ATLANTIC AMERICAN CORP 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page ATLANTIC AMERICAN CORPORATION Report of Independent Registered Public Accounting Firm ( FORVIS, LLP (f/k/a Dixon Hughes Goodman, LLP), Atlanta, Georgia , PCAOB Firm ID No. 686 ) 23 Consolidated Balance Sheets as of December 31, 2022 and 2021 25 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 26 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021 27 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021 28 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 29 Notes to Consolidated Financial Statements 30 22 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Atlantic American Corporation Atlanta, Georgia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Atlantic American Corporation and subsidiaries (the Company) as of December 31, 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our 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 reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Insurance Reserves for Losses and Claims (Claim Reserves) As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for losses and claims (claim reserves), were $87.5 million as of December 31, 2022. The Company’s claim reserves relate primarily to its property casualty lines of business and Medicare supplement business. The process of establishing claim reserves requires the use of estimates and judgments based on circumstances underlying the insured loss at the date of accrual. Management’s judgments include claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, estimates of incurred but not reported (IBNR) claims based on past experience and estimates of loss adjustment expenses. The principal considerations for our determination that the valuation of claim reserves is a critical audit matter are the high degree of judgment and subjectivity in auditing the actuarial methods and assumptions used in the valuation process, including assumptions around expected loss ratios and reported and paid loss emergence patterns. 23 Table of Contents Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating the appropriateness of management’s actuarial reserving methodologies and assumptions; o Evaluating management’s hindsight analyses; o Comparing management’s carried reserve to the range calculated by management’s specialist for property casualty claim reserves; • Testing the completeness and accuracy of data provided by management that served as the basis for the actuarial analyses on a sample basis; and • Evaluating movement of the Company’s recorded property casualty claim reserves within the Company’s estimated reserve range year over year. Valuation of Insurance Reserves for Future Policy Benefits (Policy Reserves) As reflected on the consolidated balance sheet and discussed in Note 5 to the financial statements, the Company’s insurance reserves for future policy benefits (policy reserves) were $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 inception. The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment required to assess certain assumptions that impact policy reserves and the complexity of the actuarial calculations. Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with US GAAP; o Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions; o Reviewing benefit reserve replication workbooks prepared by management for a sample of contracts; and o Evaluating management’s loss recognition testing of aggregate reserve sufficiency. • Testing the completeness and accuracy of data used by management in developing assumptions on a sample basis. Actuarial System Conversion During the fourth quarter of 2022, the Company commenced a conversion of the actuarial system for its Medicare Supplement line of business. 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: o Ensure the proper implementation of the new actuarial valuation system; o Ensure data was imported into the new actuarial valuation system completely and accurately; and o 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: o 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; o Reviewing benefit reserve and DAC replication workbooks prepared by management for a sample of contracts; and o 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. /s/ FORVIS, LLP (Formerly, Dixon Hughes Goodman LLP) Atlanta, GA June 30, 2023 24 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2022 2021 (In thousands, except share and per share data) ASSETS Cash and cash equivalents $ 28,863 $ 24,753 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost: $ 236,766 and $ 238,597 ) 208,729 260,986 Equity securities, at fair value (cost: $ 4,907 and $ 4,907 ) 11,562 19,124 Other invested assets (cost: $ 5,628 and $ 698 ) 5,386 198 Policy loans 1,759 1,858 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 228,712 283,442 Receivables: Reinsurance 25,913 27,416 Insurance premiums and other, net of allowance for doubtful accounts of $ 177 and $ 188 as of 2022 and 2021 , respectively 15,386 14,959 Deferred income taxes, net 14,163 1,755 Deferred acquisition costs 42,281 38,698 Other assets 9,202 8,719 Intangibles 2,544 2,544 Total assets $ 367,064 $ 402,286 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds Future policy benefits $ 85,564 $ 87,348 Unearned premiums 28,348 27,469 Losses and claims 87,484 85,620 Other policy liabilities 1,255 1,360 Total insurance reserves and policyholder funds 202,651 201,797 Accounts payable and accrued expenses 26,473 25,465 Revolving credit facility 2,009 — Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 264,871 261,000 Commitments and contingencies (Note 17) Shareholders’ equity: Preferred stock, $ 1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $ 5,500 redemption value 55 55 Common stock, $ 1 par, 50,000,000 shares authorized; 22,400,894 shares issued; 20,407,229 and 20,378,576 shares outstanding as of 2022 and 2021 , respectively 22,401 22,401 Additional paid-in capital 57,425 57,441 Retained earnings 51,982 51,264 Accumulated other comprehensive income (loss) ( 22,149 ) 17,688 Unearned stock grant compensation ( 132 ) ( 73 ) Treasury stock, at cost, 1,993,665 and 2,022,318 shares as of 2022 and 2021 , respectively ( 7,389 ) ( 7,490 ) Total shareholders’ equity 102,193 141,286 Total liabilities and shareholders’ equity $ 367,064 $ 402,286 See the accompanying notes to the consolidated financial statements. 25 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2022 2021 (In thousands, except per share data) Revenue: Insurance premiums, net $ 185,440 $ 184,216 Net investment income 9,932 8,528 Realized investment gains, net 30 4,903 Unrealized gains (losses) on equity securities, net ( 7,562 ) 1,894 Other income 11 13 Total revenue 187,851 199,554 Benefits and expenses: Insurance benefits and losses incurred 123,456 131,694 Commissions and underwriting expenses 46,713 47,496 Interest expense 1,952 1,387 Other expense 13,634 13,675 Total benefits and expenses 185,755 194,252 Income before income taxes 2,096 5,302 Income tax expense 571 1,021 Net income 1,525 4,281 Preferred stock dividends ( 399 ) ( 399 ) Net income applicable to common shareholders $ 1,126 $ 3,882 Earnings per common share (basic and diluted) $ 0.06 $ 0.19 See the accompanying notes to the consolidated financial statements. 26 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2022 2021 (In thousands) Net income $ 1,525 $ 4,281 Other comprehensive loss: Available-for-sale fixed maturity securities: Gross unrealized holding loss arising in the period ( 50,377 ) ( 8,686 ) Related income tax effect 10,579 1,824 Subtotal ( 39,798 ) ( 6,862 ) Less: reclassification adjustment for net realized gains included in net income ( 49 ) ( 570 ) Related income tax effect 10 120 Subtotal ( 39 ) ( 450 ) Total other comprehensive loss, net of tax ( 39,837 ) ( 7,312 ) Total comprehensive loss $ ( 38,312 ) $ ( 3,031 ) See the accompanying notes to the consolidated financial statements. 27 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year Ended December 31, (In thousands, except share and per share data) 2022 2021 Preferred stock: Balance, beginning of year $ 55 $ 55 Balance, end of year 55 55 Common stock: Balance, beginning of year 22,401 22,401 Balance, end of year 22,401 22,401 Additional paid-in capital: Balance, beginning of year 57,441 57,437 Restricted stock grants, net of forfeitures ( 16 ) — Issuance of shares under stock plans — 4 Balance, end of year 57,425 57,441 Retained earnings: Balance, beginning of year 51,264 47,790 Net income 1,525 4,281 Dividends on common stock ( 408 ) ( 408 ) Dividends accrued on preferred stock ( 399 ) ( 399 ) Balance, end of year 51,982 51,264 Accumulated other comprehensive income (loss): Balance, beginning of year 17,688 25,000 Other comprehensive loss, net of tax ( 39,837 ) ( 7,312 ) Balance, end of year ( 22,149 ) 17,688 Unearned stock grant compensation: Balance, beginning of year ( 73 ) ( 284 ) Restricted stock grants, net of forfeitures ( 193 ) — Amortization of unearned compensation 134 211 Balance, end of year ( 132 ) ( 73 ) Treasury stock: Balance, beginning of year ( 7,490 ) ( 7,339 ) Restricted stock grants, net of forfeitures 209 — Net shares acquired related to employee share-based compensation plans ( 108 ) ( 153 ) Issuance of shares under stock plans — 2 Balance, end of year ( 7,389 ) ( 7,490 ) Total shareholders’ equity $ 102,193 $ 141,286 Dividends declared on common stock per share $ 0.02 $ 0.02 Common shares outstanding: Balance, beginning of year 20,378,576 20,415,243 Net shares acquired under employee share-based compensation plans ( 36,347 ) ( 38,147 ) Issuance of shares under stock plans — 1,480 Restricted stock grants, net of forfeitures 65,000 — Balance, end of year 20,407,229 20,378,576 See the accompanying notes to the consolidated financial statements. 28 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 (In thousands) Cash flows from operating activities: Net Income $ 1,525 $ 4,281 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 19,445 24,064 Acquisition costs deferred ( 23,028 ) ( 23,151 ) Realized investment gains, net ( 30 ) ( 4,903 ) Unrealized losses (gains) on equity securities, net 7,562 ( 1,894 ) (Earnings) loss from equity method investees ( 241 ) 290 Compensation expense related to share awards 134 211 Depreciation and amortization 890 1,003 Deferred income tax benefit ( 1,819 ) ( 1,112 ) Decrease in receivables, net 1,076 1,545 Increase in insurance reserves and policyholder funds 854 3,121 Increase (decrease) in accounts payable and accrued expenses 1,008 ( 947 ) Other, net ( 923 ) ( 1,420 ) Net cash provided by operating activities 6,453 1,088 Cash flows from investing activities: Proceeds from investments sold 3,902 29,184 Proceeds from investments matured, called or redeemed 9,806 11,515 Investments purchased ( 17,010 ) ( 35,292 ) Additions to property and equipment ( 126 ) ( 107 ) Net cash (used in) provided by investing activities ( 3,428 ) 5,300 Cash flows from financing activities: Payment of dividends on Series D preferred stock ( 399 ) ( 399 ) Payment of dividends on common stock ( 408 ) ( 408 ) Proceeds from shares issued under stock plans — 6 Treasury stock acquired — net employee share-based compensation ( 108 ) ( 153 ) Proceeds from revolving credit facility, net 2,000 — Net cash provided by (used in) financing activities 1,085 ( 954 ) Net increase in cash 4,110 5,434 Cash and cash equivalents at beginning of year 24,753 19,319 Cash and cash equivalents at end of year $ 28,863 $ 24,753 Supplemental cash flow information: Cash paid for interest $ 1,794 $ 1,389 Cash paid for income taxes $ 2,764 $ 3,202 See the accompanying notes to the consolidated financial statements. 29 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Note 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which, for insurance companies, differ in some respects from the statutory accounting practices prescribed or permitted by regulatory authorities. These financial statements include the accounts of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results achieved in any historical period are not necessarily indicative of results to be expected in any future period. At December 31, 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 Life insurance premiums are recognized as revenue when due; accident and health insurance premiums are recognized as revenue over the premium paying period and property and casualty insurance premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided. Losses, benefits and expenses are accrued as incurred and are associated with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. For traditional life insurance and long-duration health insurance, this association is accomplished by the provision of a future policy benefits reserve and the deferral and subsequent amortization of the costs of acquiring business, which are referred to as “deferred policy acquisition costs” (principally commissions, premium taxes, and other incremental direct costs of issuing policies). Deferred policy acquisition costs (“DAC”) are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the future policy benefits reserve. The Company provides for insurance benefits and losses on accident, health, and property-casualty claims based upon estimates of projected ultimate losses. DAC for property and casualty insurance and short-duration health insurance is amortized over the effective period of the related insurance policies. Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued as earned. In periods in which revisions are made to the estimated loss reserves related to the particular insurance contract or group of insurance contracts subject to such commissions, corresponding adjustments are also made to the related accruals. DAC is expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance). Intangibles Intangibles consist of goodwill and other indefinite-lived intangible assets. Goodwill represents the excess of cost over the fair value of net assets acquired and is not amortized. Other indefinite-lived intangibles represent the value of licenses and are not amortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverse conditions exist that could indicate impairment. Conditions that could trigger impairment include, but are not limited to, a significant change in business climate that could affect the value of the related asset, an adverse action, or an assessment by a regulator. No impairment of the Company’s recorded intangibles was identified during any of the periods presented. Investments The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and, accordingly, are carried at fair value with the after-tax difference from amortized cost, as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss. The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income. The fair values of fixed maturities and equity securities are largely determined from publicly quoted market prices, when available, or independent broker quotations. 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. 30 Table of Contents Premiums and discounts related to investments are amortized or accreted over the life of the related investment as an adjustment to yield using the effective interest method. Dividends and interest income are recognized when earned or declared. The cost of securities sold is based on specific identification. Unrealized gains (losses) in the value of fixed maturities are accounted for as a direct increase (decrease) in accumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effect on net income. Income Taxes Deferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. They arise from differences between the financial reporting and tax basis of assets and liabilities and are adjusted for changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount of income taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance is recognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a deferred tax asset will not be realized. Earnings Per Common Share Basic earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period. Diluted earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period, plus options outstanding, if applicable, using the treasury stock method and the assumed conversion of the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per common share amounts are presented on a diluted basis. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with original maturities of three months or less from date of purchase. Reinsurance The Company’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. In 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. American 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. Ceding 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. 31 Table of Contents Share-Based Transactions For employee and director share-based compensation awards, the Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award. For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date. Treasury Stock Treasury stock is reflected as a reduction of shareholders’ equity at cost. The Company uses the first-in-first-out (“FIFO”) purchase cost to determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additional paid-in capital when treasury stock is reissued. Recently Issued Accounting Standards Adoption of New Accounting Standards Income Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The Company adopted ASU 2019-12 as of January 1, 2021. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements. Future Adoption of New Accounting Standards Reference Rate Reform . In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2024 as reference rate reform activities occur. The Company is currently assessing the effect of adopting this guidance on its financial condition and results of operations. Accounting for Long-Duration Contracts. In August 2018, the FASB issued ASU No. 2018-12, Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). This guidance (1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplifies the amortization of deferred acquisition costs, and (4) improves the effectiveness of the required disclosures. ASU 2018-12 is effective for interim and annual reporting periods beginning after December 15, 2024, although earlier adoption is permitted. The Company is currently evaluating the new guidance, but has not yet determined the method. The Company will adopt on January 1, 2025. Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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. 32 Table of Contents 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 The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates and assumptions are used in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves, investments, and receivables, among others, and actual results could differ materially from management’s estimates. Note 2. Investments The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of December 31, 2022 and December 31, 2021. Fixed maturities were comprised of the following: 2022 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Amortized Cost Fixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 44,412 $ 5 $ 5,926 $ 50,333 Obligations of states and political subdivisions 9,187 4 1,702 10,885 Corporate securities: Utilities and telecom 22,090 120 3,299 25,269 Financial services 59,054 397 7,085 65,742 Other business – diversified 31,058 161 4,689 35,586 Other consumer – diversified 42,705 35 6,089 48,759 Total corporate securities 154,907 713 21,162 175,356 Redeemable preferred stocks: Other consumer – diversified 223 31 — 192 Total redeemable preferred stocks 223 31 — 192 Total fixed maturities $ 208,729 $ 753 $ 28,790 $ 236,766 2021 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Amortized Cost Fixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 50,298 $ 763 $ 416 $ 49,951 Obligations of states and political subdivisions 11,644 749 — 10,895 Corporate securities: Utilities and telecom 29,717 2,961 44 26,800 Financial services 70,921 6,759 48 64,210 Other business – diversified 40,216 4,631 106 35,691 Other consumer – diversified 57,940 7,185 103 50,858 Total corporate securities 198,794 21,536 301 177,559 Redeemable preferred stocks: Other consumer – diversified 250 58 — 192 Total redeemable preferred stocks 250 58 — 192 Total fixed maturities $ 260,986 $ 23,106 $ 717 $ 238,597 33 Table of Contents Bonds having an amortized cost of $ 12,333 and $ 11,169 and included in the tables above were on deposit with insurance regulatory authorities at December 31, 2022 and 2021, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $ 7,221 and $ 5,371 and included in the tables above were pledged as collateral to FHLB at December 31, 2022 and 2021, respectively. 2022 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost or Amortized Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 790 516 — 274 Other business – diversified 10,772 6,139 — 4,633 Total equity securities $ 11,562 $ 6,655 $ — $ 4,907 2021 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost or Amortized Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 799 525 — 274 Other business – diversified 18,325 13,692 — 4,633 Total equity securities $ 19,124 $ 14,217 $ — $ 4,907 The carrying value and amortized cost of the Company’s investments in fixed maturities at December 31, 2022 and 2021 by contractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties. 2022 2021 Carrying Value Amortized Cost Carrying Value Amortized Cost Due in one year or less $ 3,776 $ 3,797 $ 1,734 $ 1,730 Due after one year through five years 40,150 42,174 24,926 23,593 Due after five years through ten years 44,044 49,711 73,725 68,338 Due after ten years 87,719 103,095 122,045 106,181 Asset backed securities 33,040 37,989 38,556 38,755 Totals $ 208,729 $ 236,766 $ 260,986 $ 238,597 The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of December 31, 2022 and 2021. 2022 Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 23,763 $ 2,410 $ 19,259 $ 3,516 $ 43,022 $ 5,926 Obligations of states and political subdivisions 8,183 1,702 — — 8,183 1,702 Corporate securities 127,928 16,214 14,514 4,948 142,442 21,162 Total temporarily impaired securities $ 159,874 $ 20,326 $ 33,773 $ 8,464 $ 193,647 $ 28,790 34 Table of Contents 2021 Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 30,141 $ 416 $ — $ — $ 30,141 $ 416 Corporate securities 3,326 49 4,761 252 8,087 301 Total temporarily impaired securities $ 33,467 $ 465 $ 4,761 $ 252 $ 38,228 $ 717 The evaluation for an other than temporary impairment (“OTTI”) is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status. There were no OTTI charges recorded during the years ended December 31, 2022 and 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: 2022 2021 Fixed maturities $ 9,141 $ 8,640 Equity securities 327 300 Other 729 ( 111 ) 10,197 8,829 Investment expenses 265 301 Net investment income $ 9,932 $ 8,528 A summary of realized investment gains (losses) follows: 2022 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 101 $ — $ 1 $ 102 Losses ( 52 ) — ( 20 ) ( 72 ) Realized investment gains, net $ 49 $ — $ ( 19 ) $ 30 2021 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 570 $ — $ 4,333 $ 4,903 Losses — — — — Realized investment gains, net $ 570 $ — $ 4,333 $ 4,903 35 Table of Contents Proceeds from the sales of available-for-sale fixed maturities were as follows: 2022 2021 Sales proceeds $ 3,649 $ 9,244 Gross gains 101 454 Gross losses — — Proceeds from the sales of equity securities were as follows: 2022 2021 Sales proceeds $ 1 $ 61 Gross gains — — Gross losses — — Proceeds from the sales of other invested assets were as follows: 2022 2021 Sales proceeds $ 161 $ 19,761 Gross gains 1 4,333 Gross losses ( 20 ) — Sales of available-for-sale securities in 2022 and 2021 were primarily a result of improving the overall risk versus return profile of the portfolio. In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party. The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2022 and 2021. 2022 2021 Net realized and unrealized gains (losses) recognized during the period on equity securities $ ( 7,562 ) $ 1,894 Less: Net realized gains recognized during the period on equity securities sold during the period — — Unrealized gains (losses) on equity securities, net $ ( 7,562 ) $ 1,894 The Company’s bond portfolio included 99 % investment grade securities, as defined by the NAIC, at December 31, 2022. Variable Interest Entities The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance. The Company’s VIE interests principally consist of interests in limited partnerships and limited liability companies formed for the purpose of achieving diversified equity returns. The Company’s VIE interests, carried as a part of other invested assets, totaled $ 5,386 and $ 198 at December 31, 2022 and 2021, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238 at December 31, 2022 and 2021. The Company does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Therefore, the Company has not consolidated these VIEs. The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE. The Company has no arrangements with any of the VIEs to provide other financial support to or on behalf of the VIE. The Company’s maximum loss exposure relative to these investments was limited to the carrying value of the Company’s investment in the VIEs, which amount to $ 6,624 and $ 1,436 , at December 31, 2022 and 2021, respectively. 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. Note 3. Disclosures About Fair Value of Financial Instruments The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels. 36 Table of Contents Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks. Level 2 Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. Level 3 Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. The Company’s financial instruments valued using Level 3 criteria consist of one fixed maturity security and one equity security. As of December 31, 2022 and December 31, 2021, the value of the fixed maturity valued using Level 3 criteria was $ 0 and $ 250 , respectively. As of December 31, 2022 and December 31, 2021, the value of the equity security valued using Level 3 criteria was $ 156 and $ 157 , respectively. The equity security is not traded and valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations. Recurring Fair Value Measurements Cash Equivalents . The carrying amount approximates fair value due to the short-term nature of the instruments. Fixed Maturities and Common and Non-Redeemable Preferred Stocks . The carrying amount is determined from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information is also considered, as applicable. Nonrecurring Fair Value Measurements Non-publicly Traded Invested Assets . The fair value of investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships. Policy Loans . Policy loans, which are categorized as Level 2 fair value measurements, are carried at the unpaid principal balances. Junior Subordinated Debentures . The fair value is estimated based on observable interest rates and yields for debt instruments having similar characteristics. As of December 31, 2022, financial instruments carried at fair value were measured on a recurring basis as summarized below: 37 Table of Contents Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ — $ 208,729 $ — $ 208,729 Equity securities 11,406 — 156 11,562 Cash equivalents 18,861 — — 18,861 Total $ 30,267 $ 208,729 $ 156 $ 239,152 As of December 31, 2021, financial instruments carried at fair value were measured on a recurring basis as summarized below: Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ 250 $ 260,486 $ 250 $ 260,986 Equity securities 18,967 — 157 19,124 Cash equivalents 12,713 — — 12,713 Total $ 31,930 $ 260,486 $ 407 $ 292,823 The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of December 31, 2022 and 2021. Level in 2022 2021 Fair Value Hierarchy (1) Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets: Cash and cash equivalents Level 1 $ 28,863 $ 28,863 $ 24,753 $ 24,753 Fixed maturities (1) 208,729 208,729 260,986 260,986 Equity securities (1) 11,562 11,562 19,124 19,124 Other invested assets Level 3 5,386 5,386 198 198 Policy loans Level 2 1,759 1,759 1,858 1,858 Investments in unconsolidated trusts Level 2 1,238 1,238 1,238 1,238 Liabilities: Junior subordinated debentures, net Level 2 33,738 33,810 33,738 33,728 Revolving credit facility Level 2 2,009 2,009 — — (1) See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets. Note 4. Deferred Policy Acquisition Costs The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31. 2022 2021 American Southern Bankers Fidelity American Southern Bankers Fidelity Deferred policy acquisition costs: Balance, beginning of year $ 2,390 $ 36,308 $ 2,299 $ 37,312 Capitalization 10,161 12,867 10,690 12,461 Amortization ( 10,150 ) ( 9,295 ) ( 10,599 ) ( 13,465 ) Balance, end of year $ 2,401 $ 39,880 $ 2,390 $ 36,308 38 Table of Contents Note 5. Internal-Use Software On March 3, 2021, the Company entered into a hosting arrangement through a service contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services. The software is managed, hosted, supported, and delivered as a cloud-based software service product offering (software-as-a-service). The initial term of the arrangement is five years from the effective date with a renewal term of an additional five years . Service fees related to the hosting arrangement are recorded as an expense in the Company’s condensed consolidated statement of operations as incurred. Implementation expenses incurred related to third party professional and consulting services have been capitalized. The Company will begin amortizing, on a straight-line basis over the expected ten year term of the hosting arrangement, when the software is substantially ready for its intended use. The Company incurred and capitalized implementation costs of $ 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. Note 6. Insurance Reserves and Policyholder Funds The following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims and loss adjustment expenses at December 31, 2022 and 2021. Amount of Insurance In Force, Net 2022 2021 2022 2021 Future policy benefits Life insurance policies: Ordinary life and annuities $ 50,660 $ 51,947 $ 186,863 $ 194,210 Group life 2,533 1,094 474,150 212,783 53,193 53,041 $ 661,013 $ 406,993 Accident and health insurance policies 32,371 34,307 85,564 87,348 Unearned premiums 28,348 27,469 Losses, claims and loss adjustment expenses 87,484 85,620 Other policy liabilities 1,255 1,360 Total insurance reserves and policyholder funds $ 202,651 $ 201,797 Annualized premiums for accident and health insurance policies were $ 89,471 and $ 101,315 at December 31, 2022 and 2021, respectively. Future Policy Benefits 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 % to 7.0 % for 1988 through 2009 issues, (v) 4.0 % for 2010 through 2012 issues, (vi) 3.5 % to 4.0 % for 2013 through 2020 issues, and (vii) 3.0 % for 2021 and 2022 issues. Loss and Claim Reserves Loss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate of ultimate liability and claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. The estimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operations in the year in which such changes are known. 39 Table of Contents Activity in the liability for unpaid loss and claim reserves is summarized as follows: 2022 2021 Balance at January 1 $ 85,620 $ 79,147 Less: Reinsurance recoverable on unpaid losses ( 17,690 ) ( 17,600 ) Net balance at January 1 67,930 61,547 Incurred related to: Current year 125,754 134,284 Prior years ( 4,228 ) (1) ( 3,415 ) (2) Total incurred 121,526 130,869 Paid related to: Current year 82,002 89,838 Prior years 37,617 34,648 Total paid 119,619 124,486 Net balance at December 31 69,837 67,930 Plus: Reinsurance recoverable on unpaid losses 17,647 17,690 Balance at December 31 $ 87,484 $ 85,620 (1) Prior years’ development was primarily the result of better than expected development on prior 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. (2) 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: 2022 2021 Total incurred losses $ 121,526 $ 130,869 Cash surrender value and matured endowments 1,598 2,179 Benefit reserve changes 332 ( 1,354 ) Total insurance benefits and losses incurred $ 123,456 $ 131,694 Liability for Unpaid Losses, Claims and Loss Adjustment Expenses The following is information, by significant product lines, about incurred and paid claims development as of December 31, 2022, net of reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included within the net incurred claims amounts. The information presented for the years ended December 31, 2015 and prior is presented as supplementary information and is unaudited. Medicare Supplement For the Years Ended December 31, As of December 31, 2022 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 56,974 $ 56,970 $ 57,034 $ 57,023 $ 57,021 $ 57,016 $ 57,015 $ 57,014 $ 57,014 $ 57,014 $ — 867 2014 57,179 56,938 56,981 56,981 56,976 56,977 56,976 56,976 56,976 — 957 2015 55,482 54,939 54,993 54,990 54,984 54,985 54,985 54,985 — 939 2016 58,849 59,851 63,226 63,225 63,221 63,221 63,221 — 898 2017 67,960 69,655 69,643 69,635 69,633 69,633 — 1,037 2018 79,140 80,404 80,361 80,357 80,351 — 1,512 2019 88,765 87,028 86,988 86,986 1 2,052 2020 75,857 75,715 75,730 20 2,245 2021 65,267 61,579 228 1,852 2022 58,777 12,666 1,768 $ 665,252 40 Table of Contents Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 47,770 $ 56,970 $ 57,034 $ 57,023 $ 57,021 $ 57,016 $ 57,015 $ 57,014 $ 57,015 $ 57,014 2014 48,024 56,938 56,981 56,981 56,976 56,977 56,976 56,976 56,976 2015 45,430 54,876 54,993 54,990 54,984 54,985 54,985 54,985 2016 49,165 59,747 63,226 63,225 63,221 63,221 63,221 2017 57,696 69,517 69,643 69,635 69,633 69,633 2018 66,565 80,222 80,361 80,355 80,351 2019 72,333 86,856 86,978 86,985 2020 63,129 75,527 75,710 2021 50,197 61,350 2022 46,111 $ 652,336 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 12,916 The cumulative number of reported claims for the Medicare Supplement line of business is the number of distinct claims incurred and submitted to 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 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 For the Years Ended December 31, As of December 31, 2022 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 18,664 $ 20,702 $ 21,096 $ 21,823 $ 21,352 $ 21,020 $ 20,972 $ 20,972 $ 20,970 $ 20,958 $ — 3,278 2014 20,812 21,881 22,041 22,353 21,682 22,080 22,100 22,125 22,165 35 3,558 2015 18,521 19,857 20,017 20,007 20,086 20,680 20,849 20,955 9 3,537 2016 20,549 21,275 21,846 22,388 22,245 22,310 22,448 — 3,862 2017 22,179 24,212 23,766 25,180 26,009 26,153 74 3,813 2018 24,284 25,682 27,338 30,013 30,464 466 3,650 2019 25,241 24,045 25,724 28,042 1,725 3,599 2020 22,416 16,442 20,137 1,815 2,494 2021 25,887 21,172 2,415 2,707 2022 28,860 14,911 2,532 $ 241,354 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 5,144 $ 12,193 $ 16,782 $ 19,407 $ 20,382 $ 20,982 $ 20,972 $ 20,972 $ 20,970 $ 20,958 2014 6,822 13,807 17,554 20,177 20,878 21,735 21,813 21,786 21,958 2015 6,226 11,878 14,938 17,612 19,557 20,234 20,726 20,904 2016 6,796 13,141 16,397 19,613 21,408 21,809 22,448 2017 7,401 16,317 20,221 22,778 25,023 25,712 2018 6,989 15,647 21,121 24,662 27,671 2019 7,305 14,694 19,384 22,868 2020 5,172 9,941 14,693 2021 6,242 13,918 2022 7,023 $ 198,153 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 43,201 41 Table of Contents Automobile Physical Damage For the Years Ended December 31, As of December 31, 2022 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2018 2019 2020 2021 2022 2018 $ 7,805 $ 7,530 $ 7,447 $ 7,430 $ 7,461 $ — 1,461 2019 8,526 8,026 7,914 7,881 1 1,493 2020 10,288 10,080 10,047 3 1,634 2021 14,296 13,385 10 1,880 2022 10,962 232 1,617 $ 49,736 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2018 2019 2020 2021 2022 2018 $ 6,344 $ 7,510 $ 7,446 $ 7,433 $ 7,461 2019 6,360 8,005 7,906 7,867 2020 8,347 9,952 10,008 2021 11,993 13,277 2022 8,475 $ 47,088 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 2,648 General Liability For the Years Ended December 31, As of December 31, 2022 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 3,461 $ 728 $ 926 $ 817 $ 865 $ 820 $ 945 $ 904 $ 868 $ 867 $ — 199 2014 3,744 501 557 476 406 497 523 519 511 3 203 2015 4,421 1,037 1,227 1,044 867 855 855 870 4 148 2016 3,119 1,148 736 608 621 619 620 — 94 2017 1,490 488 513 738 738 839 23 84 2018 1,656 333 198 128 183 — 76 2019 1,916 707 455 515 60 89 2020 2,223 670 657 93 89 2021 2,567 1,329 327 94 2022 2,770 1,780 77 $ 9,161 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 104 $ 339 $ 579 $ 811 $ 791 $ 803 $ 805 $ 855 $ 867 $ 867 2014 171 299 331 369 373 493 498 502 502 2015 98 259 464 664 863 855 855 854 2016 116 203 568 608 617 619 620 2017 75 136 365 556 696 741 2018 65 90 115 128 183 2019 41 209 242 354 2020 208 385 462 2021 364 646 2022 402 $ 5,631 All outstanding liabilities before 2013, net of reinsurance 296 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 3,826 42 Table of Contents Surety For the Years Ended December 31, As of December 31, 2022 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 3,060 $ 2,007 $ 2,743 $ 2,947 $ 2,866 $ 2,809 $ 2,765 $ 2,757 $ 2,753 $ 2,751 $ — 60 2014 3,214 3,130 2,990 2,760 2,685 2,617 2,818 2,782 2,852 48 54 2015 1,902 1,630 1,400 1,359 1,406 1,310 1,307 1,280 — 50 2016 3,314 1,812 1,865 1,876 1,865 1,678 1,670 — 47 2017 4,677 3,671 3,799 3,629 3,514 3,440 6 63 2018 3,528 1,938 1,381 956 767 1 64 2019 2,130 657 630 513 11 31 2020 2,263 574 465 — 23 2021 2,936 1,455 318 35 2022 3,202 1,476 36 $ 18,395 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 $ 323 $ 1,010 $ 1,369 $ 2,763 $ 2,789 $ 2,749 $ 2,765 $ 2,757 $ 2,753 $ 2,751 2014 1,331 2,327 2,727 2,739 2,664 2,593 2,562 2,562 2,568 2015 641 856 1,127 1,125 1,128 1,271 1,273 1,279 2016 1,054 1,732 1,772 1,873 1,862 1,677 1,670 2017 1,971 3,255 3,523 3,545 3,442 3,402 2018 1,157 1,454 1,361 941 760 2019 259 395 568 446 2020 97 460 464 2021 156 803 2022 970 $ 15,113 All outstanding liabilities before 2013, net of reinsurance 31 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 3,313 For the property and casualty lines of business, the number of claims presented above equals the number of occurrences by type of claim reported to the Company. The number of claims reported during a given year corresponds to the number of claims records opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business. For automobile claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. The Company has consistently monitored claim frequency on this basis, and believes this provides more meaningful information than using claimant count which can change over the course of settling a claim. In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimate payment based on the known information of the claim at that time. Claims managers review and monitor all property and casualty claims in excess of $ 25,000 . As new information becomes available or payments are made on a claim, the case reserve is adjusted to reflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims are based on complex and subjective judgments and subject to change at any time as new information becomes available. In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Company as of the reporting date as well as potential adverse development on known case reserves. IBNR reserve estimates are derived through a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitative factors are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicated adjustments are made. 43 Table of Contents Because of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove better or worse than indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized and could increase or decrease earnings for the period. The following is supplementary information about average historical claims duration as of December 31, 2022. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Reserve Line 1 st Year 2 nd Year 3 rd Year 4 th Year 5 th Year 6 th Year 7 th Year 8 th Year 9 th Year 10 th Year Medicare Supplement 82.4 % 16.9 % 0.2 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Automobile Liability 27.2 % 29.9 % 17.6 % 12.2 % 7.3 % 2.9 % 1.4 % 0.2 % 0.4 % - 0.1 % Automobile Physical Damage 83.1 % 15.5 % - 0.5 % - 0.3 % 0.4 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % General Liability 20.1 % 20.7 % 21.9 % 16.5 % 11.6 % 5.9 % 0.3 % 2.1 % 0.7 % 0.0 % Surety 49.2 % 38.0 % 10.1 % - 3.0 % - 4.8 % - 1.0 % - 0.2 % 0.1 % 0.0 % - 0.1 % The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and loss adjustment expenses is as follows: December 31, 2022 Net outstanding liabilities Medicare Supplement $ 12,916 Automobile Liability 43,201 Automobile Physical Damage 2,648 General Liability 3,826 Surety 3,313 Other short-duration insurance lines 1,212 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 67,116 Reinsurance recoverable on unpaid losses: Medicare Supplement 9,382 Automobile Liability 5,086 Automobile Physical Damage 334 General Liability 2,451 Other short-duration insurance lines 394 Total reinsurance recoverable on unpaid losses 17,647 Unallocated claims adjustment expenses 2,721 Total gross liability for unpaid losses, claims and loss adjustment expenses $ 87,484 Note 7. Reinsurance In accordance with general practice in the insurance industry, portions of the life, property and casualty insurance written by the Company are reinsured; however, the Company remains liable with respect to reinsurance ceded should any reinsurer be unable or unwilling to meet its obligations. Approximately 99.7 % of the Company’s reinsurance recoverables were due from a single reinsurer as of December 31, 2022. Reinsurance recoverables of $ 25,824 were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against reinsurance recoverables, if appropriate. 44 Table of Contents The effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows: For the Year Ended December 31, 2022 American Southern Bankers Fidelity Total Direct premiums written $ 52,404 $ 176,119 $ 228,523 Assumed premiums written 26,814 9 26,823 Ceded premiums written ( 6,547 ) ( 61,701 ) ( 68,248 ) Net premiums written $ 72,671 $ 114,427 $ 187,098 Direct premiums earned $ 51,844 $ 176,995 $ 228,839 Assumed premiums earned 24,978 8 24,986 Ceded premiums earned ( 6,546 ) ( 61,839 ) ( 68,385 ) Net premiums earned $ 70,276 $ 115,164 $ 185,440 Provision for benefits and losses incurred $ 49,568 $ 124,478 $ 174,046 Reinsurance loss recoveries ( 2,393 ) ( 48,197 ) ( 50,590 ) Insurance benefits and losses incurred $ 47,175 $ 76,281 $ 123,456 For the Year Ended December 31, 2021 American Southern Bankers Fidelity Total Direct premiums written $ 53,815 $ 182,867 $ 236,682 Assumed premiums written 22,099 12 22,111 Ceded premiums written ( 6,511 ) ( 67,010 ) ( 73,521 ) Net premiums written $ 69,403 $ 115,869 $ 185,272 Direct premiums earned $ 52,424 $ 183,382 $ 235,806 Assumed premiums earned 22,069 7 22,076 Ceded premiums earned ( 6,511 ) ( 67,155 ) ( 73,666 ) Net premiums earned $ 67,982 $ 116,234 $ 184,216 Provision for benefits and losses incurred $ 46,500 $ 144,091 $ 190,591 Reinsurance loss recoveries ( 2,067 ) ( 56,830 ) ( 58,897 ) Insurance benefits and losses incurred $ 44,433 $ 87,261 $ 131,694 Components of reinsurance receivables at December 31, 2022 and 2021 were as follows: December 31, 2022 American Southern Bankers Fidelity Total Recoverable on unpaid losses $ 8,265 $ 9,382 $ 17,647 Recoverable on unpaid benefits — 6,788 6,788 Recoverable on paid losses — 618 618 Ceded unearned premiums — 681 681 Ceded advanced premiums — 179 179 Total reinsurance receivables $ 8,265 $ 17,648 $ 25,913 December 31, 2021 American Southern Bankers Fidelity Total Recoverable on unpaid losses $ 6,937 $ 10,753 $ 17,690 Recoverable on unpaid benefits — 8,169 8,169 Recoverable on paid losses — 499 499 Ceded unearned premiums — 819 819 Ceded advanced premiums — 239 239 Total reinsurance receivables $ 6,937 $ 20,479 $ 27,416 45 Table of Contents Note 8. Income Taxes Total income taxes were allocated as follows: 2022 2021 Total tax expense on income $ 571 $ 1,021 Tax benefit on components of shareholders’ equity: Net unrealized losses on investment securities ( 10,589 ) ( 1,944 ) Total tax benefit $ ( 10,018 ) $ ( 923 ) A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as follows: 2022 2021 Federal income tax provision at the statutory rate $ 440 $ 1,112 Statutory rate 21 % 21 % Dividends-received deduction ( 24 ) ( 26 ) Meals and entertainment 61 32 Vested stock and club dues 14 ( 28 ) Parking disallowance 17 16 Penalties and fines 149 — Adjustment for prior years’ estimates to actual ( 86 ) ( 85 ) Income tax expense $ 571 $ 1,021 Effective tax rate 27.2 % 19.3 % 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 are generally updated at the completion of the third quarter of each fiscal year and were $ 85 in the year ended December 31, 2021. Also contributing to differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and vested stock and club dues. Another contributing factor was the DRD. Deferred tax assets and liabilities at December 31, 2022 and 2021 were comprised of the following: 2022 2021 Deferred tax assets: Deferred acquisition costs $ 7,953 $ 7,026 Net unrealized investment losses 4,489 — Insurance reserves 1,597 2,028 Impaired assets 791 780 Bad debts and other 252 280 Total deferred tax assets 15,082 10,114 Deferred tax liabilities: Deferred and uncollected premiums $ ( 835 ) $ ( 561 ) Net unrealized investment gains — ( 7,689 ) Other ( 84 ) ( 109 ) Total deferred tax liabilities ( 919 ) ( 8,359 ) Net deferred tax asset (liability) $ 14,163 $ 1,755 46 Table of Contents The components of income tax expense were: 2022 2021 Current – Federal $ 2,390 $ 2,133 Deferred – Federal ( 1,819 ) ( 1,112 ) Total $ 571 $ 1,021 The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2019, 2020 and 2021 are considered open tax years that remain subject to examination by the Internal Revenue Service. Note 9. Credit Arrangements The Company is preparing for the expected discontinuation of LIBOR by identifying, assessing and monitoring risks associated with LIBOR transition. Preparation includes taking steps to update operational processes to support alternative reference rates and models, as well as evaluating legacy contracts for any changes that may be required, including the determination of applicable fallbacks. Bank Debt On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with Truist Bank as the lender (the “Lender”). The Credit Agreement provides for an unsecured $ 10,000 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 that exceeds 35 % of the Company’s consolidated capitalization at any time. The Credit Agreement also contains customary representations and warranties and events of default. Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of December 31 2022, the Company had outstanding borrowings of $ 2,009 under the Credit Agreement. Junior Subordinated Debentures The Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of: (i) issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic American; and (iii) engaging in those activities necessary or incidental thereto. At December 31, 2022, the effective interest rate was 8.73 %. The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2022 and 2021, was as follows: Atlantic American Statutory Trust I Atlantic American Statutory Trust II JUNIOR SUBORDINATED DEBENTURES (1)(2) Balance December 31, 2022 $ 18,042 $ 23,196 Less: Treasury debt (3) — ( 7,500 ) Net balance December 31, 2022 $ 18,042 $ 15,696 Net balance December 31, 2021 $ 18,042 $ 15,696 Coupon rate LIBOR + 4.00 % LIBOR + 4.10 % Interest payable Quarterly Quarterly Maturity date December 4, 2032 May 15, 2033 Redeemable by issuer Yes Yes TRUST PREFERRED SECURITIES Issuance date December 4, 2002 May 15, 2003 Securities issued 17,500 22,500 Liquidation preference per security $ 1 $ 1 Liquidation value $ 17,500 $ 22,500 Coupon rate LIBOR + 4.00 % LIBOR + 4.10 % Distribution payable Quarterly Quarterly Distribution guaranteed by (4) Atlantic American Corporation Atlantic American Corporation 47 Table of Contents (1) For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities. (2) The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries. (3) In 2014, the Company acquired $ 7,500 of the Junior Subordinated Debentures. (4) The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation. Note 10. Leases The Company has two operating lease agreements, each for the use of office space in the ordinary course of business. The first lease renews annually on an automatic basis and based on original assumptions, management is reasonably certain to exercise the renewal option through 2026. The original term of the second lease was ten years and amended in January 2017 to provide for an additional seven years , with a termination date on September 30, 2026. The rate used in determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for each of the years ended December 31, 2022 and 2021 was $ 1,014 . Additional information regarding the Company’s real estate operating leases is as follows: Year Ended December 31, 2022 Year Ended December 31, 2021 Other information on operating leases: Cash payments included in the measurement of lease liabilities reported in operating cash flows $ 1,031 1,015 Right-of-use assets included in other assets on the consolidated balance sheet 3,405 4,143 Weighted average discount rate 6.8 % 6.8 % Weighted average remaining lease term in years 3.9 years 4.9 years The following table presents maturities and present value of the Company’s lease liabilities: Lease Liability 2023 $ 1,048 2024 1,065 2025 1,083 2026 942 2027 — Thereafter — Total undiscounted lease payments 4,138 Less: present value adjustment 515 Operating lease liability included in accounts payable and accrued expenses on the consolidated balance sheet $ 3,623 As of December 31, 2022, the Company has no operating leases that have not yet commenced. Note 11. Benefit Plans Equity Incentive Plan On May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the grant of up to 2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for 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 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 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. 48 Table of Contents 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 . 401(k) Plan The Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Code in May 1995. The Plan covers substantially all of the Company’s employees. Effective January 1, 2009, the Company modified the Plan such that the Plan would operate on a safe harbor basis. Under the Plan, employees may defer up to 50 % of their compensation, not to exceed the annual deferral limit. The Company’s total matching contribution for 2022 and 2021 was $ 255 and $ 272 , respectively, and consisted of a contribution equal to 35 % of up to the first 6 % of each participant’s contributions. In addition to the matching contribution, the Company also provided a 3 % safe harbor non-elective contribution in 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. Agent Stock Purchase Plan The Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012. The purpose of the Agent Stock Purchase Plan is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company. Under the Agent Stock Purchase Plan, payment for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment. Stock purchases are made at the end of each calendar quarter at the then current market value. Note 12. Preferred Stock The Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2022 and 2021, respectively. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a par value of $ 1 per share and a redemption value of $ 100 per share; accrue annual dividends at a rate of $ 7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. The Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of $ 18 at December 31, 2022 and 2021. During each of 2022 and 2021, the Company paid Series D Preferred Stock dividends of $ 399 . Note 13. Earnings Per Common Share Basic earnings per share was computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflected the effect of potentially dilutive securities. 49 Table of Contents A reconciliation of the numerator and denominator of the income per common share calculations is as follows: For the Year Ended December 31, 2022 Income Weighted Average Shares Outstanding (In thousands) P er Share Amount Basic and Diluted Earnings Per Common Share Net income before preferred stock dividends $ 1,525 20,390 - Less preferred stock dividends ( 399 ) — Net income applicable to common shareholders $ 1,126 20,390 $ 0.06 For the Year Ended December 31, 2021 Income Weighted Average Shares Outstanding (In thousands) Per Share Amount Basic and Diluted Earnings Per Common Share Net income before preferred stock dividends $ 4,281 20,402 - Less preferred stock dividends ( 399 ) — Net income applicable to common shareholders $ 3,882 20,402 $ 0.19 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. Note 14. Statutory Reporting The assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP are that under SAP: (i) 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; (vi) 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 capital and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows: 2022 2021 Bankers Fidelity, net income (loss) $ 3,865 $ ( 364 ) American Southern, net income 5,743 7,688 Statutory net income $ 9,608 $ 7,324 Bankers Fidelity, capital and surplus $ 36,672 $ 38,625 American Southern, capital and surplus 53,023 52,724 Statutory capital and surplus $ 89,695 $ 91,349 Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. The Parent received dividends of $ 7,200 and $ 8,400 in the years ended 2022 and 2021, respectively, from its subsidiaries. In 2022, dividend payments to the Parent by the insurance subsidiaries in excess of $ 8,739 would require prior approval. Note 15. Related Party Transactions 50 Table of Contents 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, 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 shareholder. The Company leases approximately 49,586 square feet of office and covered garage space from one such controlled entity. During the years ended December 31, 2022 and 2021, the Company paid $ 880 and $ 879 , respectively, under this lease. 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. No 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 12). During the years ended December 31, 2022 and 2021, the Company paid this entity $ 399 in dividends on the Series D Preferred Stock. Certain members of the Company’s management and board of directors are shareholders and on the board of directors of Gray Television, Inc. (“Gray”). As of December 31, 2022 and 2021, the Company owned 880,272 shares of Gray Class A common stock and 106,000 shares of Gray common stock. The aggregate carrying value of these investments in Gray at December 31, 2022 and 2021 was $ 10,772 and $ 18,325 , respectively. 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. Note 16. Segment Information The Parent’s primary insurance subsidiaries operate with relative autonomy and each company is evaluated based on its individual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as well as from investment income. Substantially all revenue other than that in the corporate and other segment is from external sources. For the Year Ended December 31, 2022 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 70,276 $ 115,164 $ — $ — $ 185,440 Insurance benefits and losses incurred 47,175 76,281 — — 123,456 Expenses deferred ( 10,161 ) ( 12,867 ) — — ( 23,028 ) Amortization and depreciation expense 10,240 9,452 498 — 20,190 Other expenses 20,082 37,337 17,432 ( 9,714 ) 65,137 Total expenses 67,336 110,203 17,930 ( 9,714 ) 185,755 Underwriting income 2,940 4,961 — — 7,901 Net investment income (loss) 4,147 5,414 2,461 ( 2,090 ) 9,932 Other income (loss) 3 8 7,624 ( 7,624 ) 11 Subtotal 7,090 10,383 ( 7,845 ) — 9,628 Net realized gains (losses) ( 28 ) 58 — — 30 Unrealized losses on equity securities ( 449 ) ( 6,629 ) ( 484 ) — ( 7,562 ) Income (loss) before income taxes $ 6,613 $ 3,812 $ ( 8,329 ) $ — $ 2,096 Total revenues $ 73,949 $ 114,015 $ 9,601 $ ( 9,714 ) $ 187,851 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 144,455 $ 195,028 $ 140,661 $ ( 113,080 ) $ 367,064 51 Table of Contents For the Year Ended December 31, 2021 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 67,982 $ 116,234 $ — $ — $ 184,216 Insurance benefits and losses incurred 44,433 87,261 — — 131,694 Expenses deferred ( 10,690 ) ( 12,461 ) — — ( 23,151 ) Amortization and depreciation expense 10,756 13,692 537 — 24,985 Other expenses 20,077 33,484 16,255 ( 9,092 ) 60,724 Total expenses 64,576 121,976 16,792 ( 9,092 ) 194,252 Underwriting income (loss) 3,406 ( 5,742 ) — — ( 2,336 ) Net investment income (loss) 3,570 5,204 1,466 ( 1,712 ) 8,528 Other income (loss) 4 9 7,380 ( 7,380 ) 13 Subtotal 6,980 ( 529 ) ( 7,946 ) — ( 1,495 ) Net realized gains 2,198 2,705 — — 4,903 Unrealized gains on equity securities 114 1,550 230 — 1,894 Income (loss) before income taxes $ 9,292 $ 3,726 $ ( 7,716 ) $ — $ 5,302 Total revenues $ 73,868 $ 125,702 $ 9,076 $ ( 9,092 ) $ 199,554 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 161,788 $ 227,395 $ 177,638 $ ( 164,535 ) $ 402,286 Note 17. Commitments and Contingencies Litigation From time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and in the ordinary course of its business. In the opinion of management, any such known claims are not expected to have a material effect on the financial condition or results of operations of the Company. Regulatory Matters Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to regulation and supervision in the jurisdictions in which they do business. Statutes typically delegate regulatory, supervisory, and administrative powers to state insurance commissioners. From time to time, and in the ordinary course of business, the Company receives notices and inquiries from state insurance departments with respect to various matters. In November 2021, the Company was made aware by a state regulatory authority of alleged violations relating to certain sales of insurance policies and that the Company may be subject to regulatory action, including fines. 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. Note 18. Subsequent Events None. 52 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.