What changed in this filing

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Item 1. Financial Statements

2023-06-30 compared with 2022-11-08 · 371 added, 376 removed, 595 unchanged (56% of the section changed)

1 unchanged sentence

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED

COND ENSED CONSOLIDATED

BALANCE SHEETS

(In thousands, except share and per share data)

September 30,

Cash and cash equivalents

1 unchanged sentence

and $ 236,766 ;

allowance for credit losses)

Equity securities, at fair value (cost:

4 unchanged sentences

Total investments

Insurance premiums and other (net of allowance for doubtful accounts:

$ 175 and $ 188 )

Reinsurance (net of allowance for uncollectible reinsurance of $ 69 and $ 0 )

Insurance premiums and other (net of allowance for expected credit losses $ 197

and net of allowance for doubtful accounts $ 177 )

Deferred income taxes, net

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Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Unearned stock grant compensation

5 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

Dollars in thousands, except per share data)

CONDENSED CO NSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Insurance premiums, net

Net investment income

Realized investment gains, net

Realized investment losses, net

Unrealized gains (losses) on equity securities, net

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ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

Dollars in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

In thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive loss:

Other comprehensive income (loss):

Available-for-sale fixed maturity securities:

Gross unrealized holding loss arising in the period

Gross unrealized holding gains (losses) arising in the period

Related income tax effect

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

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

Related income tax effect

Total other comprehensive loss, net of tax

Total comprehensive loss

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

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

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SHAREHOLDERS’ EQUITY

Dollars in thousands except share data)

In thousands except share and per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Preferred stock:

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Restricted stock grants, net of forfeitures

Issuance of shares under stock plans

Balance, end of period

1 unchanged sentence

Balance, beginning of period

Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023

Net income (loss)

4 unchanged sentences

Balance, beginning of period

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Balance, end of period

8 unchanged sentences

Net shares acquired related to employee share-based compensation plans

Issuance of shares under stock plans

Balance, end of period

4 unchanged sentences

Net shares acquired under employee share-based compensation plans

Issuance of shares under stock plans

Restricted stock grants, net of forfeitures

4 unchanged sentences

In thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

(Additions to) amortization of acquisition costs, net

Realized investment gains, net

Net (loss) income

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

Amortization of (additions to) acquisition costs, net

Realized investment losses, net

Unrealized losses (gains) on equity securities, net

Earnings from equity method investees

Losses (earnings) from equity method investees

Compensation expense related to share awards

Depreciation and amortization

Deferred income tax benefit

Increase in receivables, net

Increase in insurance reserves and policyholder funds

Deferred income tax (benefit) expense

Decrease in receivables, net

Decrease in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

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Additions to property and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends on common stock

Proceeds from shares issued under stock plans

Treasury stock acquired — net employee share-based compensation

Proceeds from revolving credit facility, net

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

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Cash paid for interest

Cash paid for income taxes

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

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The Parent’s primary operating subsidiaries,

American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), operate in

two principal business units.

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

in the life and health insurance market.

American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together

known as “Bankers Fidelity”), operate in two principal business units.

American Southern operates in the property and casualty insurance

market, while Bankers Fidelity operates in the life and health insurance market.

All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying financial statements have been prepared in accordance with accounting principles generally

accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all of the information and notes required by GAAP for

audited annual financial statements.

The accompanying financial statements have been prepared in accordance

with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all of the information

and notes required by GAAP for audited annual financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.

The unaudited condensed consolidated financial

statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021

(the “2021 Annual Report”).

The Company’s financial condition and results of operations and cash flows as of and for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the financial condition or results of

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

Company’s significant accounting policies have not changed materially from those set out in the 2021 Annual Report.

The unaudited

condensed consolidated financial statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for

the year ended December 31, 2022 (the “2022 Annual Report”).

The Company’s financial condition and results of operations and cash flows as of and for the three month period ended March 31, 2023 are not necessarily indicative of the financial

condition or results of operations and cash flows that may be expected for the year ending December 31, 2023 or for any other future period.

preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of contingent assets and liabilities at the date of the

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Adoption of New Accounting Standards

For more information regarding accounting

standards that the Company has not yet adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the 2021 Annual Report.

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

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

Financial Instruments – Credit Losses.

In June 2016, the FASB issued accounting standards update (“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

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

The expected credit losses, and subsequent

adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the

amount expected to be collected.

The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account

and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.

In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of

whether a credit loss exists.

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

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.

Impact of Adoption on Condensed Consolidated Balance Sheet

Reinsurance Recoverables

The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at January 1, 2023 and March 31, 2023, and the changes in the allowance for estimated

uncollectible reinsurance for the three months ended March 31, 2023.

At and for the three months ended, March 31, 2023

(in thousands)

Reinsurance Recoverables, Net

of Allowance for Estimated

Uncollectible Reinsurance

Allowance for Estimated

Uncollectible Reinsurance

Balance, beginning of period

Cumulative effect of adoption of updated accounting guidance for

credit losses at January 1, 2023

Current period change for estimated uncollectible reinsurance

Write-offs of uncollectible reinsurance recoverables

Balance, end of period

Insurance Premium and Other Receivables

The following table presents the balances of insurance premiums and other, net of the allowance for expected credit losses, at January 1, 2023 and March 31, 2023, and the changes in the allowance for

doubtful accounts/expected credit losses for the three months ended March 31, 2023.

At and for the three months ended, March 31, 2023

(in thousands)

Insurance Premiums and Other,

Net of Expected Credit Losses

Allowance for Doubtful

Accounts/Expected Credit Losses

Balance, beginning of period

Cumulative effect of adoption of updated accounting guidance for

credit losses at January 1, 2023

Current period change for expected credit losses

Write-offs of uncollectible insurance premiums and other receivables

Balance, end of period

Future Adoption of New Accounting Standards

For more information regarding accounting standards that the Company has not yet

adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the 2022 Annual Report.

Accounting Policies

The following accounting policies have been updated to reflect the Company’s

adoption of Financial Instruments - Credit Losses, as described above.

Credit Impairments of Fixed Maturities

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, less Allowance for Credit Losses (“ACL”), 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.

Prior to January 1, 2023, the Company applied other than temporary impairment (“OTTI”) guidance for securities in an unrealized loss position.

An OTTI was recognized in earnings within realized investment gains (losses)

when it was anticipated that the amortized cost would not be recovered.

(i) the Company had the intent to sell the security, or (ii) it was more likely than not that the Company would be required to sell the security before recovery,

the reduction of amortized cost and the OTTI recognized in earnings was the entire difference between the security’s amortized cost and estimated fair value.

If neither of these conditions existed, the difference between the amortized cost of the

security and the present value of projected future cash flows expected to be collected was recognized as a reduction of amortized cost and an OTTI in earnings.

If the estimated fair value was less than the present value of projected future cash

flows expected to be collected, this portion of the decline in value related to other-than-credit factors was recorded in OCI.

On January 1, 2023, the Company adopted ASU 2016-13 using a modified retrospective approach.

Under ASU 2016-13, for securities in an unrealized loss position, a credit loss is recognized in earnings within realized

investment gains (losses) when it is anticipated that the amortized cost will not be recovered.

(i) the Company has the intent to sell the security;

or (ii) it is more likely than not that the Company will be required to sell the

security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value.

If neither of these conditions exists, the difference between

the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses).

However, the ACL is limited by the amount that the fair value is less than the amortized cost.

This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected

to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI.

Reinsurance Recoverables

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.

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

Amounts currently recoverable under reinsurance agreements are included in reinsurance receivables and amounts currently payable are included in other liabilities.

Assets and liabilities relating

to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement.

In the event that reinsurers do not meet their obligations to the Company under the terms of

the reinsurance agreements, reinsurance recoverable balances could become uncollectible.

In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance.

Insurance Premiums and Other Receivables

Receivables amounts due from insureds and agents are evaluated periodically for collectibility.

Allowances for expected credit losses are established, as and when a loss has been determined probable, against the related

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

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, allowance for credit losses and cost or amortized cost of the Company’s investments in fixed maturities and

equity securities, aggregated by type and industry, as of March 31, 2023 and December 31, 2022.

Fixed maturities were comprised of the following:

September 30, 2022

March 31, 2023

Allowance for

Credit Losses

Fixed maturities:

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Bonds having an amortized cost of $ 11,576

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

and $ 12,333 and included in the tables above were on deposit with insurance regulatory authorities as of March 31, 2023 and December 31,

2022, respectively, in accordance with statutory requirements.

Additionally, bonds having an amortized cost of $ 7,253 and $ 5,371 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta ("FHLB") at September 30, 2022 and December

Additionally, bonds having an amortized cost of $ 7,761 and $ 7,221 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2023 and December 31,

2022, respectively.

Equity securities were comprised of the following:

September 30, 2022

March 31, 2023

Equity securities:

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Total equity securities

The carrying value and amortized cost of the Company’s investments in fixed maturities at September 30, 2022 and December 31, 2021 by contractual

The carrying value and amortized cost of the Company’s investments in fixed maturities at March 31, 2023 and December 31, 2022 by contractual

maturity were as follows.

Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

September 30, 2022

March 31, 2023

December 31, 2022

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

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

September 30, 2022

unrealized loss position as of March 31, 2023 and December 31, 2022.

March 31, 2023

Less than 12 months

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Government agencies and authorities

Obligations of states and political subdivisions

Corporate securities

Total temporarily impaired securities

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

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

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

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

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

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

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

There were no OTTI charges

recorded during the three month and nine month periods ended September 30, 2022 and 2021.

As of September 30, 2022 and December 31, 2021, there were 235 and 61 securities, respectively, in an unrealized loss position, which

primarily included certain of the Company’s investments in fixed maturities within the financial services, other diversified business and other diversified consumer sectors.

The increase in the number of securities in an unrealized loss position

during the nine month period ended September 30, 2022 was primarily attributable to a decline in market values in certain of the Company’s fixed maturity securities as a result of a rising interest rate environment.

The Company does not currently

intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.

Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and

ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of September 30, 2022.

The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2022 and 2021.

of Securities in Unrealized Loss Positions

As of March 31, 2023 and December 31, 2022, there were 243 and 237 securities,

respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the utilities and telecom, financial services, other diversified business and other diversified consumer

The unrealized

losses on the Company’s fixed maturity securities investments have been primarily related to general market changes in interest rates and/or the levels of credit spreads rather than specific concerns with the issuer’s ability to pay interest

and repay principal.

any of its fixed maturity securities with significant declines in fair value, the Company performs detailed analyses to identify whether the drivers of the declines are due to general market drivers, such as the recent rise in interest rates, or

due to credit-related factors.

Identifying the drivers of the declines in fair value helps to align and allocate the Company‘s resources to securities with real credit-related concerns that could impact the ultimate collection of principal and

For any significant declines in fair value determined to be non-interest rate or market related, the Company performs a more focused review of the related issuers’ specific credit profile.

corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data.

For non-corporate issuers, the Company analyzes all sources

of credit support, including issuer-specific factors.

The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly.

The Company also considers ratings

from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer’s capital structure, covenant protections, or other relevant features.

these reviews, the Company evaluates the issuers’ continued ability to service the Company’s investment through payment of interest and principal.

no credit-related factors develop, unrealized gains and losses on fixed maturity securities are expected to diminish as investments near maturity.

Based on its credit analysis, the Company believes that the issuers of its fixed maturity

investments in the sectors shown in the table above have the ability to service their obligations to the Company, and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell

the investments before recovery of their amortized cost bases, which may be at maturity.

However, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a

result, a credit allowance will be estimated.

The Company had no ACL on its available-for-sale fixed maturities as of March 31, 2023.

The following table is a summary of realized investment gains (losses) for the three month period ended March 31, 2023 and 2022.

Three Months Ended

September 30, 2022

Realized investment gains, net

March 31, 2023

Realized investment losses, net

Three Months Ended

September 30, 2021

Realized investment gains, net

Nine Months Ended

September 30, 2022

Realized investment gains (losses), net

Nine Months Ended

September 30, 2021

March 31, 2022

Realized investment gains, net

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

periods ended September 30, 2022 and 2021.

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the three month period ended March 31, 2023 and 2022.

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

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

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

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

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The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance.

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

The Company’s VIE interests, carried as a part of other invested assets, totaled $ 5,421 and $ 198 as of September 30, 2022

and December 31, 2021, respectively.

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

as of September 30, 2022 and December 31, 2021.

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 $ 5,372 and $ 5,386

as of March 31, 2023 and December 31, 2022, respectively.

The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238 as of March 31, 2023 and December 31, 2022.

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

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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 $ 6,659 and $ 1,436 , as of September 30, 2022 and December 31,

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 $ 6,610 and $ 6,624 , as of March 31, 2023 and December 31, 2022,

respectively.

As of September 30, 2022 and December 31, 2021, the Company had outstanding commitments totaling $ 5,872 and $ 1,997 , respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to

fund the purchase of new investments and partnership expenses.

As of March 31, 2023 and December 31, 2022, the Company had outstanding commitments totaling $ 5,872 , respectively,

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

Fair Values of Financial Instruments

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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

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

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

Level 3 criteria was $ 475 and $ 250 , respectively.

As of September 30, 2022 and December 31, 2021, the value of the equity security valued using Level 3 criteria was $ 157 and $ 157 , respectively.

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

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

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

The Company’s financial instruments valued using Level 3 criteria consist of one equity security.

As of March 31, 2023 and December 31, 2022, the value of the equity security valued using Level 3 criteria was $ 154 and $ 156 , respectively.

equity security is not traded and is valued at cost.

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

of March 31, 2023, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Quoted Prices in

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The following table sets forth the

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

carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of March 31, 2023

and December 31, 2022.

September 30, 2022

March 31, 2023

December 31, 2022

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software is substantially ready for its intended use.

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

ended December 31, 2021, and $ 1,357 during the nine months ended September 30, 2022.

As a result, the Company has capitalized $ 1,857 in implementation costs in its condensed consolidated balance sheet as of September 30, 2022.

The Company expects the software will be

substantially ready for its intended use during 2023.

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

software implementation costs for the nine months ended September 30, 2022.

The Company incurred and capitalized implementation costs of $ 592 and $ 8 during the three months ended March 31, 2023 and 2022, respectively.

As a result, the Company has capitalized $ 3,614 in implementation costs in other assets within its condensed consolidated balance sheet as of March 31, 2023.

The Company expects the software

will be substantially ready for its intended use in the three months ended September 30, 2023.

Accordingly, the Company has no t recorded any amortization expense related to software implementation costs for the three months ended March 31, 2023.

Insurance Reserves for Losses and Claims

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

Nine Months Ended

September 30,

roll-forward of insurance reserves for losses and claims for the three months ended March 31, 2023 and 2022 is as follows:

Three Months Ended

Beginning insurance reserves for losses and claims, gross

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

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

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

Partially offsetting the unfavorable development was favorable development in the property and casualty operations.

Prior years’ development was primarily the result of favorable development in both the life

and health and the property and casualty operations.

Following is a reconciliation of total incurred losses to total

insurance benefits and losses incurred:

Nine Months Ended

September 30,

Three Months Ended

Total incurred losses

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

As of September 30, 2022, the Company had outstanding borrowings of $ 1,000 under the Credit Agreement.

As of March 31, 2023, the Company had outstanding borrowings of $ 3,000 under the Credit Agreement.

Junior Subordinated Debentures

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The financial structure of each of

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

Atlantic American Statutory Trust I and II as of March 31, 2023 was as follows:

Atlantic American

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JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed September 30 , 2022

Principal amount owed March 31 , 2023

Treasury debt (3)

Net balance September 30 , 2022

Net balance March 31 , 2023

Net balance December 31, 2022

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Earnings (Loss) Per Common Share

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

common share calculations is as follows:

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

Three Months Ended

September 30 , 2022

March 31, 2023

(In thousands)

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Three Months Ended

September 30 , 2021

(In thousands)

Basic and Diluted Loss Per Common Share:

Less preferred stock dividends

Net loss applicable to common shareholders

Nine Months Ended

September 30,

March 31, 2022

(In thousands)

Basic and Diluted Earnings Per Common Share:

Basic Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Nine Months Ended

September 30,

(In thousands)

Basic and Diluted Earnings Per Common Share:

Less preferred stock dividends

Diluted Earnings Per Common Share:

Effect of Series D preferred stock

Net income applicable to common shareholders

The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for all periods presented since its impact would have been antidilutive.

Equity and Incentive Compensation Plan

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

The 2012 Plan

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

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

During the nine month period ended September

30, 2022, a total of 25,000 restricted shares, with an estimated fair value of $ 69 were issued under the 2012 Plan.

During 2021, there were no

restricted shares issued under the 2012 Plan.

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

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

Shares available for future grant

under the 2012 Plan at December 31, 2021 were 935,200 .

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

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

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

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

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

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

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

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

The assumed conversion of the Company’s Series D preferred stock was excluded from the loss per common share calculation for three month period

ended March 31, 2023, since its impact would have been antidilutive.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Federal income tax provision at statutory rate of 21 %

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Penalties and fines

Adjustment for prior years' estimates to actual

Income tax expense (benefit)

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Current – Federal

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

Lease expense reported for the nine months ended September 30, 2022 and September 30, 202 1 was $ 761 .

Lease expense reported for the three months ended March 31, 2023 and March 31, 2022 was $ 254 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Nine Months Ended

September 30,

Three Months Ended

Other information on operating leases:

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

As of September 30, 2022, the Company has no operating leases

that have not yet commenced.

As of March 31, 2023, the Company has no operating leases that

have not yet commenced.

Commitments and Contingencies

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Segment Information

The Parent’s primary

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

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

principal business units, each focusing on specific products.

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

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

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

September 30,

Each business unit is managed

independently and is evaluated on its individual performance.

The following sets forth the assets, revenue and income (loss) before income taxes for each business unit as of and for the periods ended 2023 and 2022.

American Southern

2 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

American Southern

2 unchanged sentences

Total revenue

In come (Loss) Before Income Taxes

Three Months Ended

September 30,

Nine Months Ended

September 30,

Income (Loss) Before Income Taxes

American Southern

5 unchanged sentences

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

subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periods ended September 30, 2022.

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

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

subsidiaries (collectively with the Parent, the “Company”) as of and for three month period ended March 31, 2023.

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

included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

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

American Southern Insurance Company and American Safety Insurance

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

Each operating company is managed separately, offers different products and

is evaluated on its individual performance.

The Company recently formed a new life and health insurance entity, Atlantic Capital Life Assurance Company, a wholly owned subsidiary of Bankers Fidelity Life Insurance Company.

Effective October

14, 2022, Atlantic Capital Life Assurance Company obtained its Certificate of Authority from the Office of the Commissioner of Insurance of the State of Georgia.

Management intends to seek certificates of authority in additional states and expects

to commence operations sometime during 2023.

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

Each operating company is managed

separately, offers different products and is evaluated on its individual performance.

Critical Accounting Policies

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Overall Corporate Results

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

The following presents the Company’s revenue, expenses and net income (loss) for the three month period ended March 31, 2023 and the comparable period in 2022:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

Insurance premiums, net

Net investment income

Realized investment gains, net

Realized investment losses, net

Unrealized gains (losses) on equity securities, net

8 unchanged sentences

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

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

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

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

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

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

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

A reconciliation of net income (loss) to operating income (loss) for the three month period ended March 31, 2023 and the comparable period in 2022 is as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Reconciliation of Non-GAAP Financial Measure

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Income tax expense (benefit)

Realized investment gains, net

Realized investment losses, net

Unrealized (gains) losses on equity securities, net

Non-GAAP operating income (loss)

On a consolidated basis, the Company had net loss of $0.7 million, or $0.04 per diluted share, for the three month period ended September 30, 2022, compared to net loss of $0.9 million, or $0.05

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

The Company had net income of $0.5 million, or $0.01 per diluted share, for the nine month period ended September 30, 2022, compared to net income of $1.6 million, or $0.06

per diluted share, for the nine month period ended September 30, 2021.

The decrease in net loss for the three month period ended September 30, 2022 was primarily attributable to more favorable loss experience in the life and health operations,

partially offset by a decrease in unrealized gains of $3.5 million, from the comparable period in 2021.

The decrease in net income for the nine month period ended September 30, 2022 was primarily attributable to the decrease in unrealized gains of

$10.9 million from the comparable period in 2021, partially offset by more favorable loss experience in the life and health operations.

For the three month period ended September 30, 2022, premium revenue increased $0.3 million, or 0.6%, to $46.4 million from $46.1 million in the comparable period in 2021.

For the nine month

period ended September 30, 2022, premium revenue increased $3.2 million, or 2.3%, to $140.5 million from $137.3 million in the comparable period in 2021.

The increase in premium revenue was primarily attributable to an increase in business

writings and price increases in certain programs within the automobile liability line of business in the property and casualty operations.

Also contributing to this increase in premium revenue was an increase in group life insurance premiums in

the life and health operations.

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

Operating income increased $4.1 million in the three month period ended September 30, 2022 from the three month period ended September 30, 2021.

For the nine month period ended September 30, 2022, operating income

increased $10.2 million from the comparable period in 2021.

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

business coupled with a decrease in the number of claims incurred in the Medicare supplement line of business.

On a consolidated basis, the Company had net loss of $1.4 million, or $(0.08) per diluted share, for the three month period ended March 31, 2023, compared to net income of $2.8 million, or $0.13

per diluted share, for the three month period ended March 31, 2022.

The decrease in net income for the first quarter of 2023 was primarily the result of a $4.6 million decrease in unrealized gains on equity securities due to fluctuations in

market values.

Premium revenue for the three month period ended March 31, 2023 decreased $1.0 million, or 2.1%, to $46.1 million from $47.1 million in the three month period ended March 31, 2022.

The decrease in premium revenue was primarily

attributable to a decrease in the Medicare supplement insurance premiums in the life and health operations.

Also contributing to this decrease in premium revenue was a decrease in the automobile physical damage line of business in the property

and casualty operations.

Operating income decreased $1.1 million in the three month period ended March 31, 2023 from the three month period ended March 31, 2022.

The decrease in operating income was primarily due to unfavorable loss

experience in the property and casualty operations due to an increase in the frequency and severity of claims within the automobile liability line of business.

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

American Southern

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

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month period ended March 31, 2023 and the comparable period in 2022:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

Combined ratio

Gross written premiums at American Southern decreased $1.5 million, or 11.1%, during the three month period ended September 30, 2022 and increased $5.1 million, or 8.7%, during the nine month

period ended September 30, 2022, from the comparable periods in 2021.

The decrease in gross written premiums during the three month period ended September 30, 2022 was primarily attributable to the decrease in premiums written in the automobile

physical damage line of business.

The increase in gross written premiums during the nine month period ended September 30, 2022 was primarily attributable to an increase in premiums written in the automobile liability line of business, resulting

from new business writings and price increases in certain programs.

Ceded premiums decreased slightly during the three month period ended September 30, 2022 and increased slightly during the nine month period ended September 30, 2022, from the comparable periods in

American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.

However, during the three month period ended September 30, 2022, the

decrease in ceded premiums was primarily due to the decrease in the automobile physical damage line of business, coupled with a decrease in ceding rates for two large programs in the automobile liability line of business.

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

Gross written premiums at American Southern decreased $2.1 million, or 18.4%, during the three month period ended March 31, 2023 from the comparable period in 2022.

The decrease in gross written

premiums was primarily attributable to a decrease in premiums written in the automobile physical damage line of business due to a reduction in the number of agencies.

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

premiums written in the automobile liability line of business due to price increases in certain programs.

Ceded premiums decreased $0.1 million, or 7.4%, during the three month period ended March 31, 2023 from the comparable period in 2022.

American Southern’s ceded premiums are typically determined

as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.

The following presents American Southern’s net earned premiums by line of business for the three month period ended March 31, 2023 and the comparable period in 2022:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

2 unchanged sentences

General liability

Net earned premiums increased $0.3 million, or 1.9%, during the three month period ended September 30, 2022, and $3.5 million, or 6.9%, during the nine month period ended September 30, 2022, over

the comparable periods in 2021.

The increase in net earned premiums was primarily attributable to an increase in business writings and price increases in certain programs within the automobile liability line of business as previously mentioned.

Net earned premiums decreased $0.1 million, or 0.8%, during the three month period ended March 31, 2023 over the comparable period in 2022.

The decrease in net earned premiums was primarily

attributable to a decrease in earned premiums in the automobile physical damage line of business due to a reduction in the number of agencies as previously mentioned, partially offset by the increase in the automobile liability line of business.

Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

5 unchanged sentences

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

Insurance benefits and losses incurred at American Southern increased $0.4 million, or 3.3%, during the three month period ended September 30, 2022, and increased $3.0 million, or 8.9%, during the

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

As a percentage of earned premiums, insurance benefits and losses incurred were 68.2% in the three month period ended September 30, 2022, compared to 67.3% in the

three month period ended September 30, 2021.

For the nine month period ended September 30, 2022, this ratio increased to 68.0% from 66.7% in the comparable period in 2021.

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

periods ended September 30, 2022 was mainly due to severity of losses reported from programs within the automobile liability line of business.

Partially offsetting this increase was a decrease in the frequency of claims in the automobile physical

damage line of business.

Commissions and underwriting expenses decreased $0.3 million, or 5.3%, during the three month period ended September 30, 2022, and increased $0.9 million, or 6.1% during the nine month period ended

September 30, 2022, over the comparable periods in 2021.

As a percentage of earned premiums, underwriting expenses were 26.2% in the three month period ended September 30, 2022, compared to 28.1% in the three month period ended September 30, 2021.

For the nine month period ended September 30, 2022, this ratio decreased to 28.5% from 28.7% in the comparable period in 2021.

The decrease in the expense ratio during the three month and nine month periods ended September 30, 2022 was primarily

Insurance benefits and losses incurred at American Southern increased $2.2 million, or 20.8%, during the three month period ended March 31, 2023 over the comparable period in 2022.

percentage of earned premiums, insurance benefits and losses incurred were 73.6% in the three month period ended March 31, 2023, compared to 60.4% in the three month period ended March 31, 2022.

The increase in the loss ratio during the three

month period ended March 31, 2023 was primarily due to an increase in the frequency and severity of claims in the automobile liability line of business, as well as in the surety line of business.

Partially offsetting the increase in the loss

ratio was a decrease in losses related to the automobile physical damage line of business due to a decrease in exposure.

Commissions and underwriting expenses decreased $1.8 million, or 29.5%, during the three month period ended March 31, 2023, over the comparable period in 2022.

As a percentage of earned premiums,

underwriting expenses were 24.3% in the three month period ended March 31, 2023, compared to 34.3% in the three month period ended March 31, 2022.

The decrease in the expense ratio during the three month period ended March 31, 2023 was primarily

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

1 unchanged sentence

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

During the three month period ended March 31, 2023,

variable commissions at American Southern decreased by $1.1 million from the comparable period in 2022 due to more unfavorable loss experience from accounts subject to variable commissions.

Bankers Fidelity

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

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month period ended March 31, 2023 and the comparable period in 2022:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

Total expenses

Underwriting income (loss)

Underwriting income

Expense ratio

Combined ratio

Net earned premium revenue at Bankers Fidelity remained consistent during the three month period ended September 30, 2022, and decreased $0.2 million, or 0.3%, during the nine month period ended

September 30, 2022, from the comparable periods in 2021.

Gross earned premiums from the Medicare supplement line of business decreased $3.6 million, or 8.9%, during the three month period ended September 30, 2022, and $10.2 million, or 8.4%, during

the nine month period ended September 30, 2022, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.6 million, or 22.1%, during the three month period ended September 30, 2022, and

$1.8 million, or 23.7%, during the nine month period ended September 30, 2022, over the comparable periods in 2021, primarily as a result of new sales of the company’s group health and individual cancer products.

Net earned premium revenue at Bankers Fidelity decreased $0.8 million, or 2.9%, during the three month period ended March 31, 2023, from the comparable period in 2022.

Gross earned premiums from

the Medicare supplement line of business decreased $3.7 million, or 9.8%, during the three month period ended March 31, 2023, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.3

million, or 10.3%, during the three month period ended March 31, 2023, over the comparable period in 2022, primarily as a result of new sales of the company’s group health products and individual cancer product.

Gross earned premiums from the

life insurance line of business increased $1.6 million, or 68.0%, during the three month period ended September 30, 2022, and increased $4.4 million, or 56.6%, during the nine month period ended September 30, 2022, over the comparable periods in

2021, primarily due to an increase in the group life products premium.

Partially offsetting this increase was a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy

obligations exceeding the level of new individual life sales.

Premiums ceded decreased $1.3 million, or 8.0%, during the three month period ended September 30, 2022 and $3.8 million, or 7.6%, during the nine month period ended September 30, 2022,

from the comparable periods in 2021.

The decrease in ceded premiums for the three month and nine month periods ended September 30, 2022 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred decreased $4.8 million, or 20.5%, during the three month period ended September 30, 2022, and $8.5 million, or 12.7%, during the nine month period ended September 30, 2022, from

the comparable periods in 2021.

As a percentage of earned premiums, benefits and losses were 64.7% in the three month period ended September 30, 2022, compared to 81.3% in the three month period ended September 30, 2021.

For the nine month period

ended September 30, 2022, this ratio decreased to 66.8% from 76.4% in the comparable period in 2021.

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

ratio in the Medicare supplement line of business as a result of improved rate adequacy, partially offset by an increase in the loss ratio in the group lines of business.

Commissions and underwriting expenses increased $1.0 million, or 10.7%, during the three month period ended September 30, 2022, and decreased $1.6 million, or 5.7%, during the nine month period

ended September 30, 2022, over the comparable periods in 2021.

As a percentage of earned premiums, underwriting expenses were 34.4% in the three month period ended September 30, 2022, compared to 31.1% in the three month period ended September 30,

For the nine month period ended September 30, 2022, this ratio decreased to 30.0% from 31.7% in the comparable period in 2021.

The increase in the expense ratio for the three month period ended September 30, 2022 was primarily due to an

increase in commission expense and insurance servicing costs resulting from new sales within the group life line of business.

The decrease in the expense ratio for the nine month period ended September 30, 2022 was primarily due to the level of

additions to deferred acquisition costs ("DAC") exceeding the amortization of DAC.

life insurance line of business increased $1.1 million, or 23.3%, during the three month period ended March 31, 2023 over the comparable period in 2022 due to an increase in the group life products premium.

Partially offsetting the increase in

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

Premiums ceded decreased $1.5 million, or 9.6%, during the three month period ended March 31, 2023, from the comparable period in 2022.

The decrease in ceded premiums for the three month period ended March 31, 2023 was due to a decrease in

Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred decreased $2.9 million, or 14.0%, during the three month period ended March 31, 2023, from the comparable period in 2022.

As a percentage of earned

premiums, insurance benefits and losses incurred were 61.6% in the three month period ended March 31, 2023, compared to 69.6% in the three month period ended March 31, 2022.

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

31, 2023 was primarily due to improved rate adequacy and a decrease in the number of incurred claims within the Medicare supplement line of business.

This decrease was marginally offset by increased loss ratios on the other health lines of

Commissions and underwriting expenses increased $2.0 million, or 22.6%, during the three month period ended March 31, 2023, over the comparable period in 2022.

As a percentage of earned

premiums, underwriting expenses were 37.1% in the three month period ended March 31, 2023, compared to 29.4% in the three month period ended March 31, 2022.

The increase in the expense ratio for the three month period ended March 31, 2023 was

primarily due to an increase in administrative costs related to the growth in the group lines of business, coupled with increased Medicare supplement servicing costs.

Net Investment Income and Realized Gains

Investment income increased $0.5 million, or 23.6%, during the three month period ended September 30, 2022, and $1.0 million, or 15.3%, during the nine month period ended September 30, 2022, over

the comparable periods in 2021.

The increase in investment income in each of the three month and nine month periods ended September 30, 2022, from the comparable periods in 2021, was primarily attributable to the increase in the equity in earnings

from investments in the Company's limited liability companies of $0.3 million and $0.4 million, respectively.

Also, contributing to the increase in investment income during the nine month period ended September 30, 2022 from the comparable period

in 2021 was prepayment income of $0.3 million related to the redemption of certain fixed maturities.

The Company had net realized investment gains of $0.1 million during the three month period ended September 30, 2022, compared to net realized investment gains of $0.3 million during the three

month period ended September 30, 2021.

The Company had net realized investment gains of nil during the nine month period ended September 30, 2022 and net realized investment gains of $0.5 million during the nine month period ended September 30,

The net realized investment gains during the three month and nine month periods ended September 30, 2022 resulted primarily from the disposition of several of the Company's investments in fixed maturity securities, partially offset by the

redemption of certain fixed maturity securities.

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

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

Investment income increased $0.2 million, or 8.6%, during the three month period ended March 31, 2023, from the comparable period in 2022.

The increase in investment income was primarily

attributable to a rising interest rate environment which has contributed to an increase in income received within the investment portfolio.

The Company had net realized investment losses of nil during the three month period ended March 31, 2023, compared to net realized investment losses of $0.01 million during the three month period

ended March 31, 2022.

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

Management continually evaluates the Company’s

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

Unrealized Gains (Losses) on Equity Securities

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

Company recognized net unrealized losses on equity securities of $2.8 million during the three month period ended September 30, 2022 and unrealized gains on equity securities of $0.7 million during the three month period ended September 30, 2021.

The Company recognized net unrealized losses on equity securities of $5.5 million during the nine month period ended September 30, 2022 and unrealized gains on equity securities of $5.5 million during the nine month period ended September 30,

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

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

The Company recognized net

unrealized losses on equity securities of $2.4 million during the three month period ended March 31, 2023 and unrealized gains on equity securities of $2.2 million during the three month period ended March 31, 2022.

Changes in unrealized gains

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

Interest Expense

Interest expense increased $0.2 million, or 50.7%, during the three month period ended September 30, 2022, and $0.3 million, or 24.1%, during the nine month period ended September 30, 2022, from

the comparable periods in 2021.

Changes in interest expense were primarily due to changes in the London Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior

Subordinated Debentures”) and the revolving credit facility are directly related to LIBOR.

The Company is preparing for the expected discontinuation of LIBOR by identifying, assessing and monitoring risks associated with LIBOR transition.

Preparation includes taking steps to update operational processes to support alternative reference rates and models, as well as evaluating legacy contracts for any changes that may be required, including the determination of applicable fallbacks.

Interest expense increased $0.4 million, or 111.9%, during the three month period ended March 31, 2023, from the comparable period in 2022.

Changes in interest expense were primarily due to

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

The Company is

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

Preparation includes taking steps to update operational processes to support alternative reference rates and

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

Liquidity and Capital Resources

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

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

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

the sale and maturity of its invested assets.

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

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

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

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

proceeds from the sale and maturity of its invested assets.

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

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

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

The principal cash needs of the Parent are for the payment

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

September 30, 2022, the Parent had approximately $3.8 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $5.7 million for the nine month period ended September 30, 2022, compared to statutory net income of $0.8 million for the nine

month period ended September 30, 2021.

The principal cash needs of the Parent are for the

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

At March 31, 2023, the Parent had approximately $3.8 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $1.1 million for the three month period ended March 31, 2023, compared to statutory net income of $1.3 million for the three

month period ended March 31, 2022.

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

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

determined under GAAP.

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

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

The Company’s life

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

The Company’s life and

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

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

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recognizing realized investment gains of the individual insurance subsidiaries.

At September 30, 2022, American Southern had $53.0 million of statutory capital and surplus and Bankers Fidelity had $35.3 million of statutory capital and surplus.

At March 31, 2023, American Southern had $53.3 million of statutory capital and surplus and Bankers Fidelity had $32.4 million of statutory capital and surplus.

2023, dividend payments by the Parent’s insurance subsidiaries in excess of $8.7 million would require prior approval.

Through September 30, 2022, the Parent received dividends of $4.5 million from its subsidiaries.

Through March 31, 2023, the Parent received dividends of $1.8 million from its subsidiaries.

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

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

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

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

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

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

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

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The margin ranges from 4.00% to 4.10%.

At September 30, 2022, the effective interest rate was

At March 31, 2023, the effective interest rate was 8.97%.

The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities.

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

September 30, 2022, the Company has not made such an election.

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

or potential future financing arrangements.

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

31, 2023, the Company has not made such an election.

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

existing or potential future financing arrangements.

At March 31, 2023, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

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

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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.

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

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

and are redeemable solely at the

Company’s option.

The Series D Preferred Stock is not currently convertible.

At September 30, 2022, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3 million.

At March 31, 2023, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3 million.

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

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

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.0 million, as of September 30, 2022.

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $7.9 million, as of March 31, 2023.

Additional FHLB stock

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

As of September 30, 2022, BFLIC has pledged bonds having an amortized cost of $7.3 million to the FHLB.

As of March 31, 2023, BFLIC has pledged bonds having an amortized cost of $7.8 million to the FHLB.

BFLIC may be required to post additional acceptable forms of

collateral for any borrowings that it makes in the future from the FHLB.

As of September 30, 2022, BFLIC does not have any outstanding borrowings from the FHLB.

As of March 31, 2023, BFLIC does not have any outstanding borrowings from the FHLB.

On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with Truist Bank as the lender (the “Lender”).

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

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

Cash and cash equivalents decreased from $24.8 million at December 31, 2021 to $21.9 million at September 30, 2022.

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

September 30, 2022 was primarily attributable to net cash used in operating activities of $2.2 million.

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

of investment purchases exceeding investment sales and maturity of securities.

As of March 31, 2023, the Company had outstanding borrowings of $3.0 million under the Credit Agreement.

Cash and cash equivalents decreased from $28.9 million at December 31, 2022 to $13.5 million at March 31, 2023.

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

31, 2023 was primarily attributable to net cash used in operating activities of $11.6 million.

Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $4.7 million primarily as a result of

investment purchases exceeding investment sales and maturity of securities.

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

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

What changed 10-Q

Item 1. Financial Statements