What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-12 compared with 2022-05-11 · 394 added, 302 removed, 547 unchanged (56% of the section changed)

24 unchanged sentences

Accounts payable and accrued expenses

Revolving credit facility

Junior subordinated debenture obligations, net

12 unchanged sentences

Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Unearned stock grant compensation

5 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share data)

CONDENSED CONSOLIDATED STATEMENTS OF

Dollars in thousands, except per share data)

Three Months Ended

Six Months Ended

Insurance premiums, net

1 unchanged sentence

Realized investment gains (losses), net

Unrealized gains on equity securities, net

Unrealized gains (losses) on equity securities, net

Total revenue

14 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

In thousands)

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

Dollars in thousands)

Three Months Ended

Six Months Ended

Net income (loss)

Other comprehensive loss:

Other comprehensive income (loss):

Available-for-sale fixed maturity securities:

Gross unrealized holding loss arising in the period

Gross unrealized holding gain (loss) arising in the period

Related income tax effect

1 unchanged sentence

Related income tax effect

Total other comprehensive loss, net of tax

Total comprehensive loss

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

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

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

In thousands except share and per share data)

CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’ EQUITY

Dollars in thousands except share data)

Three Months Ended

Six Months Ended

Preferred stock:

15 unchanged sentences

Balance, end of period

Accumulated other comprehensive income:

Accumulated other comprehensive income (loss):

Balance, beginning of period

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Balance, end of period

7 unchanged sentences

Restricted stock grants, net of forfeitures

Net shares acquired 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

3 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF

In thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

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

Adjustments to reconcile net income 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

Unrealized (gains) losses on equity securities, net

Earnings from equity method investees

1 unchanged sentence

Depreciation and amortization

Deferred income tax expense (benefit)

Decrease in receivables, net

Decrease in insurance reserves and policyholder funds

Deferred income tax benefit

Increase in receivables, net

Increase in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

7 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends on common stock

Proceeds from shares issued under stock plans

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Treasury stock acquired — net employee share-based compensation

Proceeds from revolving credit facility, net

Net cash provided by (used in) financing activities

Net decrease 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.

18 unchanged sentences

(the “2021 Annual Report”).

The Company’s financial condition and results of operations and cash flows as of and for the three month period ended March 31, 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.

The Company’s financial condition and results of operations and cash flows as of and for the three and six month periods ended June 30, 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.

6 unchanged sentences

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.

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

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

the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of June 30, 2022 and December 31, 2021.

Fixed maturities were comprised of the following:

June 30, 2022

Fixed maturities:

27 unchanged sentences

Total fixed maturities

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

Bonds having an amortized cost of $ 11,049

and $ 11,169 and included in the tables above were on deposit with insurance regulatory authorities as of June 30, 2022 and December 31,

2021, respectively, in accordance with statutory requirements.

Additionally, bonds having an amortized cost of $ 7,872 and $ 5,371 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta ("FHLB") at June 30, 2022 and December 31,

2021, respectively.

Equity securities were comprised of the following:

June 30, 2022

Equity securities:

9 unchanged sentences

Total equity securities

The carrying value and amortized cost of the Company’s

investments in fixed maturities at March 31, 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

The carrying value and amortized cost of the Company’s investments in fixed maturities at June 30, 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.

June 30, 2022

December 31, 2021

4 unchanged sentences

Asset backed securities

The following tables present the Company’s unrealized loss

aging for securities by type and length of time the security was in a continuous unrealized loss position as of March 31, 2022 and December 31, 2021.

March 31, 2022

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

unrealized loss position as of June 30, 2022 and December 31, 2021.

June 30, 2022

Less than 12 months

12 unchanged sentences

Total temporarily impaired securities

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.

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

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

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

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

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

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

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

There were no OTTI charges

recorded during the three month and six month periods ended June 30, 2022 and 2021.

As of June 30, 2022 and December 31, 2021, there were 227

and 61 securities, respectively, in an unrealized loss position, which primarily included certain of the Company’s investments in fixed

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

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

Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of June 30, 2022.

The following tables summarize realized investment gains (losses) for the three month and six month periods ended June 30, 2022 and 2021.

Three Months Ended

March 31, 2022

June 30, 2022

Realized investment losses, net

Three Months Ended

March 31, 2021

June 30, 2021

Realized investment gains, net

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.

Six Months Ended

June 30, 2022

Realized investment losses, net

Six Months Ended

June 30, 2021

Realized investment gains, net

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

periods ended June 30, 2022 and 2021.

Three Months Ended

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 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.

Six Months Ended

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

Net realized gains (losses) 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 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 $ 5,128 and $ 198 as of June 30, 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 June 30, 2022 and December 31, 2021.

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

primary beneficiary.

Therefore, the Company has not consolidated these VIEs.

The Company’s involvement with

each VIE is limited to its direct ownership interest in the VIE.

The Company has no arrangements with any of the VIEs to provide other financial support to or on behalf of the VIE.

The Company’s maximum loss exposure relative to these investments

was limited to the carrying value of the Company’s investment in the VIEs, which amount to $ 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.

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 $ 6,366 and $ 1,436 , as of June 30, 2022 and December 31, 2021,

respectively.

As of June 30, 2022 and December 31, 2021, the Company had outstanding commitments totaling $ 5,872 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

27 unchanged sentences

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

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.

As of June 30, 2022 and December 31, 2021, the value of the fixed maturities valued using Level

3 criteria was $ 0 and $ 250 , respectively.

As of June 30, 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.

The use of different

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

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

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

of June 30, 2022, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Quoted Prices in

12 unchanged sentences

The following table sets forth the

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

carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of June 30, 2022

and December 31, 2021.

March 31, 2022

June 30, 2022

December 31, 2021

7 unchanged sentences

Junior subordinated debentures, net

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.

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

Internal-Use Software

On March 3, 2021, the

Company entered into a hosting arrangement through a service contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services.

The software is managed, hosted, supported, and

delivered as a cloud-based software service product offering (software-as-a-service).

The initial term of the arrangement is five years

from the effective date with a renewal term of an additional five years .

Service fees related to

the hosting arrangement are recorded as an expense in the Company’s condensed consolidated statement of operations as incurred.

Implementation expenses incurred related to third party professional and consulting services have been capitalized.

The Company will begin amortizing, on a straight-line basis over the expected ten year term of the hosting arrangement, when the

software is substantially ready for its intended use.

The Company incurred and capitalized implementation costs of $ 500 during the year

ended December 31, 2021, and $ 958 during the six months ended June 30, 2022.

As a result, the Company has capitalized $ 1,458 in implementation costs in its condensed consolidated balance sheet as of June 30, 2022.

The Company expects the software will be substantially

ready for its intended use during 2023.

Accordingly, the Company has no t recorded any amortization expense related to software

implementation costs for the six months ended June 30, 2022.

Insurance Reserves for Losses and Claims

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

roll-forward of insurance reserves for losses and claims for the six months ended June 30, 2022 and 2021 is as follows:

Six Months Ended

Beginning insurance reserves for losses and claims, gross

17 unchanged sentences

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 favorable development in the property

and casualty operations, as well as favorable development in the Medicare supplement line of business in the life and health operations.

Prior years’ development was primarily the result of unfavorable development in the loss and

3 unchanged sentences

insurance benefits and losses incurred:

Three Months Ended

Six Months Ended

Total incurred losses

8 unchanged sentences

Agreement”) with Truist Bank as the lender (the “Lender”).

The Credit Agreement provides for an unsecured $ 10 million revolving credit

The Credit Agreement provides for an unsecured $ 10,000 revolving credit

facility that matures on April 12, 2024 .

9 unchanged sentences

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 no t have any outstanding borrowings under the Credit Agreement.

As of June 30, 2022, the Company had outstanding borrowings of $ 1,000 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 March 31, 2022 was as follows:

Atlantic American Statutory Trust I and II as of June 30, 2022 was as follows:

Atlantic American

3 unchanged sentences

JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed March 31, 2022

Principal amount owed June 30 , 2022

Treasury debt (3)

Net balance March 31, 2022

Net balance June 30 , 2022

Net balance December 31, 2021

30 unchanged sentences

Earnings (Loss) Per Common Share

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

A reconciliation of the numerator and denominator used in the earnings (loss) per

common share calculations is as follows:

Three Months Ended

March 31, 2022

June 30 , 2022

(In thousands)

Basic and Diluted Loss Per Common Share:

Less preferred stock dividends

Net loss applicable to common shareholders

Three Months Ended

(In thousands)

Basic Earnings Per Common Share:

4 unchanged sentences

Net income applicable to common shareholders

Three Months Ended

March 31, 2021

Six Months Ended

(In thousands)

Basic and Diluted Loss Per Common Share:

Basic and Diluted Income Per Common Share:

Less preferred stock dividends

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

Net income applicable to common shareholders

Six Months Ended

(In thousands)

Basic and Diluted Income 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 June 30, 2021, since its impact would have

been antidilutive.

Equity and Incentive

Compensation Plan

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

2 unchanged sentences

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,

During the six month period ended June 30,

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

1 unchanged sentence

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.

The estimated fair value of the restricted shares issued under the 2012 Plan during 2022 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.

restricted shares generally occurs after a one to three year period following the date of grant .

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

There were no stock options granted or outstanding under the 2012 Plan in 2022 or 20 21.

Shares available for future grant under the 2012 Plan at

December 31, 2021 were 935,200 .

The 2012 Plan expired on April 30, 2022, ten years after its effective date.

As such, no grants have been or will

be made under the 2012 Plan on or after its expiration, but outstanding awards granted thereunder will continue in accordance with their terms.

On May 24, 2022, the Company’s shareholders approved the 2022 Equity and Incentive Compensation Plan (the “2022 Plan”).

The 2022 Plan authorizes the grant of up to 3,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards,

and succeeded the 2012 Plan for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for superior performance.

As of June 30, 2022, no shares have been issued under the 2022 Plan .

A reconciliation of the differences between income taxes computed at the federal

statutory income tax rate and income tax expense (benefit) is as follows:

Three Months Ended

Six Months Ended

Federal income tax provision at statutory rate of 21 %

1 unchanged sentence

Meals and entertainment

Vested stock and club dues

Parking disallowance

3 unchanged sentences

Three Months Ended

Six Months Ended

Current – Federal

9 unchanged sentences

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

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

Lease expense reported for the six months ended June 30, 2022 and June 30, 202 1 was $ 507 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Three Months Ended

Six Months Ended

Other information on operating leases:

11 unchanged sentences

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

As of March 31, 2022, the Company has no operating leases that

As of June 30, 2022, the Company has no operating leases that

have not yet commenced.

5 unchanged sentences

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.

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.

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.

I n 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.

The Company agreed to settle the matter through a consent order which included a penalty that was recorded in the financial statements in March 202 2.

Segment Information

The Parent’s primary insurance subsidiaries, American Southern and Bankers Fidelity, operate in two

principal business units, each focusing on specific products.

The Parent’s primary

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

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

Each business unit is managed

independently and is evaluated on its individual 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.

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

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

Six Months Ended

American Southern

2 unchanged sentences

Total revenue

In come (Loss) Before Income Taxes

Three Months Ended

Income (Loss) Before Income Taxes

Six Months Ended

American Southern

5 unchanged sentences

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

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

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

1 unchanged sentence

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.

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 variability.

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

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 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 2021 Annual Report.

Overall Corporate Results

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:

The following presents the Company’s revenue, expenses and net income (loss) for the three month and six month periods ended June 30, 2022 and the comparable periods in 2021:

Three Months Ended

(In thousands)

Six Months Ended

Insurance premiums, net

1 unchanged sentence

Realized investment gains (losses), net

Unrealized gains on equity securities, net

Unrealized gains (losses) on equity securities, net

Total revenue

7 unchanged sentences

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income (loss), and believes it is a useful metric for investors, potential investors, securities

analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as taxes, which are subject to timing, regulatory and rate changes

depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary

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

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

on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary operations and

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

A reconciliation of net income (loss) to operating income (loss) for the three month and six month periods ended June 30, 2022 and the comparable periods in 2021 is as follows:

Three Months Ended

Six Months Ended

Reconciliation of Non-GAAP Financial Measure

3 unchanged sentences

Realized investment (gains) losses, net

Unrealized gains on equity securities, net

Unrealized (gains) losses on equity securities, net

Non-GAAP operating income (loss)

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.

On a consolidated basis, the Company had net loss of $1.7 million, or $0.09 per diluted share, for the three month period ended June 30, 2022, compared to net income of $3.0 million, or $0.14 per

diluted share, for the three month period ended June 30, 2021.

The Company had net income of $1.2 million, or $0.05 per diluted share, for the six month period ended June 30, 2022, compared to net income of $2.5 million, or $0.11 per diluted

share, for the six month period ended June 30, 2021.

The decrease in net income for the three month and six month periods ended June 30, 2022 was primarily attributable to the decrease in unrealized gains of $8.9 million and $7.4 million,

respectively, over the comparable periods in 2021.

For the three month period ended June 30, 2022, premium revenue increased $1.9 million, or 4.3%, to $47.1 million from $45.1 million in the comparable period in 2021.

For the six month period

ended June 30, 2022, premium revenue increased $2.9 million, or 3.2%, to $94.1 million from $91.2 million in the comparable period in 2021.

The increase in premium revenue was primarily attributable to an increase in business writings and price

increases in certain programs within the automobile physical damage and automobile liability lines 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.

Partially offsetting this increase was a decrease in the Medicare supplement line of business in the life and health operations.

Operating income increased $3.1 million in the three month period ended June 30, 2022 from the three month period ended June 30, 2021.

For the six month period ended June 30, 2022, operating income increased $6.1

million from the comparable period in 2021.

The increase in operating income was primarily due to favorable loss experience in the life and health operations, resulting from an increase in earned premium within the group lines of business coupled

with a decrease in the number of claims incurred in the Medicare supplement line 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 period ended March 31, 2022 and the comparable period in 2021:

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2022 and the comparable periods in 2021:

Three Months Ended

Six Months Ended

(Dollars in thousands)

8 unchanged sentences

Combined ratio

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:

Gross written premiums at American Southern increased $6.5 million, or 19.8%, during the three month period ended June 30, 2022 and $6.6 million, or 14.9%, during the six month period ended June

30, 2022, from the comparable periods in 2021.

The increase in gross written premiums during the three month and six month periods ended June 30, 2022 was primarily attributable to an increase in premiums written in the automobile physical damage

and automobile liability lines of business, resulting from new business writings and price increases in certain programs.

Ceded premiums increased $0.2 million, or 10.0%, during the three month period ended June 30, 2022 and $0.1 million, or 2.8%, during the six month period ended June 30, 2022, from the comparable

periods in 2021.

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.

Partially offsetting the increase in ceded premiums in 2022

was a decrease in ceding rates for two large programs in the automobile liability line of business.

The following presents American Southern’s net earned premiums by line of business for the three month and six month periods ended June 30, 2022 and the comparable periods in 2021:

Three Months Ended

Six Months Ended

(In thousands)

2 unchanged sentences

General liability

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.

Net earned premiums increased $2.4 million, or 14.7%, during the three month period ended June 30, 2022, and $3.1 million, or 9.5%, during the six month period ended June 30, 2022, over the

comparable periods in 2021.

The increase in net earned premiums was primarily attributable to an increase in business writings and price increases in certain programs within the automobile physical damage and automobile liability lines of business

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.

2 unchanged sentences

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 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.

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 $3.9 million, or 38.2%, during the three month period ended June 30, 2022, and increased $2.6 million, or 11.9%, during the six

month period ended June 30, 2022, over the comparable periods in 2021.

As a percentage of earned premiums, insurance benefits and losses incurred were 74.8% in the three month period ended June 30, 2022, compared to 62.1% in the three month period

ended June 30, 2021.

For the six month period ended June 30, 2022, this ratio increased to 67.9% from 66.4% in the comparable period in 2021.

The increase in the loss ratio during the three month and six month periods ended June 30, 2022 was

mainly due to severity of losses reported from programs within the automobile liability line of business.

Partially offsetting this increase was a decrease in the frequency of claims in the automobile physical damage line of business.

Commissions and underwriting expenses decreased $0.5 million, or 9.8%, during the three month period ended June 30, 2022, and increased $1.1 million, or 11.9% during the six month period ended June

30, 2022, over the comparable periods in 2021.

As a percentage of earned premiums, underwriting expenses were 25.4% in the three month period ended June 30, 2022, compared to 32.3% in the three month period ended June 30, 2021.

For the six month

period ended June 30, 2022, this ratio increased to 29.7% from 29.0% in the comparable period in 2021.

The decrease in the expense ratio during the three month period ended June 30, 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 June 30, 2022, variable commissions decreased by $0.7 million from the

comparable period in 2021 due to less favorable loss experience from accounts subject to variable commissions.

During the six month period ended June 30, 2022, variable commissions increased by $0.4 million, respectively, from the comparable period

in 2021 due to 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 period ended March 31, 2022 and the comparable period in 2021:

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2022 and the comparable periods in

Three Months Ended

Six Months Ended

(Dollars in thousands)

11 unchanged sentences

Combined ratio

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 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 $0.2 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.

Net earned premium revenue at Bankers Fidelity decreased $0.5 million, or 1.7%, during the three month period ended June 30, 2022, and $0.2 million, or 0.4%, during the six month period ended June

30, 2022, from the comparable periods in 2021.

Gross earned premiums from the Medicare supplement line of business decreased $3.6 million, or 8.8%, during the three month period ended June 30, 2022, and $6.6 million, or 8.1%, during the six month

period ended June 30, 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 June 30, 2022, and $1.2 million, or 24.5%,

during the six month period ended June 30, 2022, over the comparable periods in 2021, primarily as a result of new sales of the company’s group health and individual cancer products.

Gross earned premiums from the life insurance line of business

increased $1.1 million, or 45.7%, during the three month period ended June 30, 2022, and increased $2.8 million, or 51.5%, during the six month period ended June 30, 2022, over the comparable periods in 2021, primarily due to an increase in the

group life products premium.

Partially offsetting this increase 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

Premiums ceded decreased $1.4 million, or 8.4%, during the three month period ended June 30, 2022 and $2.5 million, or 7.4%, during the six month period ended June 30, 2022.

The decrease in ceded premiums for the three month and six

month periods ended June 30, 2022 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred decreased $2.8 million, or 13.1%, during the three month period ended June 30, 2022, and $3.7 million, or 8.5%, during the six month period ended June 30, 2022, from the

comparable periods in 2021.

As a percentage of earned premiums, benefits and losses were 66.1% in the three month period ended June 30, 2022, compared to 74.9% in the three month period ended June 30, 2021.

For the six month period ended June 30,

2022, this ratio decreased to 67.9% from 73.9% in the comparable period in 2021.

The decrease in the loss ratio for the three month and six month periods ended June 30, 2022 was primarily due to a decrease in the loss ratio in the Medicare

supplement line of business as a result of improved rate adequacy, as well as a decrease in the loss ratio in the group lines of business.

Commissions and underwriting expenses decreased $1.4 million, or 15.8%, during the three month period ended June 30, 2022, and $2.5 million, or 13.5%, during the six month period ended June 30,

2022, over the comparable periods in 2021.

As a percentage of earned premiums, underwriting expenses were 26.1% in the three month period ended June 30, 2022, compared to 30.4% in the three month period ended June 30, 2021.

For the six month

period ended June 30, 2022, this ratio decreased to 27.8% from 32.0% in the comparable period in 2021.

The decrease in the expense ratio for the three month and six month periods ended June 30, 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 (Losses)

Investment income increased $0.3 million, or 11.6%, during the three month period ended June 30, 2022, and $0.5 million, or 11.2%, during the six month period ended June 30, 2022, over the

comparable periods in 2021.

The increase in investment income was primarily attributable to prepayment income of $0.3 million in each of the three month and six month periods ended June 30, 2022, from the comparable periods in 2021, related to the

redemption of certain fixed maturities.

Also, contributing to the increase in investment income was an increase in the equity in earnings from investments in the Company's limited liability companies of $0.04 million and $0.1 million,

respectively.

The Company had net realized investment losses of $0.1 million during the three month period ended June 30, 2022, compared to net realized investment gains of $0.1 during the three month period

ended June 30, 2021.

The Company had net realized investment losses of $0.1 million during the six month period ended June 30, 2022 and net realized investment gains of $0.2 during the six month period ended June 30, 2021.

The net realized

investment losses during the three month and six month periods ended June 30, 2022 resulted primarily from the redemption of several of the Company’s investments in fixed maturity securities.

The net realized investment gains during the three month

and six month periods ended June 30, 2021 resulted from the disposition of several of the Company’s investments in fixed maturity securities.

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

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

Unrealized Gains (Losses) on Equity Securities

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

Company recognized net unrealized losses on equity securities of $4.9 million during the three month period ended June 30, 2022 and unrealized gains on equity securities of $4.0 million during the three month period ended June 30, 2021.

Company recognized net unrealized losses on equity securities of $2.7 million during the six month period ended June 30, 2022 and unrealized gains on equity securities of $4.7 million during the six month period ended June 30, 2021.

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 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.

Interest expense increased $0.1 million, or 19.3%, during the three month period ended June 30, 2022, and $0.1 million, or 10.8%, during the six month period ended June 30, 2022, from the

comparable periods 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

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements.

Current and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges.

The Company’s primary sources of cash are written premiums, investment income and

proceeds from the sale and maturity of its invested assets.

The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings,

future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges.

The Company’s primary sources of cash are written premiums, investment income and proceeds from

the sale and maturity of its invested assets.

The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium

receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries.

The principal cash needs of the Parent are for the

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

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.

The principal cash needs of the Parent are for the payment

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

June 30, 2022, the Parent had approximately $4.4 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $2.2 million for the six month period ended June 30, 2022, compared to statutory net income of $1.5 million for the six month

period ended June 30, 2021.

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

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

determined under GAAP.

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

Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes.

The Company’s

life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

The Company’s life and health

operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required;

1 unchanged sentence

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

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

recognizing realized investment gains of the individual insurance subsidiaries.

At June 30, 2022, American Southern had $52.5 million of statutory capital and surplus and Bankers Fidelity had $35.9 million of statutory capital and surplus.

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

Through June 30, 2022, the Parent received dividends of $3.0 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

3 unchanged sentences

The margin ranges from 4.00% to 4.10%.

At March 31, 2022, the effective interest rate was

At June 30, 2022, the effective interest rate was 5.56%.

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.

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 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.

Subject to certain

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

As of June 30, 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 June 30, 2022, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

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

Company’s controlling shareholder.

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

accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at

the option of the board of directors of the Company) and are cumulative.

In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock,

subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval;

and are redeemable solely at the

Company’s option.

accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option

of the board of directors of the Company) and are cumulative.

In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to

certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval;

and are redeemable solely at the Company’s option.

The Series D Preferred Stock is not currently convertible.

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

At June 30, 2022, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.2 million.

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

As a member, BFLIC

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

The membership arrangement 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 a member, BFLIC can obtain access to

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

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.2 million, as of June 30, 2022.

Additional FHLB stock purchases

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

As of June 30, 2022, BFLIC has pledged bonds having an amortized cost of $7.9 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.

2 unchanged sentences

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.

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.

Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the

Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events.

Upon an event of default, the Lender may, among other

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

As of June 30, 2022, the Company had outstanding borrowings of $1.0 million under the Credit Agreement.

Cash and cash equivalents decreased from $24.8 million at December 31, 2021 to $15.9 million at June 30, 2022.

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

2022 was primarily attributable to net cash used in investing activities of $5.0 million primarily as a result of investment purchases exceeding investment sales and maturity of securities.

Also contributing to the decrease in cash and cash

equivalents was net cash used in operating activities of $4.4 million.

Partially offsetting the decrease in cash and cash equivalents was net cash provided by financing activities primarily as a result of proceeds from bank financing of $1.0

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

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements