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Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 314 added, 433 removed, 535 unchanged (58% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

September 30,

(In thousands, except share and per share data)

Cash and cash equivalents

19 unchanged sentences

Accounts payable and accrued expenses

Deferred income taxes, net

Junior subordinated debenture obligations, net

21 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in thousands, except per share data)

In thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Insurance premiums, net

Net investment income

Realized investment gains, net

Unrealized gains (losses) on equity securities, net

Realized investment gains (losses), net

Unrealized gains on equity securities, net

Total revenue

14 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Dollars in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

In thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss):

Other comprehensive loss:

Available-for-sale fixed maturity securities:

Gross unrealized holding gain (loss) arising in the period

Gross unrealized holding loss arising in the period

Related income tax effect

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

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

Related income tax effect

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Total other comprehensive loss, net of tax

Total comprehensive loss

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Dollars in thousands except share data)

In thousands except share and per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Preferred stock:

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Balance, beginning of period

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Balance, end of period

7 unchanged sentences

Restricted stock grants, net of forfeitures

Net shares acquired related to employee share-based compensation plans

Issuance of shares under stock plans

4 unchanged sentences

Balance, beginning of period

Net shares acquired under employee share-based compensation plans

Issuance of shares under stock plans

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands)

Nine Months Ended

September 30,

In thousands)

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Amortization of (additions to) acquisition costs, net

Realized investment gains, net

Unrealized (gains) losses on equity securities, net

Net income (loss)

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

(Additions to) amortization of acquisition costs, net

Realized investment losses (gains), net

Unrealized gains on equity securities, net

Earnings from equity method investees

Compensation expense related to share awards

Depreciation and amortization

Deferred income tax benefit

Increase in receivables, net

Increase (decrease) in insurance reserves and policyholder funds

Deferred income tax expense (benefit)

Decrease in receivables, net

Decrease in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

5 unchanged sentences

Additions to property and equipment

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends on common stock

Proceeds from shares issued under stock plans

Treasury stock acquired — net employee share-based compensation

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net cash provided by 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.

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(the “2021 Annual Report”).

The Company’s financial condition and results of operations and cash flows as of and for the three and nine month periods ended September 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.

The Company’s financial condition and results of operations and cash flows as of and for the three month period ended March 31, 2022 are not necessarily indicative of the financial condition or results of operations and

cash flows that may be expected for the year ending December 31, 2022 or for any other future period.

Company’s significant accounting policies have not changed materially from those set out in the 2021 Annual Report, except as noted below for the adoption of new accounting standards.

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Actual results could differ materially from those estimates.

March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a global pandemic.

The impact of COVID-19 and related actions to attempt to control its spread began to impact the Company’s business operations in

March 2020, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating results.

The Company’s

insurance subsidiaries may experience difficulties collecting premiums from some policyholders, and policyholders with financial difficulties may decide not to renew insurance policies with the Company.

Although the ultimate impact cannot be

predicted with any certainty at this time, the Company’s insurance subsidiaries do not expect a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses, but that may change as more information becomes

In addition, economic uncertainty related to COVID-19 has led to, and may continue to create, increased volatility in the investment markets.

The impact of COVID-19 on the economy and on the Company continues to evolve and its future

effects are uncertain.

The Company continues to monitor the effects and risks of COVID-19 to assess its impact on the Company’s business, financial condition, results of operations, liquidity and capital position.

Recently Issued Accounting Standards

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 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.

Adoption of New Accounting Standards

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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 2021 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 September 30, 2021 and December 31, 2020.

Fixed maturities were comprised of the following:

September 30, 2021

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, 2022 and December 31, 2021.

maturities were comprised of the following:

March 31, 2022

Fixed maturities:

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Total fixed maturities

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 September 30, 2021 and December

31, 2020, respectively, in accordance with statutory requirements.

Additionally, bonds having an amortized cost of $ 5,898 and $ 1,997 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta ("FHLB") at September 30, 2021 and December

31, 2020, respectively.

Equity securities were comprised of the following:

September 30, 2021

having an amortized cost of $ 10,879 and $ 11,169

and included in the tables above were on deposit with insurance regulatory authorities as of March 31, 2022 and December 31, 2021, respectively, in accordance with statutory requirements.

Additionally, bonds having an amortized cost of $ 4,762 and $ 5,371 and included in the

tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2022 and December 31, 2021, respectively.

securities were comprised of the following:

March 31, 2022

Equity securities:

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Total equity securities

The carrying value and amortized cost of the Company’s investments in fixed maturities at September 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.

September 30, 2021

The carrying value and amortized cost of the Company’s

investments in fixed maturities at March 31, 2022 and December 31, 2021 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, 2022

December 31, 2021

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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 September 30, 2021 and December 31, 2020.

September 30, 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 March 31, 2022 and December 31, 2021.

March 31, 2022

Less than 12 months

2 unchanged sentences

Government agencies and authorities

Obligations of states and political subdivisions

Corporate securities

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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 and nine month periods ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, there were thirty 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 nine month

period ended September 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 September 30, 2021.

The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2021 and 2020.

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

were no OTTI charges recorded during the three month periods ended March 31, 2022 and 2021.

of March 31, 2022 and December 31, 2021, there were 141 and 61 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, 2022, was primarily attributable to a decline in

market values in certain of the Company’s fixed maturity securities as a result of a rising interest rate environment.

The Company does not currently intend to sell, nor does it expect to be required to sell, any of the securities in an unrealized

loss position.

Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of

other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of March 31, 2022.

The following table is a summary of realized investment gains

(losses) for the three month period ended March 31, 2022 and 2021.

Three Months Ended

September 30, 2021

Realized investment gains, net

March 31, 2022

Realized investment losses, net

Three Months Ended

September 30, 2020

Realized investment gains, net

Nine Months Ended

September 30, 2021

Realized investment gains, net

Nine Months Ended

September 30, 2020

March 31, 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 and nine month

periods ended September 30, 2021 and 2020.

The following table presents the portion of unrealized gains

related to equity securities still held for the three month period ended March 31, 2022 and 2021.

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

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

Net realized gains recognized during the period on equity securities sold during the period

Unrealized gains (losses) recognized during the reporting period on equity securities, net

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.

Company’s VIE interests principally consist of interests in limited partnerships and limited liability companies formed for the purpose of achieving diversified equity returns.

The Company’s VIE interests, carried as a part of other invested

assets, totaled $ 3,095 and $ 3,238

as of September 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 September 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.

Unrealized gains recognized during the reporting period on equity securities, net

Interest Entities

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 $ 420

and $ 198 as of March 31, 2022 and December 31, 2021, respectively.

The Company’s VIE interests, carried as a part of investment in

unconsolidated trusts, totaled $ 1,238 as of March 31, 2022 and December 31, 2021.

Company does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary.

Therefore, the Company has not consolidated these VIEs.

The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE.

The Company has no arrangements with any of the VIEs to provide other

financial support to or on behalf of the VIE.

The Company’s maximum loss exposure relative to these investments was limited to the carrying value of the Company’s investment in the VIEs, which amount to $ 4,333 and $ 4,476 , as of September 30, 2021 and December 31,

2020, respectively.

As of September 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.

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 $ 1,658 and $ 1,436 , as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, the Company had outstanding commitments

totaling $ 12,777 and $ 1,997 ,

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

Fair Values of Financial Instruments

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

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

Level 3 criteria was $ 0 in each period.

As of September 30, 2021 and December 31, 2020, the value of the equity security valued using Level 3 criteria was $ 157 and $ 143 , respectively.

As of March 31, 2022 and December 31, 2021, the value of the fixed maturities valued using

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

As of March 31, 2022 and December 31, 2021, the value of the equity security valued using Level 3 criteria was $ 156 and $ 157 , respectively.

The equity security is not traded and is valued at cost.

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

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

of March 31, 2022, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Quoted Prices in

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The following table sets forth the

carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2021

carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of March 31, 2022

and December 31, 2021.

September 30, 2021

March 31, 2022

December 31, 2021

9 unchanged sentences

Insurance Reserves for Losses and Claims

roll-forward of insurance reserves for losses and claims for the nine months ended September 30, 2021 and 2020 is as follows:

Nine Months Ended

September 30,

roll-forward of insurance reserves for losses and claims for the three months ended March 31, 2022 and 2021 is as follows:

Three Months Ended

Beginning insurance reserves for losses and claims, gross

11 unchanged sentences

Ending insurance reserves for losses and claims, 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.

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 favorable development in both the life

and health and the property and casualty operations.

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.

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

Following is a reconciliation of total incurred losses to total

insurance benefits and losses incurred:

Nine Months Ended

September 30,

Three Months Ended

Total incurred losses

2 unchanged sentences

Total insurance benefits and losses incurred

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.

On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit

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among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments.

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

As of March 31, 2022, the Company does no t have any outstanding borrowings under the Credit Agreement.

Junior Subordinated Debentures

6 unchanged sentences

The financial structure of each of

Atlantic American Statutory Trust I and II as of September 30, 2021 was as follows:

Atlantic American Statutory Trust I and II as of March 31, 2022 was as follows:

Atlantic American

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JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed September 30, 2021

Principal amount owed March 31, 2022

Treasury debt (3)

Net balance September 30, 2021

Net balance March 31, 2022

Net balance December 31, 2021

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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.

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

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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.

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

September 30 , 2021

(In thousands)

Basic and Diluted Loss Per Common Share:

Less preferred stock dividends

Net loss applicable to common shareholders

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

Three Months Ended

September 30, 2020

March 31, 2022

(In thousands)

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Net income applicable to common shareholders

Nine Months Ended

September 30, 2021

(In thousands)

Basic and Diluted Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Nine Months Ended

September 30, 2020

Three Months Ended

March 31, 2021

(In thousands)

Basic and Diluted Earnings Per Common Share:

Basic and Diluted Loss Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for all periods presented, except for the three month period ended September 30, 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:

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 three month period ended

March 31, 2021 since its impact would have been antidilutive.

Equity Incentive Plan

On May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”).

The 2012 Plan

authorizes the grant of up to 2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance

shares, performance units and other awards for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for superior performance.

During the three month period ended March 31,

2022, a total of 25,000 restricted shares, with an estimated fair value of $ 69 were issued under the 2012 Plan.

During 2021, there were no restricted

shares issued under the 2012 Plan.

The estimated fair value of the restricted shares issued under the 2012 Plan for 2022 and 2021 was based on the common stock price at date of grant.

Stock grants are generally issued from treasury shares.

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 2022 or 2021.

Shares available for future grant at March 31, 2022 and December 31, 2021 were 910,200

and 935,200 , respectively.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Federal income tax provision at statutory rate of 21 %

Dividends-received deduction

Meals & entertainment

Vested stock & club dues

Meals and entertainment

Parking disallowance

Adjustment for prior years' estimates to actual

Penalties and fines

Income tax expense (benefit)

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Current – Federal

Deferred – Federal

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.

7 unchanged sentences

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

Lease expense reported for the nine months ended September 30, 2021 and September 30, 2020 was $ 761 .

Lease expense reported for the three months ended March 31, 2022 and March 31, 2021 was $ 254 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Nine Months Ended

September 30,

Three Months Ended

Other information on operating leases:

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

As of September 30, 2021, the Company has no operating leases

that have not yet commenced.

As of March 31, 2022, 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.

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.

Subsequent to March 31, 2022, the Company agreed to settle the matter through a consent order which included a penalty that has been recorded as a liability in the financial statements as of

March 31, 2022.

Segment Information

The Parent’s primary

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

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

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.

September 30,

Each business unit is managed

independently and is evaluated on its individual performance.

The following sets forth the assets, revenue and income (loss) before income taxes for each business unit as of and for the periods ended 2022 and 2021.

American Southern

2 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

American Southern

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Total revenue

In come (Loss) Before Income Taxes

Three Months Ended

September 30,

Nine Months Ended

September 30,

Income (Loss) Before Income Taxes

American Southern

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AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and references certain information that constitutes forward-looking statements as that term is defined in the federal securities laws.

Statements, to the extent they are not

statements of historical facts, are considered forward-looking statements, and are subject to various risks and uncertainties.

Such forward-looking statements are made based upon management’s current assessments of various risks and

uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions of the federal securities laws.

The Company’s actual results could differ materially from the results expressed in or implied by these forward-looking

statements as a result of such risks and uncertainties, including those identified in filings made by the Company from time to time with the Securities and Exchange Commission.

In addition, other risks and uncertainties not known by us, or that

we currently determine to not be material, may materially adversely affect our financial condition, results of operations or cash flows.

The Company undertakes no obligation to update any forward-looking statement as a result of subsequent

developments, changes in underlying assumptions or facts, or otherwise, except as may be required by law.

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

subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periods ended September 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”).

subsidiaries (collectively with the Parent, the “Company”) as of and for three month period ended March 31, 2022.

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

included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).

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

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Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”).

Each operating company is managed separately, offers different products and

is evaluated on its individual performance.

Recent Events and Outlook

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic.

In March 2020, the impact of COVID-19 and related actions to attempt to control its spread began to

impact our business operations, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating

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

Each operating company is managed separately, offers different products

and is evaluated on its individual performance.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions

that affect reported amounts and related disclosures.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and

assumptions that affect reported amounts and related disclosures.

Actual results could differ significantly from those estimates.

The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of

The Company has identified certain estimates that involve a higher degree of judgment and are subject to a

significant degree of variability.

The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the 2021 Annual Report.

Except as disclosed in Note 2 of Notes to Condensed Consolidated Financial

Statements, the Company’s critical accounting policies are consistent with those disclosed in the 2020 Annual Report.

Except as disclosed in Note 2 of Notes to Condensed

Consolidated Financial Statements, the Company’s critical accounting policies are consistent with those disclosed in the 2021 Annual Report.

Overall Corporate Results

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

Insurance premiums, net

Net investment income

Realized investment gains, net

Unrealized gains (losses) on equity securities, net

Realized investment gains (losses), net

Unrealized gains on equity securities, net

Total revenue

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

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

A reconciliation of net income (loss) to operating income (loss) for the three month period ended March 31, 2022 and the comparable period in 2021 is as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Reconciliation of Non-GAAP Financial Measure

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Income tax expense (benefit)

Realized investment gains, net

Unrealized (gains) losses on equity securities, net

Realized investment (gains) losses, net

Unrealized gains on equity securities, net

Non-GAAP operating income (loss)

On a consolidated basis, the Company had net loss of $0.9 million, or $0.05 per diluted share, for the three month period ended September 30, 2021, compared to net income of $1.9 million, or

$0.09 per diluted share, for the three month period ended September 30, 2020.

The Company had net income of $1.6 million, or $0.06 per diluted share, for the nine month period ended September 30, 2021, compared to net income of $0.3 million, or

$0.00 per diluted share, for the nine month period ended September 30, 2020.

For the three month period ended September 30, 2021, premium revenue increased $1.1 million, or 2.5%, to $46.1 million from $45.0 million in the comparable period in

For the nine month period ended September 30, 2021, premium revenue increased $0.3 million, or 0.2%, to $137.3 million from $137.0 million in the comparable period in 2020.

The increase in premium revenue 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 in the property and casualty operations.

Partially offsetting this increase was a decrease in the

Medicare supplement line of business in the life and health operations.

Operating income decreased $5.3 million in the three month period ended September 30, 2021 from the three month period ended September 30, 2020.

For the nine month period ended September 30,

2021, operating income decreased $12.0 million from the comparable period in 2020.

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.

On a consolidated basis, the Company had net income of $2.8 million, or $0.13 per diluted share, for the three month period ended March 31, 2022, compared to net loss of $0.4 million, or $0.03

per diluted share, for the three month period ended March 31, 2021.

Premium revenue for the three month period ended March 31, 2022 increased $1.0 million, or 2.2%, to $47.1 million from $46.1 million in the three month period ended March 31,

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

Also contributing to this increase in premium revenue was an increase

in the life insurance premiums in the life and health operations.

Operating income increased $3.0 million in the three month period ended March 31, 2022 from the three month period ended March 31, 2021.

The increase in operating income was primarily due to

favorable loss experience in the property and casualty operations due to a decrease in the frequency and severity of claims within the automobile physical damage line of business.

Also contributing to the increase in operating income was

favorable loss experience in the life and health operations, primarily as a result of an increase in earned premium within the group lines of business.

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

American Southern

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Combined ratio

Gross written premiums at American Southern increased $2.4 million, or 20.5%, during the three month period ended September 30, 2021 and $3.9 million, or 7.2%, during the nine month period ended

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

The increase in gross written premiums during the three month and nine month periods ended September 30, 2021 was primarily attributable to an increase in premiums written in the automobile

physical damage line of business from existing agencies, as well as 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.

Partially offsetting the

increase during the nine month period ended September 30, 2021 was a decrease in premiums written in the automobile liability line of business resulting from a decline in gross premiums written within a certain program, as well as retro premium

Ceded premiums increased $0.1 million, or 7.0%, during the three month period ended September 30, 2021 and $0.5 million, or 11.7%, during the nine month period ended September 30, 2021, 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 nine month periods ended September 30, 2021 and the comparable periods in 2020:

Gross written premiums at American Southern increased $0.1 million, or 0.8%, during the three month period ended March 31, 2022 from the comparable period in 2021.

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 surety line of business.

Partially offsetting the increase in gross

written premiums was a decrease in premiums written in the auto liability line of business and retro premium adjustments.

Ceded premiums decreased $0.1 million, or 4.0%, during the three month period ended March 31, 2022 from the comparable period in 2021.

The decrease in ceded premiums in 2022 was primarily due

to a decrease in ceding rates for two large programs in the auto liability line of business.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

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General liability

Net earned premiums increased $2.6 million, or 17.3%, during the three month period ended September 30, 2021, and $4.8 million, or 10.5%, during the nine month period ended September 30, 2021,

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.

Net earned premiums increased $0.7 million, or 4.4%, during the three month period ended March 31, 2022 over the comparable period in 2021.

The increase in net earned premiums was primarily

attributable to an increase in automobile physical damage coverage resulting from existing agencies 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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A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss.

The combined ratio is divided into two components, the

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

Insurance benefits and losses incurred at American Southern increased $2.5 million, or 27.6%, during the three month period ended September 30, 2021, and increased $4.9 million, or 17.0%, during

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

As a percentage of earned premiums, insurance benefits and losses incurred were 67.3% in the three month period ended September 30, 2021, compared to 61.8% in

the three month period ended September 30, 2020.

For the nine month period ended September 30, 2021, this ratio increased to 66.7% from 63.0% in the comparable period in 2020.

The increase in the loss ratio during the three month and nine month

periods ended September 30, 2021 was mainly due to an increase in the frequency of claims in the automobile physical damage line of business, as well as increased costs related to the auto liability line of business.

Commissions and underwriting expenses increased $0.2 million, or 4.5%, during the three month period ended September 30, 2021, and increased $0.2 million, or 1.3% during the nine month period

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

As a percentage of earned premiums, underwriting expenses were 28.1% in the three month period ended September 30, 2021, compared to 31.6% in the three month period ended September

For the nine month period ended September 30, 2021, this ratio decreased to 28.7% from 31.3% in the comparable period in 2020.

The decrease in the expense ratio during the three month and nine month periods ended September 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.

The combined ratio is divided into two components,

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

Insurance benefits and losses incurred at American Southern decreased $1.3 million, or 10.8%, during the three month period ended March 31, 2022 over the comparable period in 2021.

percentage of earned premiums, insurance benefits and losses incurred were 60.4% in the three month period ended March 31, 2022, compared to 70.7% in the three month period ended March 31, 2021.

The decrease in the loss ratio during the three

month period ended March 31, 2022 was primarily due to a decrease in the frequency and severity 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 $1.7 million, or 38.7%, during the three month period ended March 31, 2022, over the comparable period in 2021.

As a percentage of earned

premiums, underwriting expenses were 34.3% in the three month period ended March 31, 2022, compared to 25.8% in the three month period ended March 31, 2021.

The increase in the expense ratio during the three month period ended March 31, 2022

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

During periods in which the loss ratio

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

During the three month period ended

March 31, 2022, variable commissions at American Southern increased by $1.1 million from the comparable period in 2021 due to more favorable loss experience from accounts subject to variable commissions.

Bankers Fidelity

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

periods in 2020:

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Combined ratio

Net earned premium revenue at Bankers Fidelity decreased $1.4 million, or 4.8%, during the three month period ended September 30, 2021, and $4.5 million, or 4.9%, during the nine month period

ended September 30, 2021, from the comparable periods in 2020.

Gross earned premiums from the Medicare supplement line of business decreased $3.2 million, or 7.3%, during the three month period ended September 30, 2021, and $9.4 million, or 7.2%,

during the nine month period ended September 30, 2021, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.4 million, or 16.4%, during the three month period ended September 30,

2021, and $0.7 million, or 9.5%, during the nine month period ended September 30, 2021, over the comparable periods in 2020, primarily as a result of new sales of the company’s group health and individual cancer products.

Net earned premium revenue at Bankers Fidelity increased $0.3 million, or 0.9%, during the three month period ended March 31, 2022, from the comparable period in 2021.

Gross earned premiums

from the life insurance line of business increased $0.1 million, or 5.4%, during the three month period ended September 30, 2021, and increased $0.6 million, or 9.1%, during the nine month period ended September 30, 2021, over the comparable

periods in 2020, primarily due to an increase in the group life product premiums.

Partially offsetting this increase was a decline 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 6.9%, during the three month period ended September 30, 2021 and $3.7 million, or 6.8%, during the nine month period ended September

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

Insurance benefits and losses incurred increased $3.3 million, or 16.5%, during the three month period ended September 30, 2021, and $5.3 million, or 8.6%, during the nine month period ended

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

As a percentage of earned premiums, benefits and losses were 81.3% in the three month period ended September 30, 2021, compared to 66.5% in the three month period ended September 30,

For the nine month period ended September 30, 2021, this ratio increased to 76.4% from 66.9% in the comparable period in 2020.

The increase in the loss ratio for the three month and nine month periods ended September 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 $0.9 million, or 11.4%, during the three month period ended September 30, 2021, and $2.2 million, or 8.6%, during the nine month period ended

September 30, 2021, over the comparable periods in 2020.

As a percentage of earned premiums, underwriting expenses were 31.1% in the three month period ended September 30, 2021, compared to 26.6% in the three month period ended September 30,

For the nine month period ended September 30, 2021, this ratio increased to 31.7% from 27.8% in the comparable period in 2020.

The increase in the expense ratio for the three month and nine month periods ended September 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.

from the Medicare supplement line of business decreased $3.0 million, or 7.4%, during the three month period ended March 31, 2022, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums

increased $0.6 million, or 24.5%, during the three month period ended March 31, 2022, over the comparable period in 2021, 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 $1.6 million, or 56.5%, during the three month period ended March 31, 2022 over the comparable period in 2021 due to an increase in the group life products premium.

Partially offsetting the increase in gross earned

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

ceded decreased $1.1 million, or 6.4%, during the three month period ended March 31, 2022, from the comparable period in 2021.

The decrease in ceded premiums for the three month period ended March 31, 2022 was due to a decrease in Medicare

supplement premiums subject to reinsurance.

Insurance benefits and losses incurred decreased $0.8 million, or 3.9%, during the three month period ended March 31, 2022, from the comparable period in 2021.

As a percentage of earned

premiums, insurance benefits and losses incurred were 69.6% in the three month period ended March 31, 2022, compared to 73.0% in the three month period ended March 31, 2021.

The decrease in the loss ratio for the three month period ended March

31, 2022 was primarily due to a decrease in the number of incurred claims within the Medicare supplement line of business.

Commissions and underwriting expenses decreased $1.1 million, or 11.5%, during the three month period ended March 31, 2022, over the comparable period in 2021.

As a percentage of earned

premiums, underwriting expenses were 29.4% in the three month period ended March 31, 2022, compared to 33.5% in the three month period ended March 31, 2021.

The decrease in the expense ratio for the three month period ended March 31, 2022 was

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

Net Investment Income and Realized Gains

Investment income increased $0.3 million, or 16.9%, during the three month period ended September 30, 2021, and $0.8 million, or 14.0%, during the nine month period ended September 30, 2021, 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 $0.7 million,

respectively.

The Company had net realized investment gains of $0.3 million during the three month period ended September 30, 2021, compared to net realized investment gains of $0.2 during the three month

period ended September 30, 2020.

The Company had net realized investment gains of $0.5 million during the nine month period ended September 30, 2021 and net realized investment gains of $0.4 during the nine month period ended September 30,

The net realized investment gains during the three month and nine month periods ended September 30, 2021 resulted primarily from the disposition of several of the Company’s investments in fixed maturity securities.

The net realized

investment gains during the three month and nine month periods ended September 30, 2020 resulted from the disposition of several of the Company’s investments in fixed maturity and equity securities.

Management continually evaluates the Company’s

investment portfolio and makes adjustments for impairments and/or divests investments as may be determined to be appropriate.

Unrealized Gains (Losses) on Equity Securities

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

The Company recognized net unrealized gains on equity securities of $0.7 million during the three month period ended September 30, 2021 and unrealized losses on equity securities of $0.7 million during the three month period ended September 30,

The Company recognized net unrealized gains on equity securities of $5.5 million during the nine month period ended September 30, 2021 and unrealized losses on equity securities of $7.8 million during the nine month period ended September

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.

Investment income increased $0.2 million, or 10.7%, during the three month period ended March 31, 2022, from the comparable period in 2021.

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 losses of $0.01 million during the three month period ended March 31, 2022, compared to net realized investment gains of $0.1 million during the three

month period ended March 31, 2021.

The net realized investment losses during the three month period ended March 31, 2022 resulted primarily from the redemption of the Company’s investment in a fixed maturity.

The net realized investment gains

during the three month period ended March 31, 2021 resulted primarily from the disposition of several of the Company’s investments in fixed maturities.

Management continually evaluates the Company’s investment portfolio and makes adjustments

for impairments and/or divests investments as may be determined to be appropriate.

Unrealized Gains 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 $2.2 million during the three month period ended March 31, 2022 and unrealized gains on equity securities of $0.7 million during the three month period ended March 31, 2021.

Changes in unrealized

gains on equity securities for the applicable periods are primarily the result of fluctuations in the market value of certain of the Company’s equity securities.

Interest Expense

Interest expense remained relatively consistent during the three month period ended September 30, 2021, and decreased $0.2 million, or 17.0%, during the nine month period ended September 30,

2021, 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.

Interest expense increased slightly during the three month period ended March 31, 2022, from the comparable period in 2021.

Changes in interest expense were primarily due to changes in the

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

The Company is preparing for the

expected discontinuation of LIBOR by identifying, assessing and monitoring risks associated with LIBOR transition.

Preparation includes taking steps to update operational processes to support alternative reference rates and models, as well as

evaluating legacy contracts for any changes that may be required, including the determination of applicable fallbacks.

Liquidity and Capital Resources

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payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to

At September 30, 2021, the Parent had approximately $3.7 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $0.8 million for the nine month period ended September 30, 2021, compared to statutory net income of $8.5 million for the nine

month period ended September 30, 2020.

At March 31, 2022, the Parent had approximately $3.5 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $1.3 million for the three month period ended March 31, 2022, compared to statutory net income of $2.1 million for the three

month period ended March 31, 2021.

Statutory results are impacted by the recognition of all costs of acquiring business.

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Company is limited by state insurance regulations.

Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before

recognizing realized investment gains of the individual insurance subsidiaries.

At September 30, 2021, American Southern had $50.4 million of statutory capital and surplus and Bankers Fidelity had $38.5 million of statutory capital and surplus.

Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings

before recognizing realized investment gains of the individual insurance subsidiaries.

At March 31, 2022, American Southern had $53.4 million of statutory capital and surplus and Bankers Fidelity had $38.5 million of statutory capital and

In 2022, dividend payments by the Parent’s insurance subsidiaries in excess of $5.6 million would require prior approval.

Through September 30, 2021, the Parent received dividends of $6.9 million from its subsidiaries.

Through March 31, 2022, the Parent received dividends of $1.5 million from its subsidiaries.

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

The amounts charged to and paid by the subsidiaries include reimbursements for various shared

services and other expenses incurred directly on behalf of the subsidiaries by the Parent.

The amounts charged to and paid by the subsidiaries include reimbursements for various

shared services and other expenses incurred directly on behalf of the subsidiaries by the Parent.

In addition, there is in place a formal tax-sharing agreement between the Parent and its insurance subsidiaries.

As a result of the Parent’s tax loss, it

is anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.

As a result of the Parent’s tax

loss, it is anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and

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The margin ranges from 4.00% to 4.10%.

At September 30, 2021, the effective interest rate was

At March 31, 2022, the effective interest rate was

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.

to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities.

September 30, 2021, the Company has not made such an election.

March 31, 2022, the Company has not made such an election.

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

existing or potential future financing arrangements.

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

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

of the Company’s controlling shareholder.

At March 31, 2022, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

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

the Company’s controlling shareholder.

The outstanding shares of Series D Preferred Stock have a stated value of $100 per share;

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The Series D Preferred Stock is not currently convertible.

At September 30, 2021, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3 million.

At March 31, 2022, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.1 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.

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

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

Additional FHLB stock

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

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

As of September 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 $14.3 million at September 30, 2021.

The decrease in cash and cash equivalents during the nine month period ended

September 30, 2021 was primarily attributable to net cash used in operating activities of $9.6 million.

Partially offsetting the cash used in operating activities was net cash provided by investing activities of $5.1 million as a result of

investment sales and maturity of securities exceeding investment purchases.

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.1 million, as of March 31, 2022.

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

As of March 31, 2022, BFLIC has pledged bonds having an amortized cost of $4.8 million to the FHLB.

BFLIC may be required to post

additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB.

As of 2022, BFLIC does not have any outstanding borrowings from the FHLB.

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 March 31, 2022, the Company does not have any outstanding borrowings under the

Credit Agreement.

Cash and cash equivalents decreased from $24.8 million at December 31, 2021 to $15.6 million at March 31, 2022.

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

March 31, 2022 was primarily attributable to net cash used in operating activities of $8.0 million.

Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $1.1 million as a result of

investment purchases exceeding investment sales and maturity of securities.

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

2 unchanged sentences

implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

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

The duration and ultimate impact of the COVID-19 pandemic remains unknown at this time and it is not possible for us to reliably estimate the impact on the financial condition, operating results

or liquidity of the Company and its operating subsidiaries in future periods.

However, we do not currently expect a significant decline in liquidity or operating results as a result of the disruption caused by the ongoing COVID-19 pandemic.

date, the most significant impact of COVID-19 on the Company’s financial position has been volatility in the fair value of the Company’s fixed maturity and equity investments due to disruption in the financial markets.

We expect that earned premiums could be adversely impacted by a weakened economy leading to a slowdown in new sales and reduced retention of insureds.

Additionally, a number of states have

issued bulletins that either encourage or require premium leniency such as extension of grace periods or moratoriums on cancellation of policies for non-payment.

The Company does not expect a significant reduction or delay in payments and

continues to monitor state requirements as they develop.

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

contract basis with state and local governments.

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

recognize that a prolonged economic slowdown could adversely affect future results.

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

Benefits and losses in our property and casualty operations could be adversely impacted as a result of disruption caused by the COVID-19 pandemic.

However, due to the nature of our primary

product lines, the impact is not currently expected to be material.

As a result, we do not currently expect a material adverse effect on operating results or liquidity in the property and casualty operations.

The majority of premium revenue in our life and health operations are derived from the senior market segment of the population, or those individuals age sixty-five and up, who maintain Medicare

supplement and to a lesser extent, whole life insurance policies with the Company.

We expect that earned premiums could be adversely impacted by an economic slowdown related to the COVID-19 pandemic and individual, business and government

responses thereto, which could lead to a decline in new sales and reduced retention of insureds.

As a result, we currently anticipate that the life and health operations may experience a marginal decline in earned premiums although the actual

impact cannot be predicted with certainty at this time.

Unforeseen infectious diseases that impact large portions of a population can have an adverse impact on mortality and morbidity, and resultant benefits and losses incurred by the Company’s life

and health operations.

Accordingly, the Company does anticipate incurring higher costs, potentially similar to prior influenza seasons, as it relates to life insurance claims.

During 2020, the Company's individual policyholders were subject to

various degrees of shelter in place orders.

As a result, the Company experienced lower utilization of certain accident and health benefits, particularly in the Medicare supplement line of business.

However, during 2021, utilization of

policyholder benefits have returned to historical averages.

As a result, and although the ultimate impact cannot be predicted with certainty at this time, the Company does not expect significant adverse development in total benefits and losses

incurred in its life and health operations.

In addition to the information set forth in this report, you should carefully consider the discussions of the COVID-19 pandemic and related economic developments presented in our Annual Report on

Form 10-K for the year ended December 31, 2020, and in other reports we file with the SEC from time to time, all of which could materially affect our business, financial condition or future results.

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What changed 10-Q

Item 1. Financial Statements