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Item 8. Financial Statements and Supplementary Data

2023-06-30 compared with 2022-03-25 · 292 added, 216 removed, 911 unchanged (36% of the section changed)

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ATLANTIC AMERICAN CORPORATION

Report of Independent Registered Public Accounting Firm ( Dixon Hughes Goodman, LLP , Atlanta, GA PCAOB Firm ID No.

Report of Independent Registered Public Accounting Firm ( FORVIS, LLP (f/k/a Dixon Hughes Goodman, LLP), Atlanta, Georgia , PCAOB Firm ID No.

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Atlantic American Corporation and subsidiaries (the Company) as of December 31, 2021

and 2020, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2021 and the related notes and schedules (collectively,

referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows

for each of the two years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles (GAAP).

We have audited the accompanying consolidated balance sheets of Atlantic American Corporation and subsidiaries (the

Company) as of December 31, 2022, and 2021 , and the related consolidated

statements of operations, comprehensive loss , shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedules (collectively, referred to as the financial statements).

In our opinion, the financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2022, and 2021 , and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 , in conformity with

accounting principles generally accepted in the United States of America (US GAAP).

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

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The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial

As part of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and

performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and

significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or

required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

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of incurred but not reported (IBNR) claims based on past experience and estimates of loss adjustment expenses.

The principal considerations for our determination that the valuation of claim reserves is a critical audit matter are the high degree of judgment and

subjectivity in auditing the actuarial methods and assumptions used in the valuation process, including assumptions around expected loss ratios and reported and paid loss emergence patterns.

The principal considerations for our determination that the valuation of claim reserves is a critical audit matter are the high degree of judgment

and subjectivity in auditing the actuarial methods and assumptions used in the valuation process, including assumptions around expected loss ratios and reported and paid loss emergence patterns.

Addressing the matter involved performing the following audit procedures, among others:

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Valuation of Insurance Reserves for Future Policy Benefits (Policy Reserves)

As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for future policy

benefits (policy reserves) were $87.3 million as of December 31, 2021.

Policy reserves are related to life and health insurance policies and are based upon significant assumptions including future investment yields, mortality rates, withdrawal rates

and expenses after giving effect to possible risks of unexpected claim experience.

These assumptions are based on historical experience modified as necessary to reflect anticipated trends and are generally established at contract inception.

As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for future

policy benefits (policy reserves) were $85.6 million as of December 31, 2022.

Policy reserves are related to life and health insurance policies and are based upon significant assumptions including future investment yields, mortality rates,

withdrawal rates and expenses after giving effect to possible risks of unexpected claim experience.

These assumptions are based on historical experience modified as necessary to reflect anticipated trends and are generally established at contract

The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment

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Involving our actuarial specialists to assist in our procedures in:

Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with GAAP;

Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant assumptions

noted above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions;

Performing an independent recalculation of policy reserves for a sample of contracts for comparison to management’s estimate;

Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with US GAAP;

Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant

assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions;

Reviewing benefit reserve replication workbooks prepared by management for a sample of contracts;

Evaluating management’s loss recognition testing of aggregate reserve sufficiency.

Testing the completeness and accuracy of data used by management in developing assumptions on a sample basis.

/s/ Dixon Hughes Goodman, LLP

Actuarial System Conversion

During the fourth quarter of 2022, the Company commenced a conversion of the actuarial system for its Medicare Supplement line of

The system generates data used in several financial statement accounts including reinsurance receivables, deferred acquisition costs (DAC), future policy benefits, unearned premiums, insurance benefits and losses incurred and

commission and underwriting expenses.

The principal considerations for our determination that the actuarial system conversion is a critical audit matter included auditing the

financial statement accounts affected by the system conversion required increased auditor effort and significant auditor judgement, including the assistance of actuarial specialists, to design and execute the incremental audit procedures over the

importation of policy and other data from the old system to the new system and the configuration of the new system.

Also included in our principal considerations for determining this as a critical audit matter was the identified material weakness

associated with certain ineffective process level controls over the development, testing, and implementation of its actuarial models used to estimate certain balances in its Medicare Supplement line of business.

Addressing the matter involved the following audit procedures, among others:

Obtaining an understanding of the processes and controls implemented by management to:

Ensure the proper implementation of the new actuarial valuation system;

Ensure data was imported into the new actuarial valuation system completely and accurately;

Ensure that the outputs from the new actuarial valuation system were accurate.

Testing the completeness and accuracy of the data used by management in the new actuarial valuation system on a sample basis.

Involving our actuarial specialists to assist in our procedures in:

Evaluating whether the methodology and assumptions applied by management in the new valuation system was consistent in the aggregate with the

methodology compliant with GAAP;

Reviewing benefit reserve and DAC replication workbooks prepared by management for a sample of contracts;

Comparing and analyzing the outputs from the new actuarial valuation system to the outputs from the legacy actuarial valuation system.

We have served as the Company’s auditor since 2018.

Atlanta, Georgia

March 25, 2022

/s/ FORVIS, LLP (Formerly, Dixon Hughes Goodman LLP)

June 30, 2023

ATLANTIC AMERICAN CORPORATION

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(In thousands,

except share and per share data)

except share and per

Cash and cash equivalents

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Accounts payable and accrued expenses

Deferred income taxes, net

Revolving credit facility

Junior subordinated debenture obligations, net

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Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Unearned stock grant compensation

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Net income applicable to common shareholders

Earnings per common share (basic)

Earnings per common share (diluted)

Earnings per common share (basic and diluted)

See the accompanying notes to the consolidated financial statements.

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CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE LOSS

Year Ended December 31,

(In thousands)

Other comprehensive income:

Other comprehensive loss:

Available-for-sale fixed maturity securities:

Gross unrealized holding gain (loss) arising in the period

Gross unrealized holding loss arising in the period

Related income tax effect

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Related income tax effect

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Total other comprehensive loss, net of tax

Total comprehensive loss

See the accompanying notes to the consolidated financial statements.

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Balance, end of year

Accumulated other comprehensive income:

Accumulated other comprehensive income (loss):

Balance, beginning of year

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Balance, end of year

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Realized investment gains, net

Unrealized (gains) losses on equity securities, net

Distributions received from equity method investees

Unrealized losses (gains) on equity securities, net

(Earnings) loss from equity method investees

Compensation expense related to share awards

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Decrease in receivables, net

Increase (decrease) in insurance reserves and policyholder funds

(Decrease) increase in accounts payable and accrued expenses

Increase in insurance reserves and policyholder funds

Increase (decrease) in accounts payable and accrued expenses

Net cash provided by operating activities

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Additions to property and equipment

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

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Treasury stock acquired — net employee share-based compensation

Net cash used in financing activities

Proceeds from revolving credit facility, net

Net cash provided by (used in) financing activities

Net increase in cash

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Cash paid for income taxes

Non-cash investing activities:

Receivable from sale of other invested assets

See the accompanying notes to the consolidated financial statements.

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historical period are not necessarily indicative of results to be expected in any future period.

At December 31, 2021, the Parent owned four

insurance subsidiaries, Bankers Fidelity Life Insurance Company and its wholly-owned subsidiary, Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), and American Southern Insurance Company and its wholly-owned subsidiary,

American Safety Insurance Company (together known as “American Southern”), in addition to one non-insurance subsidiary, xCalibre Risk

Services, Inc.

The Parent has issued a guarantee of all liabilities of Bankers Fidelity.

At December 31, 2022, the Parent owned five

insurance subsidiaries, Bankers Fidelity Life Insurance Company and its wholly-owned subsidiaries, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers Fidelity”), and American Southern

Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company.

American Southern Insurance Company also wholly-owned three

non-insurance subsidiaries, Premier Adjusting and Claim Services, Inc., Automobile Safety Management, Inc.

and Automated Systems of Georgia, Inc.

(together with American Southern Insurance Company and American Safety Insurance Company known as

“American Southern”).

In addition, the Parent owned one non-insurance subsidiary, xCalibre Risk Services, Inc.

The Parent has issued a

guarantee of all liabilities of Bankers Fidelity.

Premium Revenue and Cost Recognition

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market prices, when available, or independent broker quotations.

As of December 31, 2021, the Company owned a certain equity security in the amount of $ 157 ,

with a valuation that was derived from techniques in which one or more of the significant inputs are unobservable.

As of December 31, 2021, the Company owned a certain fixed maturity in the amount of $ 250 , with a valuation that was derived from techniques in which one or more of the significant inputs are unobservable.

Values that are not determined using quoted market

prices inherently involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market prices.

Policy loans are carried at unpaid principal balance and real

estate is carried at historical cost.

Other invested assets are comprised of investments in limited partnerships and limited liability companies and are accounted for using the equity method.

If the value of a fixed maturity security or other

invested asset declines below its cost or amortized cost, as applicable, and the decline is considered to be other than temporary, a realized loss is recorded to reduce the carrying value of the investment to its estimated fair value, which becomes

the new cost basis.

Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility than the

value of securities with publicly quoted market prices.

Policy loans are carried at unpaid principal balance and real estate is carried at historical cost.

Other invested assets are comprised of investments in limited partnerships and limited

liability companies and are accounted for using the equity method.

If the value of a fixed maturity security or other invested asset declines below its cost or amortized cost, as applicable, and the decline is considered to be other than temporary,

a realized loss is recorded to reduce the carrying value of the investment to its estimated fair value, which becomes the new cost basis.

Premiums and discounts related to investments are amortized or accreted over the life of the related investment as an adjustment to yield using the

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or less from date of purchase.

The Company enters into reinsurance agreements with other companies in the normal course of business.

For each reinsurance agreement, the Company determines if the agreement provides indemnification against loss or

liability relating to insurance risk in accordance with applicable accounting standards.

Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and

the terms of the reinsurance contracts.

Premiums, benefits and DAC are reported net of insurance ceded.

Reinsurance premiums from assumed business are estimated based on information received from ceding companies and reinsureds.

Any subsequent

differences that arise regarding such estimates are recorded in the period in which they are determined.

The Company’s insurance subsidiaries from time to time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks and to protect against catastrophic losses.

a reinsurance transaction, an insurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer.

The reinsurer assumes the exposure in return for a portion of the premiums.

The ceding of insurance

does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet its obligations under the reinsurance agreement.

Property and Casualty Operations

American Southern’s basic reinsurance treaties generally cover all claims in excess of specified per occurrence limitations.

Limits per occurrence within the reinsurance treaties are as follows:

Inland marine and commercial automobile physical damage - $ 225,000 excess of $ 125,000 retention;

and automobile liability and general liability - excess coverage of $ 2.0 million less retentions that may vary from $ 100,000 to $ 500,000 depending on the account.

American Southern maintains a property catastrophe treaty with a $ 5.5 million limit excess of $ 500,000 retention.

Southern also issues individual surety bonds with face amounts generally up to $ 1.5 million, and limited to $ 5.0 million in aggregate per account, that are not reinsured.

Life and Health Operations

Bankers Fidelity has entered into reinsurance contracts ceding the

excess of its life retention.

Maximum retention by Bankers Fidelity on any one individual in the case of life insurance policies is $ 200,000 .

At December 31, 2022, $ 9.6 million of the $ 670.6 million of life insurance in force at Bankers Fidelity was reinsured under a mix of coinsurance and yearly renewable term agreements.

Certain prior year reinsurance agreements also remain in force

although they no longer provide reinsurance for new business.

Bankers Fidelity has also entered into a reinsurance contract ceding excess new Medicare supplement business to General Re Life Corporation.

thresholds are set annually.

During 2022, the liability of the reinsurer was 50 % of all new Medicare supplement business issued by the

Company on amounts up to a maximum retention of $ 15.0 million of annualized premium.

Accordingly, $ 1.0 million of the Company’s $ 2.0

million of new annualized Medicare supplement premium was ceded.

Share-Based Transactions

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other existing guidance to simplify several other income tax accounting matters.

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

adopted ASU 2019-12 as of January 1, 2021.

The Company adopted ASU 2019-12 as of January 1, 2021.

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

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The Company is currently evaluating the new

guidance, but has not yet determined the method or timing for adoption or estimated the impact on the Company’s consolidated financial statements.

guidance, but has not yet determined the method.

The Company will adopt on January 1, 2025.

Financial Instruments – Credit Losses.

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Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires entities to measure all expected credit losses for financial instruments (including reinsurance recoverable and policy loans)

held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred.

will remove all recognition thresholds and will require entities to recognize an allowance for credit losses equal to the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects

to collect over the instrument’s contractual life.

ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale (“AFS”) debt securities and beneficial interests in securitized financial assets.

Credit losses on AFS debt

securities carried at fair value will continue to be measured as an other than temporary impairment (“OTTI”) when incurred;

however, the losses will be recognized through an allowance and no longer as an adjustment to the cost basis.

Recoveries of

OTTI will be recognized as reversals of valuation allowances and no longer accreted as investment income through an adjustment to the investment yield.

The allowance on AFS debt securities cannot cause the net carrying value to be below fair value

and, therefore, it is possible that increases in fair value due to decreases in market interest rates could cause the reversal of a valuation allowance and increase net income.

The new guidance will also require purchased financial assets with a

more-than-insignificant amount of credit deterioration since original issuance to be recorded based on contractual amounts due and an initial allowance recorded at the date of purchase.

For the Company, the amendments in ASU 2016-13 will be

effective for interim and annual reporting periods beginning after December 15, 2022.

Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company will adopt on

January 1, 2023.

Implementation matters yet to be addressed include determining the impact of valuation allowances on the effective interest method for recognizing interest income from AFS debt securities as well as updating our investment

accounting system functionality to adjust valuation allowances based on changes in fair value.

The estimated effect on the Company’s consolidated financial statements can only be estimated based on the current investment portfolio at any given

point in time, and accordingly, has not currently been determined.

The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for

financial instruments measured at amortized cost (including reinsurance recoverables, premium and other receivables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures.

The estimate of

expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments.

The expected credit losses, and subsequent adjustments to such losses, are

recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the

recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.

In addition, the length of time a security has

been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The Company adopted the updated guidance as of January 1, 2023.

The updated guidance was applied by a cumulative effect adjustment to the opening

balance of retained earnings as of January 1, 2023, the beginning of the period of adoption.

The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of $ 0.1 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance.

This adjustment is

primarily associated with reinsurance recoverables, premium and other receivables.

The cumulative effect adjustment decreased retained earnings as of January 1, 2023 and increased the allowance for estimated uncollectible reinsurance.

Use of Estimates in the Preparation of Financial Statements

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Government agencies and authorities

Obligations of states and political subdivisions

Corporate securities

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recorded during the years ended December 31, 2022 and 2021.

As of December 31, 2021 and 2020, there were sixty-one

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

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

The increase in the number and value of securities in an unrealized loss position during the year ended December 31, 2021, was

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

The Company does not currently intend to sell nor does it expect to be required to sell

any of the securities in an unrealized loss position.

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

well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of December 31, 2021.

As of December 31, 2022 and 2021, there were 237

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 and value of securities in an unrealized loss position during the year ended December 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 December 31, 2022.

Investment income was earned from the following sources:

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In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party.

The transaction closed prior to December 31, 2020.

The Company recorded gross realized gains on this

sale of $ 6.9 million and proceeds of $ 12.7

million which settled after year end.

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31,

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at December 31, 2022 and 2021, respectively.

The Company’s VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled $ 1,238

The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238

at December 31, 2022 and 2021.

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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 $ 6,624 and $ 1,436 , at December 31, 2022 and 2021, respectively.

As of December 31, 2021 and 2020, the Company had outstanding commitments totaling $ 1,997 , whereby the Company is committed to fund

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

As of December 31, 2022 and 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.

Disclosures About Fair Value of Financial Instruments

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Junior subordinated debentures, net

Revolving credit facility

See the aforementioned information for a description of the fair value hierarchy as well

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Balance, end of year

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

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.

incurred and capitalized implementation costs of $ 2,522 and $ 500 during the years ended December 31, 2022 and 2021, respectively.

As a result, the Company has capitalized $ 3,022 in implementation costs in other assets in its condensed consolidated balance sheet as of December 31, 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 year ended December 31, 2022.

Insurance Reserves and Policyholder Funds

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Future Policy Benefits

Liabilities for life insurance future policy benefits are based upon assumed future investment yields, mortality rates, and lapse rates after

giving effect to possible risks of unexpected claim experience.

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

Liabilities for future benefits on life and accident and health policies are based upon assumed future investment yields, mortality rates,

morbidity rates, and lapse rates after giving effect to possible risks of unexpected adverse claim experience.

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

anticipated trends and are generally established at contract inception.

The assumptions include a margin for adverse experience development.

The interest rates assumed for life, accident and health future policy benefits are generally:

(i) 2.5 % to 5.5 % for issues prior to 1977 , (ii) 5.5 % to 7.0 % for 1977 through 1979 issues, (iii) 9.0 %

for 1980 through 1987 issues, (iv) 5.0 %

(i) 2.5 % to 5.5 % for issues prior to 1977 , (ii) 5.5 % to 7.0 % for 1977 through 1979 issues,

(iii) 9.0 % for 1980 through 1987

issues, (iv) 5.0 % to 7.0 %

for 1988 through 2009 issues, (v) 4.0 %

for 2010 through 2012 issues, (vi) 3.5 %

to 4.0 % for 2013 through 2020

issues, (v) 4.0 % for 2010 through 2012

issues, (vi) 3.5 % to 4.0 %

for 2013 through 2020 issues, and (vii) 3.0 %

for 2021 issues.

issues, and (vii) 3.0 % for 2021

and 2022 issues.

Loss and Claim Reserves

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Prior years’ development was primarily the result of better than expected development on prior

years loss and claim reserves for certain lines of business in American Southern, somewhat offset by unfavorable development on prior years’ loss and claim reserves for the Medicare Supplement line of business in Bankers Fidelity.

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

reserves for the Medicare supplement line of business in Bankers Fidelity.

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

Additionally, the Company experienced

favorable development in the surety line of business in American Southern due to a reduction in exposure coupled with recoveries on certain prior year losses.

year’s loss and claim reserves for the Medicare Supplement line of business in Bankers Fidelity, as well as the surety line of business in American Southern.

Prior years’ development was primarily the result of better than expected development on prior

year’s loss and claim reserves for certain lines of business in American Southern, somewhat offset by unfavorable development on prior years’ loss and claim reserves for the Medicare Supplement line of business in Bankers Fidelity.

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

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The cumulative number of reported claims for the Medicare Supplement line of business is the number of distinct claims incurred and submitted to

Medicare for payment in the given year.

the Centers for Medicare and Medicaid Services for payment in the given year.

Multiple payments on the same claim are not counted in the frequency information.

Estimated ultimate claims incurred, using claims data reported during each month of any given year, are calculated using the

chain ladder method modified to use seasonality and trend-adjusted expected claims for the most recent four-month period prior to the statement date.

Additional adjustments to the estimated ultimate claims incurred are then applied to account for

seasonal changes in claim experience and in the rate of claim processing.

The IBNR liability is calculated as estimated ultimate claims less paid claims and claims in course of settlement.

Thirty-six months of loss data are used to develop the estimated ultimate incurred claims.

Similar approaches are used for other less significant health products, subject to modifications

to account for unique aspects of the products.

Estimated ultimate claims incurred, using claims data reported during each month of

any given year, are calculated using the chain ladder method modified to reflect seasonality and trend-adjusted expected claims for the most recent four-month period prior to the statement date.

Additional adjustments to the estimated ultimate

claims incurred are then applied to account for seasonal changes in claim experience and changes in the rate of claim processing.

The IBNR is calculated as the estimated ultimate claims less the total of paid claims through the valuation date and

claims in the course of settlement as of the valuation date.

Thirty-six months of loss data are used to develop the estimated ultimate

incurred claims.

For other accident and health products that have very small claim volumes, similar approaches are used and modified to reflect the unique aspects of the products.

Automobile Liability

15 unchanged sentences

Accident Year

All outstanding liabilities before 2017, net of reinsurance

Liabilities for losses, claims and loss adjustment expenses, net of reinsurance

62 unchanged sentences

General Liability

Other short-duration insurance lines

Total reinsurance recoverable on unpaid losses

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Reinsurance recoverables of $ 25,824 were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M.

Allowances for uncollectible amounts are established

against reinsurance recoverables, if appropriate.

The effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows:

Allowances for uncollectible amounts are established against

reinsurance recoverables, if appropriate.

effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows:

For the Year Ended December 31, 2022

Direct premiums written

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Insurance benefits and losses incurred

Components of reinsurance receivables at December 31, 2021 and 2020 were as follows:

For the Year Ended December 31, 2021

Direct premiums written

Assumed premiums written

Ceded premiums written

Net premiums written

Direct premiums earned

Assumed premiums earned

Ceded premiums earned

Net premiums earned

Provision for benefits and losses incurred

Reinsurance loss recoveries

Insurance benefits and losses incurred

Components of reinsurance receivables at

December 31, 2022 and 2021 were as follows:

December 31, 2022

Recoverable on unpaid losses

4 unchanged sentences

Total reinsurance receivables

December 31, 2021

Recoverable on unpaid losses

Recoverable on unpaid benefits

Recoverable on paid losses

Ceded unearned premiums

Ceded advanced premiums

Total reinsurance receivables

Total income taxes were allocated as follows:

Total tax expense on income

Tax expense on components of shareholders’ equity:

Net unrealized gains (losses) on investment securities

Total tax expense (benefit)

Tax benefit on components of shareholders’ equity:

Net unrealized losses on investment securities

Total tax benefit

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

Federal income tax provision

Federal income tax provision at the statutory rate

Statutory rate

3 unchanged sentences

Parking disallowance

Penalties and fines

Adjustment for prior years’ estimates to actual

1 unchanged sentence

Effective tax rate

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 $ 149 .

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 $ 86

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

1 unchanged sentence

Also contributing to differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and vested stock and club dues.

Another contributing factor was the

dividends-received deduction (“DRD”).

taxable income.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2020 resulted from permanent differences

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

Also contributing to differences between the effective tax rate and the federal statutory income tax rate were adjustment for prior years’ estimates to actual that are generally

updated at the completion of the third quarter of each fiscal year and were $ 18 in the year ended December 31, 2020.

Another contributing factor was the DRD.

Deferred tax assets and liabilities at December 31, 2022 and 2021 were comprised of the following:

1 unchanged sentence

Deferred acquisition costs

Net unrealized investment losses

Insurance reserves

18 unchanged sentences

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 %.

an unsecured $ 10,000 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

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due and payable and terminate the revolving commitments.

As of December 31 2021, the Company does no t have any outstanding

borrowings under the Credit Agreement.

As of December 31 2022, the Company had outstanding borrowings of $ 2,009 under the Credit

Junior Subordinated Debentures

72 unchanged sentences

Equity Incentive Plan

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

On May 1, 2012, the

Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”).

The 2012 Plan authorizes the grant of up to 2,000,000

2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units

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

In 2021, there were no restricted shares issued under the 2012 Plan.

In 2020, a total of 20,000

restricted shares, with an estimated fair value of $ 38 , were issued under the 2012 Plan and 35,000 restricted shares, with an estimated fair value of $ 98 ,

were forfeited under such plan .

The estimated fair value of the restricted shares issued under the 2012 Plan for 2021 and 2020 was based on the common stock price at date of grant.

stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards for the purpose of providing the Company’s non-employee directors, consultants, officers and other

employees incentives and rewards for performance and service.

During the year ended 2022, a total of 25,000 restricted shares, with

an estimated fair value of $ 71 were issued under the 2012 Plan.

During 2021, there were no restricted shares issued under the 2012 Plan.

The estimated fair value of the restricted shares issued under the 2012 Plan during 2022 was based on the common stock

price at date of grant.

Stock grants are generally issued from treasury shares.

Vesting of restricted shares generally occurs after a one to three year period.

Vesting of 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 December 31, 2021 and 2020 were 935,200 and 935,200 , respectively.

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 performance and service.

During the year ended 2022, a total of 40,000 restricted shares, with an estimated fair value of $ 122 were issued under the 2022 Plan.

Vesting of restricted shares generally occurs after a one

to three year period following the date of grant.

Shares available for future grant under the 2022 Plan at December 31, 2022 were 2,960,000 .

The Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Code in May 1995.

4 unchanged sentences

consisted of a contribution equal to 35 % of up to the first 6 % of each participant’s contributions.

In addition to the matching contribution, the Company also provided a 3 % safe harbor non-elective contribution in 2021 and 2020 of $ 549

and $ 520 , respectively.

In addition to the matching contribution, the Company also provided a 3 % safe harbor non-elective contribution in 2022 and 2021 of $ 569 and $ 549 , respectively.

All contributions were made in cash.

Participants are 100% vested in their own contributions and the vested

percentage attributable to certain employer contributions is based on a five-year graded schedule.

Participants are 100% vested in their own contributions and the vested percentage attributable

to certain employer contributions is based on a five-year graded schedule.

Agent Stock Purchase Plan

37 unchanged sentences

(In thousands)

Basic Earnings Per Common Share

Basic and Diluted Earnings Per Common Share

Net income before preferred stock dividends

1 unchanged sentence

Net income applicable to common shareholders

Diluted Earnings Per Common Share

Effect of Series D preferred stock

Net income applicable to common shareholders

The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2021 since its

impact would have been antidilutive.

The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2022 and 2021

since its impact would have been antidilutive.

Statutory Reporting

2 unchanged sentences

The principal differences between SAP and GAAP are that under SAP:

(i) certain assets that are non-admitted assets are eliminated from the balance sheet;

acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policies under GAAP;

(iii) the provision that is made for deferred income taxes is different than under GAAP;

timing of establishing certain reserves is different than under GAAP;

and (v) certain valuation allowances attributable to certain investments are different.

(i) carrying value of certain investments differ on a GAAP versus SAP basis, such as fixed

maturities that are shown at amortized cost for SAP versus fair value for GAAP (ii) certain assets that are non-admitted assets are eliminated from the balance sheet;

(iii) acquisition costs for policies are expensed as incurred, while they are

deferred and amortized over the estimated life of the policies under GAAP;

(iv) the provision that is made for deferred income taxes is different than under GAAP;

(v) the timing of establishing certain reserves is different than under GAAP;

reinsurance is shown net on balance sheet for SAP and (vii) certain valuation allowances attributable to certain investments are required under SAP such as asset valuation reserve and interest maintenance reserve.

The Company meets the minimum capital requirements in the states in which it does business.

The amount of reported statutory net income and

surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows:

capital and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows:

Bankers Fidelity, net income (loss)

1 unchanged sentence

Statutory net income

Bankers Fidelity, surplus

American Southern, surplus

Statutory surplus

Bankers Fidelity, capital and surplus

American Southern, capital and surplus

Statutory capital and surplus

Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance

4 unchanged sentences

In the normal course of business the Company has engaged in transactions with entities affiliated with the controlling shareholder of the Company.

These transactions include the leasing of office space as well as certain investing and financing activities.

At December 31, 2021, two

members of the Company’s board of directors, including the Company’s Chairman, President and Chief Executive Officer, were considered to be affiliates of the majority shareholder.

These transactions include the leasing of office space, certain investing and financing activities, as well as inconsequential administrative and consulting services.

At December 31, 2022, two members of the Company’s board of directors, including the Company’s Chairman, President and Chief Executive Officer, were considered to be affiliates of the majority

The Company leases approximately 49,586

2 unchanged sentences

and $ 879 , respectively, under this lease.

Additionally, in each of the years ended December 31, 2021 and 2020, this entity owned 1,663,809 shares of the Company’s common stock.

In December 2022, Delta Life Insurance Company, the owner of the building, transferred title

to the building to 4370 Peachtree LLC.

Each of Delta Life Insurance Company and 4370 Peachtree LLC is controlled by an affiliate of the Company.

Additionally, as of December 31, 2021, Delta Life Insurance Company owned 1,663,809 shares of the Company’s common stock.

shares of the Company’s common stock were owned by Delta Life Insurance Company as of December 31, 2022.

Certain financing for the Company has also been provided by this entity in the form of an investment in the Series D Preferred Stock (See Note

3 unchanged sentences

The aggregate carrying value of these investments in Gray at December 31, 2022 and 2021 was $ 10,772 and $ 18,325 , respectively.

In each of the years ended December 31, 2021 and 2020, Gray paid the Company approximately $ 1,308 in insurance premiums related to certain voluntary employee benefit plans.

In each of the years ended December 31, 2022 and 2021, Gray paid the Company approximately $ 1,708 and $ 1,308 in insurance premiums related to certain

voluntary employee benefit plans.

Segment Information

11 unchanged sentences

Total expenses

Underwriting income (loss)

Underwriting income

Net investment income (loss)

Other income (loss)

Operating income (loss)

Net realized gains

Unrealized gains on equity securities

Net realized gains (losses)

Unrealized losses on equity securities

Income (loss) before income taxes

8 unchanged sentences

Total expenses

Underwriting income

Underwriting income (loss)

Net investment income (loss)

Other income (loss)

Operating income (loss)

Net realized gains

Unrealized losses on equity securities

Unrealized gains on equity securities

Income (loss) before income taxes

8 unchanged sentences

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.

From time to time, and in the ordinary course of business, the Company receives notices and inquiries

from state insurance departments with respect to various matters.

In November 2021, the Company was made aware by a state regulatory authority of alleged violations relating to certain sales of insurance

policies and that the Company may be subject to regulatory action, including fines.

Management is currently engaged in discussions with the state regulatory authorities with respect to a resolution;

however, inasmuch as this matter is of recent

origin, Management is unable at this time to predict the ultimate outcome.

The Company agreed to settle the matter through a consent order which included a penalty that was recorded in the financial statements in March 2022.

Subsequent Events

On March 22, 2022 , the Company’s

board of directors declared an annual cash dividend of $ 0.02 per share of common stock that is payable to shareholders of record as of

the close of business on April 13, 2022 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data