 18,716 Cash equivalents 12,010 — — 12,010 Total $ 30,583 $ 254,106 $ 143 $ 284,832 The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of December 31, 2021 and 2020. Level in 2021 2020 Fair Value Hierarchy (1) Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets: Cash and cash equivalents Level 1 $ 24,753 $ 24,753 $ 19,319 $ 19,319 Fixed maturities (1) 260,986 260,986 254,106 254,106 Equity securities (1) 19,124 19,124 18,716 18,716 Other invested assets Level 3 198 198 3,238 3,238 Policy loans Level 2 1,858 1,858 1,975 1,975 Investments in unconsolidated trusts Level 2 1,238 1,238 1,238 1,238 Liabilities: Junior Subordinated Debentures, net Level 2 33,738 33,728 33,738 32,297 (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. Note 4. Deferred Policy Acquisition Costs The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31. 2021 2020 American Southern Bankers Fidelity American Southern Bankers Fidelity Deferred policy acquisition costs: Balance, beginning of year $ 2,299 $ 37,312 $ 1,979 $ 36,882 Capitalization 10,690 12,461 9,910 10,233 Amortization ( 10,599 ) ( 13,465 ) ( 9,590 ) ( 9,803 ) Balance, end of year $ 2,390 $ 36,308 $ 2,299 $ 37,312 37 Table of Contents Note 5. Insurance Reserves and Policyholder Funds The following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims and loss adjustment expenses at December 31, 2021 and 2020. Amount of Insurance In Force, Net 2021 2020 2021 2020 Future policy benefits Life insurance policies: Ordinary life and annuities $ 51,947 $ 54,442 $ 194,210 $ 199,827 Group life 1,094 91 212,783 83,533 53,041 54,533 $ 406,993 $ 283,360 Accident and health insurance policies 34,307 36,339 87,348 90,872 Unearned premiums 27,469 27,131 Losses, claims and loss adjustment expenses 85,620 79,147 Other policy liabilities 1,360 1,526 Total insurance reserves and policyholder funds $ 201,797 $ 198,676 Annualized premiums for accident and health insurance policies were $ 101,315 and $ 109,430 at December 31, 2021 and 2020, respectively. Future Policy Benefits Liabilities for life insurance future policy benefits are based upon assumed future investment yields, mortality rates, and lapse rates after giving effect to possible risks of unexpected claim experience. The assumed mortality and lapse rates are based upon the Company’s experience modified as necessary to reflect anticipated trends and are generally established at contract inception. The interest rates assumed for life, accident and health future policy benefits are generally: (i) 2.5 % to 5.5 % for issues prior to 1977 , (ii) 5.5 % to 7.0 % for 1977 through 1979 issues, (iii) 9.0 % for 1980 through 1987 issues, (iv) 5.0 % to 7.0 % for 1988 through 2009 issues, (v) 4.0 % for 2010 through 2012 issues, (vi) 3.5 % to 4.0 % for 2013 through 2020 issues, and (vii) 3.0 % for 2021 issues. Loss and Claim Reserves Loss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate of ultimate liability and claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. The estimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operations in the year in which such changes are known. Activity in the liability for unpaid loss and claim reserves is summarized as follows: 2021 2020 Balance at January 1 $ 79,147 $ 81,448 Less: Reinsurance recoverable on unpaid losses ( 17,600 ) ( 18,339 ) Net balance at January 1 61,547 63,109 Incurred related to: Current year 134,284 122,626 Prior years ( 3,415 ) (1) ( 3,480 ) (2) Total incurred 130,869 119,146 Paid related to: Current year 89,838 84,518 Prior years 34,648 36,190 Total paid 124,486 120,708 Net balance at December 31 67,930 61,547 Plus: Reinsurance recoverable on unpaid losses 17,690 17,600 Balance at December 31 $ 85,620 $ 79,147 (1) Prior years’ development was primarily the result of better than expected development on prior years loss and claim reserves for certain lines of business in American Southern, somewhat offset by unfavorable development on prior years’ loss and claim reserves for the Medicare Supplement line of business in Bankers Fidelity. (2) 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. Additionally, the Company experienced favorable development in the surety line of business in American Southern due to a reduction in exposure coupled with recoveries on certain prior year losses. 38 Table of Contents Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred: 2021 2020 Total incurred losses $ 130,869 $ 119,146 Cash surrender value and matured endowments 2,179 1,198 Benefit reserve changes ( 1,354 ) ( 468 ) Total insurance benefits and losses incurred $ 131,694 $ 119,876 Liability for Unpaid Losses, Claims and Loss Adjustment Expenses The following is information, by significant product lines, about incurred and paid claims development as of December 31, 2021, net of reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included within the net incurred claims amounts. The information presented for the years ended December 31, 2015 and prior is presented as supplementary information and is unaudited. Medicare Supplement For the Years Ended December 31, As of December 31, 2021 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 50,021 $ 50,996 $ 51,021 $ 50,998 $ 50,989 $ 50,987 $ 50,985 $ 50,984 $ 50,984 $ 50,984 $ — 867,053 2013 56,974 56,970 57,034 57,023 57,021 57,016 57,015 57,014 57,014 — 957,374 2014 57,179 56,938 56,981 56,981 56,976 56,977 56,976 56,976 — 939,488 2015 55,482 54,939 54,993 54,990 54,984 54,985 54,985 — 898,393 2016 58,849 59,851 63,226 63,225 63,221 63,221 — 1,036,917 2017 67,960 69,655 69,643 69,635 69,633 — 1,512,362 2018 79,140 80,404 80,361 80,357 2 2,051,656 2019 88,765 87,028 86,988 10 2,244,326 2020 75,857 75,715 188 1,848,987 2021 65,267 15,070 1,560,365 $ 661,140 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 42,267 $ 50,996 $ 51,021 $ 50,998 $ 50,989 $ 50,987 $ 50,985 $ 50,984 $ 50,984 $ 50,984 2013 47,770 56,970 57,034 57,023 57,021 57,016 57,015 57,014 57,015 2014 48,024 56,938 56,981 56,981 56,976 56,977 56,976 56,976 2015 45,430 54,876 54,993 54,990 54,984 54,985 54,985 2016 49,165 59,747 63,226 63,225 63,221 63,221 2017 57,696 69,517 69,643 69,635 69,633 2018 66,565 80,222 80,361 80,355 2019 72,333 86,856 86,978 2020 63,129 75,527 2021 50,197 $ 645,871 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 15,269 39 Table of Contents The cumulative number of reported claims for the Medicare supplement line of business is the number of distinct claims incurred and submitted to Medicare for payment in the given year. Multiple payments on the same claim are not counted in the frequency information. Estimated ultimate claims incurred, using claims data reported during each month of any given year, are calculated using the chain ladder method modified to use seasonality and trend-adjusted expected claims for the most recent four-month period prior to the statement date. Additional adjustments to the estimated ultimate claims incurred are then applied to account for seasonal changes in claim experience and in the rate of claim processing. The IBNR liability is calculated as estimated ultimate claims less paid claims and claims in course of settlement. Thirty-six months of loss data are used to develop the estimated ultimate incurred claims. Similar approaches are used for other less significant health products, subject to modifications to account for unique aspects of the products. Automobile Liability For the Years Ended December 31, As of December 31, 2021 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 12,980 $ 15,007 $ 14,108 $ 13,707 $ 13,313 $ 13,343 $ 13,357 $ 13,373 $ 13,373 $ 13,366 $ — 2,349 2013 18,664 20,702 21,096 21,823 21,352 21,020 20,972 20,972 20,970 — 3,270 2014 20,812 21,881 22,041 22,353 21,682 22,080 22,100 22,125 56 3,545 2015 18,521 19,857 20,017 20,007 20,086 20,680 20,849 21 3,530 2016 20,549 21,275 21,846 22,388 22,245 22,310 84 3,852 2017 22,179 24,212 23,766 25,180 26,009 164 3,793 2018 24,284 25,682 27,338 30,013 1,784 3,629 2019 25,241 24,045 25,724 2,113 3,573 2020 22,416 16,442 2,167 2,438 2021 25,887 13,147 2,422 $ 223,695 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 4,627 $ 8,791 $ 11,507 $ 12,932 $ 13,197 $ 13,211 $ 13,288 $ 13,373 $ 13,373 $ 13,365 2013 5,144 12,193 16,782 19,407 20,382 20,982 20,972 20,972 20,970 2014 6,822 13,807 17,554 20,177 20,878 21,735 21,813 21,786 2015 6,226 11,878 14,938 17,612 19,557 20,234 20,726 2016 6,796 13,141 16,397 19,613 21,408 21,809 2017 7,401 16,317 20,221 22,778 25,023 2018 6,989 15,647 21,121 24,662 2019 7,305 14,694 19,384 2020 5,172 9,941 2021 6,242 $ 183,908 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 39,787 40 Table of Contents Automobile Physical Damage For the Years Ended December 31, As of December 31, 2021 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2017 2018 2019 2020 2021 2017 $ 6,257 $ 5,933 $ 5,857 $ 5,860 $ 5,860 $ — 1,324 2018 7,805 7,530 7,447 7,430 — 1,455 2019 8,526 8,026 7,914 1 1,486 2020 10,288 10,080 16 1,629 2021 14,296 227 1,748 $ 45,580 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2017 2018 2019 2020 2021 2017 $ 5,215 $ 5,914 $ 5,856 $ 5,860 $ 5,860 2018 6,344 7,510 7,446 7,433 2019 6,360 8,005 7,906 2020 8,347 9,952 2021 11,993 $ 43,144 All outstanding liabilities before 2017, net of reinsurance 12 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 2,448 General Liability For the Years Ended December 31, As of December 31, 2021 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 4,055 $ 1,305 $ 1,269 $ 1,270 $ 1,214 $ 1,333 $ 1,344 $ 1,377 $ 1,388 $ 1,349 $ — 162 2013 3,461 728 926 817 865 820 945 904 868 — 198 2014 3,744 501 557 476 406 497 523 519 4 199 2015 4,421 1,037 1,227 1,044 867 855 855 — 146 2016 3,119 1,148 736 608 621 619 — 93 2017 1,490 488 513 738 738 10 83 2018 1,656 333 198 128 — 75 2019 1,916 707 455 101 85 2020 2,223 670 150 87 2021 2,567 1,746 59 $ 8,768 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 371 $ 707 $ 847 $ 1,034 $ 1,113 $ 1,219 $ 1,260 $ 1,269 $ 1,280 $ 1,349 2013 104 339 579 811 791 803 805 855 867 2014 171 299 331 369 373 493 498 502 2015 98 259 464 664 863 855 855 2016 116 203 568 608 617 619 2017 75 136 365 556 696 2018 65 90 115 128 2019 41 209 242 2020 208 385 2021 364 $ 6,007 All outstanding liabilities before 2012, net of reinsurance 519 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 3,280 41 Table of Contents Surety For the Years Ended December 31, As of December 31, 2021 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 4,979 $ 4,767 $ 5,396 $ 5,345 $ 4,869 $ 4,880 $ 4,892 $ 4,925 $ 4,944 $ 4,993 $ 1 90 2013 3,060 2,007 2,743 2,947 2,866 2,809 2,765 2,757 2,753 — 60 2014 3,214 3,130 2,990 2,760 2,685 2,617 2,818 2,782 37 54 2015 1,902 1,630 1,400 1,359 1,406 1,310 1,307 5 50 2016 3,314 1,812 1,865 1,876 1,865 1,678 — 47 2017 4,677 3,671 3,799 3,629 3,514 12 63 2018 3,528 1,938 1,381 956 3 63 2019 2,130 657 630 17 30 2020 2,263 574 56 23 2021 2,936 1,948 27 $ 22,123 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 2,257 $ 4,581 $ 4,856 $ 5,331 $ 4,869 $ 4,880 $ 4,878 $ 4,916 $ 4,934 $ 4,985 2013 323 1,010 1,369 2,763 2,789 2,749 2,765 2,757 2,753 2014 1,331 2,327 2,727 2,739 2,664 2,593 2,562 2,562 2015 641 856 1,127 1,125 1,128 1,271 1,273 2016 1,054 1,732 1,772 1,873 1,862 1,677 2017 1,971 3,255 3,523 3,545 3,442 2018 1,157 1,454 1,361 941 2019 259 395 568 2020 97 460 2021 156 $ 18,817 All outstanding liabilities before 2012, net of reinsurance 85 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 3,391 For the property and casualty lines of business, the number of claims presented above equals the number of occurrences by type of claim reported to the Company. The number of claims reported during a given year corresponds to the number of claims records opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business. For automobile claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. The Company has consistently monitored claim frequency on this basis, and believes this provides more meaningful information than using claimant count which can change over the course of settling a claim. In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimate payment based on the known information of the claim at that time. Claims managers review and monitor all property and casualty claims in excess of $ 25,000 . As new information becomes available or payments are made on a claim, the case reserve is adjusted to reflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims are based on complex and subjective judgments and subject to change at any time as new information becomes available. In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Company as of the reporting date as well as potential adverse development on known case reserves. IBNR reserve estimates are derived through a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitative factors are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicated adjustments are made. Because of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove better or worse than indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized and could increase or decrease earnings for the period. 42 Table of Contents The following is supplementary information about average historical claims duration as of December 31, 2021. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Reserve Line 1 st Year 2 nd Year 3 rd Year 4 th Year 5 th Year 6 th Year 7 th Year 8 th Year 9 th Year 10 th Year Medicare Supplement 82.4 % 16.8 % 0.1 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Automobile Liability 28.6 % 30.3 % 17.5 % 12.0 % 6.0 % 2.4 % 0.8 % 0.2 % 0.0 % - 0.1 % Automobile Physical Damage 84.3 % 16.1 % - 1.0 % - 0.1 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % General Liability 21.8 % 22.3 % 23.1 % 16.3 % 8.0 % 6.3 % 1.1 % 2.4 % 1.1 % 5.1 % Surety 45.7 % 35.2 % 10.2 % 3.3 % - 2.4 % - 0.8 % - 0.1 % 0.2 % 0.1 % 1.0 % The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and loss adjustment expenses is as follows: December 31, 2021 Net outstanding liabilities Medicare Supplement $ 15,269 Automobile Liability 39,787 Automobile Physical Damage 2,448 General Liability 3,280 Surety 3,391 Other short-duration insurance lines 1,598 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 65,773 Reinsurance recoverable on unpaid losses: Medicare Supplement 10,753 Automobile Liability 4,506 Automobile Physical Damage 274 General Liability 2,157 Total reinsurance recoverable on unpaid losses 17,690 Unallocated claims adjustment expenses 2,157 Total gross liability for unpaid losses, claims and loss adjustment expenses $ 85,620 Note 6. Reinsurance In accordance with general practice in the insurance industry, portions of the life, property and casualty insurance written by the Company are reinsured; however, the Company remains liable with respect to reinsurance ceded should any reinsurer be unable or unwilling to meet its obligations. Approximately 99.6 % of the Company’s reinsurance recoverables were due from a single reinsurer as of December 31, 2021. Reinsurance recoverables of $ 27,310 were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against reinsurance recoverables, if appropriate. The effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows: 2021 2020 Direct premiums written $ 236,682 $ 239,687 Assumed premiums written 22,111 23,253 Ceded premiums written ( 73,521 ) ( 77,622 ) Net premiums written $ 185,272 $ 185,318 Direct premiums earned $ 235,806 $ 238,209 Assumed premiums earned 22,076 23,144 Ceded premiums earned ( 73,666 ) ( 77,814 ) Net premiums earned $ 184,216 $ 183,539 Provision for benefits and losses incurred $ 190,591 $ 175,825 Reinsurance loss recoveries ( 58,897 ) ( 55,949 ) Insurance benefits and losses incurred $ 131,694 $ 119,876 43 Table of Contents Components of reinsurance receivables at December 31, 2021 and 2020 were as follows: 2021 2020 Recoverable on unpaid losses $ 17,690 $ 17,600 Recoverable on unpaid benefits 8,169 9,832 Recoverable on paid losses 499 447 Ceded unearned premiums 819 963 Ceded advanced premiums 239 244 Total reinsurance receivables $ 27,416 $ 29,086 Note 7. Income Taxes Total income taxes were allocated as follows: 2021 2020 Total tax expense on income $ 1,021 $ 3,334 Tax expense on components of shareholders’ equity: Net unrealized gains (losses) on investment securities ( 1,944 ) 3,865 Total tax expense (benefit) $ ( 923 ) $ 7,199 A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as follows: 2021 2020 Federal income tax provision $ 1,112 $ 3,256 Statutory rate 21 % 21 % Dividends-received deduction ( 26 ) ( 12 ) Meals and entertainment 32 20 Vested stock and club dues ( 28 ) 36 Parking disallowance 16 16 Adjustment for prior years’ estimates to actual ( 85 ) 18 Income tax expense $ 1,021 $ 3,334 Effective tax rate 19.3 % 21.5 % The primary differences between the effective tax rate and the federal statutory income tax rate for 2021 resulted from the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $ 85 in the year ended December 31, 2021. Also contributing to differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and vested stock and club dues. Another contributing factor was the dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income. The primary differences between the effective tax rate and the federal statutory income tax rate for 2020 resulted from permanent differences related to meals and entertainment and vested stock and club dues. Also contributing to differences between the effective tax rate and the federal statutory income tax rate were adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $ 18 in the year ended December 31, 2020. 44 Table of Contents Deferred tax assets and liabilities at December 31, 2021 and 2020 were comprised of the following: 2021 2020 Deferred tax assets: Deferred acquisition costs $ 7,026 $ 4,666 Insurance reserves 2,028 2,682 Impaired assets 780 822 Bad debts and other 280 326 Total deferred tax assets 10,114 8,496 Deferred tax liabilities: Deferred and uncollected premiums $ ( 561 ) $ ( 409 ) Net unrealized investment gains ( 7,689 ) ( 9,235 ) Other ( 109 ) ( 153 ) Total deferred tax liabilities ( 8,359 ) ( 9,797 ) Net deferred tax asset (liability) $ 1,755 $ ( 1,301 ) The components of income tax expense were: 2021 2020 Current – Federal $ 2,133 $ 5,584 Deferred – Federal ( 1,112 ) ( 2,250 ) Total $ 1,021 $ 3,334 The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2018, 2019 and 2020 are considered open tax years that remain subject to examination by the Internal Revenue Service. Note 8. 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 December 31 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 American; and (iii) engaging in those activities necessary or incidental thereto. At December 31, 2021, the effective interest rate was 4.22 %. 45 Table of Contents The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2021 and 2020, was as follows: Atlantic American Statutory Trust I Atlantic American Statutory Trust II JUNIOR SUBORDINATED DEBENTURES (1)(2) Balance December 31, 2021 $ 18,042 $ 23,196 Less: Treasury debt (3) — ( 7,500 ) Net balance December 31, 2021 $ 18,042 $ 15,696 Net balance December 31, 2020 $ 18,042 $ 15,696 Coupon rate LIBOR + 4.00 % LIBOR + 4.10 % Interest payable Quarterly Quarterly Maturity date December 4, 2032 May 15, 2033 Redeemable by issuer Yes Yes TRUST PREFERRED SECURITIES Issuance date December 4, 2002 May 15, 2003 Securities issued 17,500 22,500 Liquidation preference per security $ 1 $ 1 Liquidation value $ 17,500 $ 22,500 Coupon rate LIBOR + 4.00 % LIBOR + 4.10 % Distribution payable Quarterly Quarterly Distribution guaranteed by (4) Atlantic American Corporation Atlantic American Corporation (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. (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) In 2014, the Company acquired $ 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. Note 9. Leases The Company has two operating lease agreements, each for the use of office space in the ordinary course of business. The first lease renews annually on an automatic basis and based on original assumptions, management is reasonably certain to exercise the renewal option through 2026. The original term of the second lease was ten years and amended in January 2017 to provide for an additional seven years , with a termination date on September 30, 2026. The rate used in determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for each of the years ended December 31, 2021 and 2020 was $ 1,014 . Additional information regarding the Company’s real estate operating leases is as follows: Year Ended December 31, 2021 Year Ended December 31, 2020 Other information on operating leases: Cash payments included in the measurement of lease liabilities reported in operating cash flows $ 1,015 978 Right-of-use assets included in other assets on the consolidated balance sheet 4,143 4,832 Weighted average discount rate 6.8 % 6.8 % Weighted average remaining lease term in years 4.9 years 5.9 years 46 Table of Contents The following table presents maturities and present value of the Company’s lease liabilities: Lease Liability 2022 $ 1,031 2023 1,048 2024 1,065 2025 1,083 2026 942 Thereafter — Total undiscounted lease payments 5,169 Less: present value adjustment 791 Operating lease liability included in accounts payable and accrued expenses on the consolidated balance sheet $ 4,378 As of December 31, 2021, the Company has no operating leases that have not yet commenced. Note 10. Benefit Plans 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. In 2021, there were no restricted shares issued under the 2012 Plan. In 2020, a total of 20,000 restricted shares, with an estimated fair value of $ 38 , were issued under the 2012 Plan and 35,000 restricted shares, with an estimated fair value of $ 98 , were forfeited under such plan . The estimated fair value of the restricted shares issued under the 2012 Plan for 2021 and 2020 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 no stock options granted or outstanding under the 2012 Plan in 2021 or 2020. Shares available for future grant at December 31, 2021 and 2020 were 935,200 and 935,200 , respectively. 401(k) Plan The Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Code in May 1995. The Plan covers substantially all of the Company’s employees. Effective January 1, 2009, the Company modified the Plan such that the Plan would operate on a safe harbor basis. Under the Plan, employees may defer up to 50 % of their compensation, not to exceed the annual deferral limit. The Company’s total matching contribution for 2021 and 2020 was $ 272 and $ 231 , respectively, and consisted of a contribution equal to 35 % of up to the first 6 % of each participant’s contributions. In addition to the matching contribution, the Company also provided a 3 % safe harbor non-elective contribution in 2021 and 2020 of $ 549 and $ 520 , respectively. All contributions were made in cash. Participants are 100% vested in their own contributions and the vested percentage attributable to certain employer contributions is based on a five-year graded schedule. Agent Stock Purchase Plan The Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012. The purpose of the Agent Stock Purchase Plan is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company. Under the Agent Stock Purchase Plan, payment for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment. Stock purchases are made at the end of each calendar quarter at the then current market value. 47 Table of Contents Note 11. Preferred Stock The Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2021 and 2020, respectively. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a par value of $ 1 per share and a redemption value of $ 100 per share; accrue annual dividends at a rate of $ 7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. The Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of $ 18 at December 31, 2021 and 2020. During each of 2021 and 2020, the Company paid Series D Preferred Stock dividends of $ 399 . Note 12. Earnings Per Common Share Basic earnings per share was computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflected the effect of potentially dilutive securities. A reconciliation of the numerator and denominator of the income per common share calculations is as follows: For the Year Ended December 31, 2021 Income Weighted Average Shares Outstanding (In thousands) P er Share Amount Basic and Diluted Earnings Per Common Share Net income before preferred stock dividends $ 4,281 20,402 - Less preferred stock dividends ( 399 ) — Net income applicable to common shareholders $ 3,882 20,402 $ 0.19 For the Year Ended December 31, 2020 Income Weighted Average Shares Outstanding (In thousands) Per Share Amount Basic Earnings Per Common Share Net income before preferred stock dividends $ 12,169 20,441 - Less preferred stock dividends ( 399 ) — Net income applicable to common shareholders 11,770 20,441 0.58 Diluted Earnings Per Common Share Effect of Series D preferred stock 399 1,378 Net income applicable to common shareholders $ 12,169 21,819 $ 0.56 The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2021 since its impact would have been antidilutive. Note 13. Statutory Reporting The assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP are that under SAP: (i) certain assets that are non-admitted assets are eliminated from the balance sheet; (ii) acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policies under GAAP; (iii) the provision that is made for deferred income taxes is different than under GAAP; (iv) the timing of establishing certain reserves is different than under GAAP; and (v) certain valuation allowances attributable to certain investments are different. 48 Table of Contents The Company meets the minimum capital requirements in the states in which it does business. The amount of reported statutory net income and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows: 2021 2020 Bankers Fidelity, net income (loss) $ ( 364 ) $ 7,712 American Southern, net income 7,688 8,575 Statutory net income $ 7,324 $ 16,287 Bankers Fidelity, surplus $ 38,625 $ 42,326 American Southern, surplus 52,724 50,194 Statutory surplus $ 91,349 $ 92,520 Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. The Parent received dividends of $ 8,400 and $ 3,900 in the years ended 2021 and 2020, respectively, from its subsidiaries. In 2021, dividend payments to the Parent by the insurance subsidiaries in excess of $ 5,629 would require prior approval. Note 14. Related Party Transactions In the normal course of business the Company has engaged in transactions with entities affiliated with the controlling shareholder of the Company. These transactions include the leasing of office space as well as certain investing and financing activities. At December 31, 2021, two members of the Company’s board of directors, including the Company’s Chairman, President and Chief Executive Officer, were considered to be affiliates of the majority shareholder. The Company leases approximately 49,586 square feet of office and covered garage space from one such controlled entity. During the years ended December 31, 2021 and 2020, the Company paid $ 879 and $ 939 , respectively, under this lease. Additionally, in each of the years ended December 31, 2021 and 2020, this entity owned 1,663,809 shares of the Company’s common stock. Certain financing for the Company has also been provided by this entity in the form of an investment in the Series D Preferred Stock (See Note 11). During the years ended December 31, 2021 and 2020, the Company paid this entity $ 399 in dividends on the Series D Preferred Stock. Certain members of the Company’s management and board of directors are shareholders and on the board of directors of Gray Television, Inc. (“Gray”). As of December 31, 2021 and 2020, the Company owned 880,272 shares of Gray Class A common stock and 106,000 shares of Gray common stock. The aggregate carrying value of these investments in Gray at December 31, 2021 and 2020 was $ 18,325 and $ 16,606 , respectively. In each of the years ended December 31, 2021 and 2020, Gray paid the Company approximately $ 1,308 in insurance premiums related to certain voluntary employee benefit plans. Note 15. Segment Information The Parent’s primary insurance subsidiaries operate with relative autonomy and each company is evaluated based on its individual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as well as from investment income. Substantially all revenue other than that in the corporate and other segment is from external sources. For the Year Ended December 31, 2021 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 67,982 $ 116,234 $ — $ — $ 184,216 Insurance benefits and losses incurred 44,433 87,261 — — 131,694 Expenses deferred ( 10,690 ) ( 12,461 ) — — ( 23,151 ) Amortization and depreciation expense 10,756 13,692 537 — 24,985 Other expenses 20,077 33,484 16,255 ( 9,092 ) 60,724 Total expenses 64,576 121,976 16,792 ( 9,092 ) 194,252 Underwriting income (loss) 3,406 ( 5,742 ) — — ( 2,336 ) Net investment income (loss) 3,570 5,204 1,466 ( 1,712 ) 8,528 Other income (loss) 4 9 7,380 ( 7,380 ) 13 Operating income (loss) 6,980 ( 529 ) ( 7,946 ) — ( 1,495 ) Net realized gains 2,198 2,705 — — 4,903 Unrealized gains on equity securities 114 1,550 230 — 1,894 Income (loss) before income taxes $ 9,292 $ 3,726 $ ( 7,716 ) $ — $ 5,302 Total revenues $ 73,868 $ 125,702 $ 9,076 $ ( 9,092 ) $ 199,554 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 161,788 $ 227,395 $ 177,638 $ ( 164,535 ) $ 402,286 49 Table of Contents For the Year Ended December 31, 2020 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 62,372 $ 121,167 $ — $ — $ 183,539 Insurance benefits and losses incurred 39,339 80,537 — — 119,876 Expenses deferred ( 9,910 ) ( 10,233 ) — — ( 20,143 ) Amortization and depreciation expense 9,772 10,007 594 — 20,373 Other expenses 19,542 34,403 14,526 ( 8,732 ) 59,739 Total expenses 58,743 114,714 15,120 ( 8,732 ) 179,845 Underwriting income 3,629 6,453 — — 10,082 Net investment income (loss) 3,586 4,971 1,174 ( 1,987 ) 7,744 Other income (loss) 37 11 6,773 ( 6,745 ) 76 Operating income (loss) 7,252 11,435 ( 7,173 ) — 11,514 Net realized gains 3,389 4,031 — — 7,420 Unrealized losses on equity securities ( 205 ) ( 3,036 ) ( 190 ) — ( 3,431 ) Income (loss) before income taxes $ 10,436 $ 12,430 $ ( 7,363 ) $ — $ 15,503 Total revenues $ 69,179 $ 127,144 $ 7,757 $ ( 8,732 ) $ 195,348 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 158,808 $ 236,197 $ 183,178 $ ( 172,996 ) $ 405,187 Note 16. 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 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. Management is currently engaged in discussions with the state regulatory authorities with respect to a resolution; however, inasmuch as this matter is of recent origin, Management is unable at this time to predict the ultimate outcome. Note 17. Subsequent Events On March 22, 2022 , the Company’s board of directors declared an annual cash dividend of $ 0.02 per share of common stock that is payable to shareholders of record as of the close of business on April 13, 2022 . 50 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.