What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-06-30 compared with 2022-03-25 · 188 added, 216 removed, 205 unchanged (66% of the section changed)

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American Southern Insurance Company and American Safety Insurance

Company (together known as “American Southern”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”) in the life and health

insurance industry.

Company (together known as “American Southern”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers

Fidelity”) in the life and health insurance industry.

Each operating company is managed separately, offers different products and is evaluated on its individual performance.

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a material effect on the Company’s financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.

Cash and investments comprised 77% of the

Company’s total assets at December 31, 2021.

Substantially all of the Company’s investments are in bonds and common and preferred stocks, the values of which are subject to significant market fluctuations.

The Company carries all fixed

maturities, which includes bonds and redeemable preferred stocks, and equity securities, which includes common and non-redeemable preferred stocks, as available for sale and, accordingly, at their estimated fair values.

On occasion, the value of

a fixed maturity investment may decline to a value below its amortized purchase price and remain at such value for an extended period of time.

When a fixed maturity investment’s indicated fair value has declined below its cost basis for a period

of time, the Company evaluates such investment for an other than temporary impairment.

The evaluation for an other than temporary impairment 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.

If an other than temporary impairment is deemed to exist, then the Company will write down the amortized cost basis of the investment to its

estimated fair value.

While any such write down does not impact the reported value of the investment in the Company’s balance sheet, it is reflected as a realized investment loss in the Company’s net income or other comprehensive income,

depending upon the nature of the loss, in the period incurred.

Cash and investments comprised 70% of the Company’s total assets at December 31, 2022.

Substantially all of the Company’s investments are in bonds and

common and preferred stocks, the values of which are subject to significant market fluctuations.

The Company carries all fixed maturities, which includes bonds and redeemable preferred stocks, as available for sale, and equity securities, which

includes common and non-redeemable preferred stocks, at their estimated fair values.

Due to market and other considerations, the value of a fixed maturity investment may decline to a value below its amortized purchase price and remain at such value

for an extended period of time.

When a fixed maturity investment’s indicated fair value has declined below its cost basis for a period of time, the Company evaluates such investment for an other than temporary impairment.

The evaluation for an

other than temporary impairment 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.

than temporary impairment is deemed to exist, then the Company will write down the amortized cost basis of the investment to its estimated fair value.

While any such write down does not impact the reported value of the investment in the Company’s

balance sheet, it is reflected as a realized investment loss in the Company’s net income or other comprehensive income, depending upon the nature of the loss, in the period incurred.

The Company determines the fair values of certain financial instruments based on the fair value hierarchy established in Accounting Standards Codification (“ASC”) 820-10-20, Fair Value Measurements and Disclosures (“ASC 820-10-20”).

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accordance with ASC 820-10-20.

Future policy benefits comprised 33% of the

Company’s total liabilities at December 31, 2021.

These liabilities relate primarily to life insurance products and are based upon assumed future investment yields, mortality rates, and lapse rates after giving effect to possible risks of adverse

The assumed mortality and lapse rates are based upon the Company’s experience modified as necessary to reflect anticipated trends and are generally established at contract inception.

If actual results differ from the initial

assumptions, the amount of the Company’s recorded liability could require adjustment.

Unpaid loss and loss adjustment expenses

comprised 33% of the Company’s total liabilities at December 31, 2021.

Future policy benefits comprised 32% of the Company’s total liabilities at December 31, 2022.

These liabilities relate primarily to life insurance products

and are based upon assumed future investment yields, mortality rates, and lapse rates after giving effect to possible risks of adverse deviation.

The assumed mortality and lapse rates are based upon the Company’s experience modified as necessary to

reflect anticipated trends and are generally established at contract inception.

If actual results differ from the initial assumptions, the amount of the Company’s recorded liability could require adjustment.

Unpaid loss and loss adjustment expenses comprised 33% of the Company’s total liabilities at December 31, 2022.

This liability includes estimates for:

1) unpaid losses on claims reported prior to December 31, 2021, 2) future development on those reported claims, 3) unpaid ultimate

losses on claims incurred prior to December 31, 2021 but not yet reported and 4) unpaid loss adjustment expenses for reported and unreported claims incurred prior to December 31, 2021.

Quantification of loss estimates for each of these components

involves a significant degree of judgment and estimates may vary, materially, from period to period.

Estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the Company.

Development on

reported claims, estimates of unpaid ultimate losses on claims incurred prior to December 31, 2021 but not yet reported, and estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, using actuarial

methods to assist in the analysis.

The Company’s actuaries develop ranges of estimated development on reported and unreported claims as well as loss adjustment expenses using various methods, including the paid-loss development method, the

reported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method.

Any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes

affecting the business environment and the Company’s administrative policies.

Further, external factors, such as legislative changes, medical cost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for

unpaid losses and loss adjustment expenses.

The Company’s approach is to select an estimate of ultimate losses based on comparing results of a variety of reserving methods, as opposed to total reliance on any single method.

Unpaid loss and loss

adjustment expenses are reviewed periodically for significant lines of business, and when current results differ from the original assumptions used to develop such estimates, the amount of the Company’s recorded liability for unpaid loss and loss

adjustment expenses is adjusted.

In the event the Company’s actual reported losses in any period are materially in excess of the previously estimated amounts, such losses, to the extent reinsurance coverage does not exist, could have a material

adverse effect on the Company’s results of operations.

Receivables are amounts due from reinsurers,

insureds and agents, and any sales of investment securities not yet settled, and comprised 11% of the Company’s total assets at December 31, 2021.

unpaid losses on claims reported prior to December 31, 2022, (2) future development on those reported claims, (3) unpaid ultimate losses on claims incurred prior to December 31, 2022 but not yet reported and (4) unpaid loss adjustment expenses for

reported and unreported claims incurred prior to December 31, 2022.

Quantification of loss estimates for each of these components involves a significant degree of judgment and estimates may vary, materially, from period to period.

Estimated unpaid

losses on reported claims are developed based on historical experience with similar claims by the Company.

Development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to December 31, 2022 but not yet reported, and

estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis.

The Company’s actuaries develop ranges of estimated development on reported and unreported

claims as well as loss adjustment expenses using various methods, including the paid-loss development method, the reported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method.

Any single method

used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the Company’s administrative policies.

Further, external factors, such as legislative changes, medical

cost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses.

The Company’s approach is to select an estimate of ultimate losses based on comparing results of a

variety of reserving methods, as opposed to total reliance on any single method.

Unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business, and when current results differ from the original assumptions

used to develop such estimates, the amount of the Company’s recorded liability for unpaid loss and loss adjustment expenses is adjusted.

In the event the Company’s actual reported losses in any period are materially in excess of the previously

estimated amounts, such losses, to the extent reinsurance coverage does not exist, could have a material adverse effect on the Company’s results of operations.

Receivables are amounts due from reinsurers, insureds and agents, and any sales of investment securities not yet settled, and comprised 11% of the

Company’s total assets at December 31, 2022.

Insured and agent balances are evaluated periodically for collectibility.

Annually, the Company

performs an analysis of the creditworthiness of the reinsurers with whom the Company contracts using various data sources.

Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise could result in uncollectible

amounts and losses to the Company.

Allowances for uncollectible amounts are established, as and when a loss has been determined probable, against the related receivable.

Losses are recognized by the Company when determined on a specific account

basis and a general provision for loss is made based on the Company’s historical experience.

Deferred acquisition costs comprised 10% of

the Company’s total assets at December 31, 2021.

Deferred acquisition costs are commissions, premium taxes, and other incremental direct costs of contract acquisition that results directly from and are essential to the contract transaction(s) and

would not have been incurred by the Company had the contract transaction(s) not occurred.

The deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner.

Traditional life insurance and

long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the related liability for policy benefit

Deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over the effective period of the related insurance policies.

Deferred policy acquisition costs are expensed when such costs

are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance).

Assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year’s projected losses related to the unearned premiums.

Projected loss estimates for a current

block of business for which unearned premiums remain to be earned may vary significantly from the indicated losses incurred in any previous calendar year.

Deferred income taxes reflect the effect of

temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for tax purposes.

These deferred income taxes are measured by applying currently enacted tax laws and

Valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more likely than not to be realized.

In assessing the likelihood of realization, management considers estimates of future taxable income and

tax planning strategies.

Share-based transactions include employee and

director share-based compensation awards .

The Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for

actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award.

For non-employee share-based compensation awards, the Company recognizes the impact during the period

of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date.

Annually, the Company performs an analysis of the creditworthiness of the reinsurers with whom the Company contracts using

various data sources.

Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise could result in uncollectible amounts and losses to the Company.

Allowances for uncollectible amounts are established, as and when a

loss has been determined probable, against the related receivable.

Losses are recognized by the Company when determined on a specific account basis and a general provision for loss is made based on the Company’s historical experience.

Deferred acquisition costs comprised 12% of the Company’s total assets at December 31, 2022.

Deferred acquisition costs are commissions, premium taxes, and

other incremental direct costs of contract acquisition that results directly from and are essential to the contract transaction(s) and would not have been incurred by the Company had the contract transaction(s) not occurred.

The deferred amounts

are recorded as an asset on the balance sheet and amortized to expense in a systematic manner.

Traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-paying period of

the related policies using assumptions consistent with those used in computing the related liability for policy benefit reserves.

Deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over

the effective period of the related insurance policies.

Deferred policy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the

related unearned premiums and investment income (for property and casualty and short-duration health insurance).

Assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of

a subsequent year’s projected losses related to the unearned premiums.

Projected loss estimates for a current block of business for which unearned premiums remain to be earned may vary significantly from the indicated losses incurred in any

previous calendar year.

Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and

the amounts that are recognized for tax purposes.

These deferred income taxes are measured by applying currently enacted tax laws and rates.

Valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more

likely than not to be realized.

In assessing the likelihood of realization, management considers estimates of future taxable income and tax planning strategies.

Share-based transactions include employee and director share-based compensation awards .

The Company determines a

grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite

service period for the entire award.

For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is

the vesting date.

Refer to Note 1 of Notes to Consolidated Financial Statements for details regarding the Company’s significant accounting policies.

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On a consolidated basis, the Company had net income of $1.5 million, or $0.06 per diluted share, in 2022, compared to net income of $4.3 million, or $0.19 per diluted share, in 2021.

loss was $1.5 million in 2021 as compared to operating income of $11.5 million 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 claims incurred in the Medicare supplement line of business.

This increase in the number of incurred claims was primarily attributable to the increase in utilization of Medicare supplement insurance benefits, 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.

in net income was primarily due to a decrease in unrealized gains on equity securities of $9.5 million.

Partially offsetting this decrease was a decrease in the insurance benefits and losses incurred of $8.2 million.

Operating income was $9.6

million in 2022 as compared to operating loss of $1.5 million in 2021.

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

claims incurred in the Medicare supplement line of business.

Partially offsetting the increase in operating income was a less favorable loss experience in the property and casualty operations due to severity of losses reported from programs within

the automobile liability line of business.

Total revenue was $187.9 million in 2022 as compared to $199.6 million in 2021.

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The increase in premium revenue was

primarily due to an increase in the automobile physical damage line of business within the property and casualty operations.

Partially offsetting the increase in premium revenue was a decrease in the Medicare supplement line of business in the

life and health operations.

primarily attributable to an increase in life insurance premiums within the life and health operations.

Also contributing to the increase in premium revenue were business writings and price increases in certain programs within the automobile

liability line of business within the property and casualty operations.

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

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

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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 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

Ceded premiums increased $0.6 million, or 10.5%, during 2021 as compared to 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.

Contributing to the increase in ceded premiums was an increase in earned premiums in certain accounts within the automobile physical damage and general liability lines of business,

which are subject to reinsurance.

Also contributing to the ceded premium increase was a rate increase on catastrophe reinsurance.

premiums written in the automobile liability line of business, resulting from new business writings and price increases in certain programs.

Partially offsetting the increase in gross written premiums was a decrease in premiums written in the

automobile physical damage line of business due to a reduction in the number of agencies, as well as a decrease in premiums written in the general liability line of business due to reduced premiums from existing agencies.

Ceded premiums increased slightly during 2022 as compared to 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.

The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:

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Net earned premiums increased $2.3 million, or 3.4%, during 2022 as compared to 2021.

The increase in net earned premiums was primarily attributable to an increase in automobile physical damage

coverage resulting from existing agencies and an increase in general liability as a result of a new program as previously mentioned.

Partially offsetting the increase in net earned premiums was a decrease in the surety line of business primarily

attributable to marketplace competition, as well as a decrease in the other lines of business resulting from the termination of a program.

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 increase in net earned premiums was primarily attributable to an increase in business writings and price

increases in certain programs within the automobile liability line of business as previously mentioned.

Partially offsetting the increase in net earned premiums was a decrease in earned premiums in the automobile physical damage line of business

due to a reduction in the number of existing agencies.

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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were 67.1% in 2022 as compared to 65.4% in 2021.

The increase in the loss ratio was primarily due to less favorable loss experience in the automobile physical damage line of business due to an increase in frequency of claims resulting from both

inclement weather throughout the year and an increase in the number of insureds in 2021.

Also contributing to the increase in the loss ratio was an increase in the number of claims within the surety line of business.

Commissions and underwriting expenses increased $0.7 million, or 3.8%, during 2021 as compared to 2020.

The increase in the loss ratio 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 remained constant during 2022 as compared to 2021.

As a percentage of premiums, these expenses were 28.7% in 2022 as compared to 29.6% in 2021.

The decrease in the expense ratio was primarily due to the increase in earned premiums.

Partially offsetting the decrease in expense ratio was 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.

In 2021, variable commissions at American Southern increased $0.6 million as compared to 2020 due to improved loss ratios from certain accounts subject to variable

In establishing reserves, American Southern 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.

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.

However, as a result, American Southern generally experiences reserve redundancies when analyzing the development of

prior year losses in the current period.

At December 31, 2021, the range of estimates developed in connection with the loss reserves for American Southern indicated that reserves could be as much as 12.2% lower or as much as 3.1% higher.

Development from prior years’ reserves has historically reduced the current year loss ratio;

The decrease in

the expense ratio was primarily due to the increase in earned premiums.

Partially offsetting the decrease in expense ratio was 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.

In 2022, variable commissions at American Southern increased $0.7 million as compared to 2021 due to improved loss ratios from certain accounts subject to variable commissions.

In establishing reserves, American Southern initially reserves for losses based on management’s best estimate within a reasonable range.

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.

However, as a result, American Southern generally experiences reserve redundancies when analyzing the development of prior year losses in the current period.

December 31, 2022, the range of estimates developed in connection with the loss reserves for American Southern indicated that reserves could be as much as 12.1% lower or as much as 12.2% higher.

Development from prior years’ reserves has

historically reduced the current year loss ratio;

however, such reduction in the current year loss ratio is generally offset by the reserves established in the current year for current period losses.

Management believes that such differences will continue in future periods, but is unable to determine if or when incremental redundancies will increase or decrease until the underlying losses are ultimately settled.

Management believes that such differences will

continue in future periods, but is unable to determine if or when incremental redundancies will increase or decrease until the underlying losses are ultimately settled.

Contingent commissions, if contractually applicable, are ultimately payable to participating agents based on the underlying profitability of a particular insurance contract or a group of insurance

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The decrease in ceded premiums was due to a decrease in Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred increased $6.7 million, or 8.3%, during 2021 as compared to 2020.

As a percentage of premiums, benefits and losses were 75.1% in 2021 as compared to 66.5% in

The increase in the loss ratio 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 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.

Also contributing to the increase in the loss ratio was an increase in both the

group and individual life lines of business.

Commissions and underwriting expenses increased $0.5 million, or 1.6%, during 2021 as compared to 2020.

Insurance benefits and losses incurred decreased $11.0 million, or 12.6%, during 2022 as compared to 2021.

As a percentage of premiums, benefits and losses were 66.2% in 2022 as compared to 75.1%

The decrease in the loss ratio was primarily due to improved rate adequacy and a decrease in the number of claims incurred in the Medicare supplement line of business.

Also contributing to the decrease in loss ratio was a decrease in both

the group and individual lines of business.

These decreases were marginally offset by increased loss ratios on the group accident and health lines of business.

Commissions and underwriting expenses decreased $0.8 million, or 2.3%, during 2022 as compared to 2021.

As a percentage of earned premiums, these expenses were 29.5% in 2022 as compared to 29.9% in

The increase in the expense ratio 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.

Also contributing to the increase in the expense ratio was an increase in expenses related to servicing the Medicare supplement line

The decrease in the expense ratio was primarily due to the additions to deferred acquisition costs (“DAC”) exceeding the amortization of DAC.

The increase in additions to DAC was primarily related to the growth in sales of the group lines of

business, primarily group life.

Offsetting the DAC benefit were increased commissions related to the aforementioned growth in group sales coupled with increased servicing costs related to our growing group lines of business.

Net Investment Income and Realized Gains

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investments in the Company’s limited partnerships and limited liability companies of $0.5 million.

Also contributing to the increase in investment income was prepayment income of $0.3 million related to the redemption of certain fixed maturities.

The Company had net realized investment gains of $0.03 million in 2022 as compared to net realized investment gains of $4.9 million in 2021.

The net realized investment gains in 2022 were primarily

attributable to gains of $4.3 million from the sale of the Company’s interest in a certain limited liability company as well as gains from the sale of a number of the Company’s investments in fixed maturities.

The net realized investment gains in

2020 were primarily attributable to gains of $6.9 million from the sale of the Company’s interest in a certain limited liability company as well as gains from the sale of a number of the Company’s investments in fixed maturities.

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

attributable to gains from the sale of fixed maturities.

The net realized investment gains in 2021 were primarily attributable to gains of $4.3 million from the sale of the Company’s interest in a certain limited liability company as well as gains

from the sale of a number of the Company’s investments in fixed maturities.

Management continually evaluates the Company’s investment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will divest

See Note 2 of Notes to Consolidated Financial Statements.

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The Company recognized net

unrealized gains on equity securities of $1.9 million and unrealized losses on equity securities of $3.4 million during the years ended December 2021 and 2020, respectively.

unrealized losses on equity securities of $7.6 million and unrealized gains on equity securities of $1.9 million during the years ended December 2022 and 2021, respectively.

Changes in unrealized gains on equity securities for the applicable

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Interest Expense

Interest expense decreased $0.2 million, or 13.9%, in 2021 as compared to 2020.

Interest expense increased $0.6 million, or 40.7%, in 2022 as compared to 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 rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility 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.

The primary difference between the effective tax rate and the federal statutory income tax rate for 2022 resulted from a permanent difference related to penalties and fines incurred of $0.1

Also contributing to differences between the effective tax rate and the federal statutory income tax rate were the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each

fiscal year and were $0.1 million in the year ended December 31, 2022.

Other contributing factors to the differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and

entertainment and the dividends-received deduction (“DRD”).

The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of

the Company’s taxable income.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2021 resulted from the adjustment for prior years’ estimates to actual that are generally

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differences related to meals and entertainment and vested stock and club dues.

Another contributing factor was the dividends-received deduction (“DRD”).

The current estimated DRD is adjusted as underlying factors change and can vary from estimates

based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2020 resulted from permanent differences related to meals and entertainment and vested stock and

Also contributing to differences between the effective tax rate and the federal statutory income tax rate were adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each

fiscal year and were $0.02 million in the year ended December 31, 2020.

Another contributing factor was the DRD.

Liquidity and Capital Resources

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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.

the sale and maturity of its invested assets, as well as borrowings from time to time under our revolving credit facility.

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.

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The Series D Preferred Stock is not currently convertible.

The Company had accrued, but unpaid, dividends on the Series D Preferred Stock of $17,722 at December 31, 2021 and 2020.

During each of 2021 and 2020, the Company paid Series D

Preferred Stock dividends of $0.4 million.

The Company had accrued, but unpaid, dividends on the Series D Preferred Stock of $17.7 thousand at December 31, 2022 and 2021.

During each of 2022 and 2021, the Company paid Series

D Preferred Stock dividends of $0.4 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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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.

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $7.9 million, as of December 31, 2022.

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

As of December 31, 2022, BFLIC has pledged bonds having an amortized cost of $7.2 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 2021, BFLIC does not have any outstanding borrowings from 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 December 31, 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 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.

event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments.

As of December 31 2021, the Company does not have any outstanding

borrowings under the Credit Agreement.

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

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

Upon an event of default, the Lender

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

As of December 31, 2022, the Company had outstanding borrowings of $2.0 million under the Credit

Cash and cash equivalents increased from $24.8 million at December 31, 2021 to $28.9 million at December 31, 2022.

The increase in cash and cash equivalents during 2022 was primarily attributable

to an increase in cash provided by investing activities of $5.4 million as a result of investment sales and maturity of securities exceeding investment purchases.

Also contributing to the increase in cash was net cash provided by operating

activities of $1.1 million.

Partially offsetting the increase were dividends paid on common stock of $0.4 million and dividends paid on the Company’s Series D Preferred Stock of $0.4 million.

to an increase in net cash provided by operating activities of $6.5 million.

Also contributing to the increase in cash and cash equivalents were proceeds from the revolving credit facility of $2.0 million.

Partially offsetting the increase in cash

and cash equivalents was net cash used in investing activities of $3.4 million primarily as a result of investment purchases exceeding investment sales and maturity of securities.

Also partially offsetting the increase were dividends paid on common

stock of $0.4 million and dividends paid on the Company’s Series D Preferred Stock of $0.4 million.

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

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

Management is not aware of any current recommendations by regulatory authorities, which, if implemented, would have a material adverse

effect on the Company’s liquidity, capital resources or operations.

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.

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 could incur 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

financial institutions, will enable the Company to meet its liquidity requirements for the next 12 months and thereafter for the foreseeable future.

Management is not aware of any current recommendations by regulatory authorities, which, if

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

New Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis