What changed in this filing

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Item 1. Financial Statements

2023-08-08 compared with 2023-06-30 · 387 added, 279 removed, 687 unchanged (49% of the section changed)

50 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CO NSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share data)

CONDENSED CONSOLIDATED STATEMENTS OF

Dollars in thousands, except per share data)

Three Months Ended

Six Months Ended

Insurance premiums, net

Net investment income

Realized investment losses, net

Realized investment gains (losses), net

Unrealized gains (losses) on equity securities, net

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Net income (loss) applicable to common shareholders

Earnings (loss) per common share (basic and diluted)

Earnings (loss) per common share (basic)

Earnings (loss) per common share (diluted)

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

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

In thousands)

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

Dollars in thousands)

Three Months Ended

Six Months Ended

Net income (loss)

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Related income tax effect

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

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

Related income tax effect

3 unchanged sentences

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’ EQUITY

In thousands except share and per share data)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Dollars in thousands except share data)

Three Months Ended

Six Months Ended

Preferred stock:

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In thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

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

Adjustments to reconcile net 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

Losses (earnings) from equity method investees

Realized investment (gains) losses, net

Unrealized losses on equity securities, net

Losses from equity method investees

Compensation expense related to share awards

Depreciation and amortization

Deferred income tax (benefit) expense

Decrease in receivables, net

Decrease in insurance reserves and policyholder funds

Deferred income tax benefit

Increase in receivables, net

Increase in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

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CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of dividends on common stock

Treasury stock acquired — net employee share-based compensation

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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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Dollars in thousands, except per share amounts)

Basis of Presentation

Basis of Presentation and Significant Accounting Policies

accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”).

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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.

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

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 adopted the guidance as of June 30, 2023.

The adoption of the guidance had no significant impact on the Company’s financial condition and results of

Financial Instruments – Credit Losses.

In June 2016, the FASB issued accounting standards update (“ASU”) No.

2016-13, Financial

Instruments – Credit Losses (Topic 326):

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses

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

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

The estimate of expected

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

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

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

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

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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

The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at January 1, 2023 and June 30, 2023, and the changes in the allowance for estimated

uncollectible reinsurance for the six months ended June 30, 2023.

At and for the six months ended June 30, 2023

(in thousands)

Reinsurance Recoverables, Net

of Allowance for Estimated

Reinsurance Recoverables,

Net of Allowance for Estimated

Uncollectible Reinsurance

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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

The following table presents the balances of insurance premiums and other, net of the allowance for expected credit losses, at January 1, 2023 and June 30, 2023, and the changes in the allowance for

doubtful accounts/expected credit losses for the six months ended June 30, 2023.

At and for the six months ended June 30, 2023

(in thousands)

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Allowance for Doubtful

Accounts/Expected Credit Losses

Accounts/Expected Credit

Balance, beginning of period

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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.

On January 1, 2023, the Company adopted accounting standards update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“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).

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.

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

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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.

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

cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of June 30, 2023

and December 31, 2022.

Fixed maturities were comprised of the following:

March 31, 2023

Allowance for

June 30, 2023

Credit Losses

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Bonds having an amortized cost of $ 11,766

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

and $ 12,333 and included in the tables above were on deposit with insurance regulatory authorities as of June 30, 2023 and December 31,

2022, respectively, in accordance with statutory requirements.

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,

Additionally, bonds having an amortized cost of $ 7,548 and $ 7,221 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at June 30, 2023 and December 31,

2022, respectively.

Equity securities were comprised of the following:

March 31, 2023

June 30, 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 March 31, 2023 and December 31, 2022 by contractual

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

March 31, 2023

June 30, 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 March 31, 2023 and December 31, 2022.

March 31, 2023

unrealized loss position as of June 30, 2023 and December 31, 2022.

June 30, 2023

Less than 12 months

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Total temporarily impaired securities

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.

Analysis of Securities in Unrealized Loss Positions

As of June 30, 2023 and December 31, 2022, there were 248

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 sectors.

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.

For 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 interest.

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.

For 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.

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

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

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 June 30, 2023.

The following tables summarize realized investment gains (losses) for the three month and six month periods ended June 30, 2023 and 2022.

Three Months Ended

March 31, 2023

June 30, 2023

Invested Assets

Realized investment losses, net

Three Months Ended

March 31, 2022

June 30, 2022

Invested Assets

Realized investment gains, net

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.

Six Months Ended

June 30, 2023

Invested Assets

Realized investment gains, net

Six Months Ended

June 30, 2022

Invested Assets

Realized investment gains, net

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

periods ended June 30, 2023 and 2022.

Three Months Ended

Six Months Ended

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

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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 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.

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 $ 6,724 and $ 5,386 as of June 30, 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 June 30, 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 $ 6,610 and $ 6,624 , as of March 31, 2023 and December 31, 2022,

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 $ 7,962 and $ 6,624 , as of June 30, 2023 and December 31, 2022,

respectively.

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.

As of June 30, 2023 and December 31, 2022, the Company had outstanding commitments totaling $ 4,518 and $ 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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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.

As of June 30, 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:

of June 30, 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 March 31, 2023

carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of June 30, 2023

and December 31, 2022.

March 31, 2023

June 30, 2023

December 31, 2022

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software is substantially ready for its intended use.

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 incurred and capitalized implementation costs of $ 628 and $ 958 during the six months ended June 30, 2023 and 2022, respectively.

As a result, the Company has capitalized $ 3,650 in implementation costs in other assets within its condensed consolidated balance sheet as of June 30, 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.

Accordingly, the Company has no t recorded any amortization expense related to software implementation costs for the six months ended June 30, 2023.

Insurance Reserves for Losses and Claims

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

roll-forward of insurance reserves for losses and claims for the six months ended June 30, 2023 and 2022 is as follows:

Six Months Ended

Beginning insurance reserves for losses and claims, gross

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information becomes available.

Accordingly, the Company generally experiences reserve redundancies when analyzing the development of prior year losses in a current period.

Prior years’ development was primarily the result of unfavorable development in the property

and casualty operations due to inflationary factors.

Prior years’ development was primarily the result of favorable development in the property

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

Prior years’ development was primarily the result of 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:

Three Months Ended

Six Months Ended

Total incurred losses

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Total insurance benefits and losses incurred

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.

As expected, discontinuation of LIBOR occurred on June 30, 2023 (“LIBOR Cessation Date”) and will affect the rates

used in the Company’s Credit Arrangements after that date.

On March 15, 2022, the U.S.

Congress enacted the Adjustable Interest Rate LIBOR Act (the “LIBOR Act”) to address LIBOR’s cessation and to establish a clear and uniform process for

replacing the overnight and one-, three-, six- and 12-month tenors of USD LIBOR in existing contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate (“tough legacy contracts”).

Further, the Board

of Governors of the Federal Reserve System (the “Board”) has issued regulations, 12 C.F.R.

Part 253, “Regulations Implementing the Adjustable Interest Rate LIBOR Act (Regulation ZZ)” together with the LIBOR Act, constitute the “Federal LIBOR

Legislation,” which relates to the LIBOR transition.

On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit

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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 %.

On June 28, 2023, the Company received a LIBOR cessation notice from the Lender

detailing the replacement rates that would be used effective immediately after the LIBOR Cessation Date of June 30, 2023, as provided for in the Credit Agreement.

The use of an alternate benchmark rate selected by the Lender (“Benchmark

Replacement”) in place of LIBOR will not be used until the first reset date under the terms of the Credit Agreement following the LIBOR Cessation Date.

The Benchmark Replacement that will be used is the Term Secured Overnight Financing Rate

(“SOFR”) published by CME Group Benchmark Administration Limited (“CME”) and provides an indicative, forward-looking measurement of the SOFR based on market expectations implied from leading derivatives markets.

The Credit Agreement requires the Company to comply with certain covenants,

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

As of June 30, 2023, the Company had outstanding borrowings of $ 3,000 under the Credit Agreement.

Junior Subordinated Debentures

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(ii) investing the gross proceeds of the

Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic American;

Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of the Company;

and (iii) engaging in those activities necessary or incidental thereto.

On May 1, 2023, the Company received notice from its trustee and administrator of the statutory business trusts, that Federal LIBOR Legislation (discussed above) provides that the benchmark rate for tough legacy

contracts, such as the statutory trusts contracts, will be replaced by operation of law on the first London banking day after June 30, 2023 with a benchmark replacement selected by the Board, as adjusted by the applicable spread adjustment

recommended by the Board.

The trustee and administrator has determined that our contracts will be replaced with 3-month CME Term

SOFR plus applicable tenor spread of 0.26161 percent.

The financial structure of each of

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

Atlantic American Statutory Trust I and II as of June 30, 2023 was as follows:

Atlantic American

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JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed March 31 , 2023

Principal amount owed June 30 , 2023

Treasury debt (3)

Net balance March 31 , 2023

Net balance June 30 , 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

March 31, 2023

June 30 , 2023

Average Shares

(In thousands)

Basic Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Diluted Earnings Per Common Share:

Effect of Series D preferred stock

Net income applicable to common shareholders

Three Months Ended

June 30 , 2022

Average Shares

(In thousands)

Basic and Diluted Loss Per Common Share:

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Net loss applicable to common shareholders

Three Months Ended

March 31, 2022

Six Months Ended

Average Shares

(In thousands)

Basic Earnings Per Common Share:

Basic and Diluted Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

Diluted Earnings Per Common Share:

Effect of Series D preferred stock

Six Months Ended

Average Shares

(In thousands)

Basic and Diluted Earnings Per Common Share:

Less preferred stock dividends

Net income applicable to common shareholders

The assumed conversion of the Company’s Series D preferred stock was excluded from the 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

The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss) per common share calculation for all periods presented, except for the three month period ended June 30, 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 follows:

Three Months Ended

Six Months Ended

Federal income tax provision at statutory rate of 21 %

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Three Months Ended

Six Months Ended

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 three months ended March 31, 2023 and March 31, 2022 was $ 254 .

Lease expense reported for the six months ended June 30, 2023 and June 30, 2022 was $ 507 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Three Months Ended

Six Months Ended

Other information on operating leases:

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

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

As of June 30, 2023, the Company has no operating leases that

have not yet commenced.

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Regulatory Matters

Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to regulation and supervision in the jurisdictions in

which they do business.

Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to

regulation and supervision in the jurisdictions in which they do business.

Statutes typically delegate regulatory, supervisory, and administrative powers to state insurance commissioners.

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

state insurance departments with respect to various matters.

I n November 2021, the Company was made aware by a state regulatory authority of alleged violations relating to certain sales of insurance policies and that the Company may be subject to

regulatory action, including fines.

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

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 the opinion of management, any such known regulatory matters are not expected to have a material effect on the financial

condition or results of operations of the Company.

Segment Information

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

principal business units, each focusing on specific products.

The Parent’s primary

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

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

Each business unit is managed

independently and is evaluated on its individual performance.

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

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 2023 and 2022.

American Southern

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Three Months Ended

Six Months Ended

American Southern

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Total revenue

In come (Loss) Before Income Taxes

Three Months Ended

Income (Loss) Before Income Taxes

Six Months Ended

American Southern

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Income (loss) before income taxes

Subsequent Events

On August 8, 2023 ,

the Company’s board of directors declared an annual cash dividend of $ 0.02 per share of common stock that is payable to shareholders of

record as of the close of business on August 22, 2023 .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

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

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

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

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Overall Corporate Results

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:

The following presents the Company’s revenue, expenses and net income (loss) for the three month and six month periods ended June 30, 2023 and the comparable periods in 2022:

Three Months Ended

(In thousands)

Six Months Ended

Insurance premiums, net

Net investment income

Realized investment losses, net

Realized investment gains (losses), net

Unrealized gains (losses) on equity securities, net

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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:

A reconciliation of net income (loss) to operating income for the three month and six month periods ended June 30, 2023 and the comparable periods in 2022 is as follows:

Three Months Ended

Six Months Ended

Reconciliation of Non-GAAP Financial Measure

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Income tax expense (benefit)

Realized investment losses, net

Realized investment gains (losses), net

Unrealized (gains) losses on equity securities, net

Non-GAAP operating income (loss)

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.

Non-GAAP operating income

On a consolidated basis, the Company had net income of $1.7 million, or $0.08 per diluted share, for the three month period ended June 30, 2023, compared to net loss of $1.7 million, or $0.09 per

diluted share, for the three month period ended June 30, 2022.

The Company had net income of $0.3 million, or $0.00 per diluted share, for the six month period ended June 30, 2023, compared to net income of $1.2 million, or $0.05 per diluted

share, for the six month period ended June 30, 2022.

The increase in net income for the three month period ended June 30, 2023 was primarily the result of a $5.4 million increase in unrealized gains on equity securities due to fluctuations in

market values in addition to more favorable loss experience in the life and health operations, from the comparable period in 2022.

The decrease in net income for the six month period ended June 30, 2023 was primarily attributable to ancillary

costs related to the new actuarial valuation system, coupled with an increase in administrative costs related to the growth in the group lines of business within the life and health operations.

For the three month period ended June 30, 2023, premium revenue decreased $1.0 million, or 2.1%, to $46.1 million from $47.1 million in the comparable period in 2022.

For the six month period

ended June 30, 2023, premium revenue decreased $2.0 million, or 2.1%, to $92.2 million from $94.1 million in the comparable period in 2022.

The decrease in premium revenue was primarily attributable to a decrease in premium revenue in the

automobile physical damage line of business in the property and casualty operations.

Also contributing to this decrease was a decrease in the Medicare supplement insurance premiums in the life and health operations.

Operating income decreased $1.2 million in the three month period ended June 30, 2023 from the three month period ended June 30, 2022.

For the six month period ended June 30, 2023, operating

income decreased $2.2 million from the comparable period in 2022.

The decrease in operating income for the three and six month periods ended June 30, 2023 was primarily attributable to ancillary costs related to the new actuarial valuation

system, coupled with an increase in administrative costs related to the growth in the group lines of business within the life and health operations, as mentioned above.

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

American Southern

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

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2023 and the comparable periods in 2022:

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Commissions and underwriting expenses

Underwriting income

Underwriting income (loss)

Expense ratio

Combined ratio

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:

Gross written premiums at American Southern decreased $1.5 million, or 3.9%, during the three month period ended June 30, 2023 and decreased $3.7 million, or 7.1%, during the six month period

ended June 30, 2023, from the comparable periods in 2022.

The decrease in gross written premiums during the three month and six month periods ended June 30, 2023 was primarily attributable to the 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 $0.2 million, or 14.2%, during the three month period ended June 30, 2023 and decreased $0.4 million, or 10.9%, during the six month period ended June 30, 2023, from the

comparable periods 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 and six month periods ended June 30, 2023 and the comparable periods in 2022:

Three Months Ended

Six Months Ended

(In thousands)

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General liability

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.

Net earned premiums decreased $0.9 million, or 4.7%, during the three month period ended June 30, 2023, and $1.0 million, or 2.8%, during the six month period ended June 30, 2023, over the

comparable periods 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.

The performance of an insurance company is often measured by its combined ratio.

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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 $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.

During periods in which the loss ratio decreases,

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

During the three month period ended March 31, 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.

Insurance benefits and losses incurred at American Southern decreased $0.5 million, or 3.5%, during the three month period ended June 30, 2023, and increased $1.7 million, or 6.9%, during the six

month period ended June 30, 2023, over the comparable periods in 2022.

As a percentage of earned premiums, insurance benefits and losses incurred were 75.8% in the three month period ended June 30, 2023, compared to 74.8% in the three month

period ended June 30, 2022.

For the six month period ended June 30, 2023, this ratio increased to 74.7% from 67.9% in the comparable period in 2022.

The increase in the loss ratio during the three month and six month periods ended June 30, 2023

was mainly 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 $0.4 million, or 8.2%, during the three month period ended June 30, 2023, and $2.1 million, or 20.0% during the six month period ended June 30,

2023, over the comparable periods in 2022.

As a percentage of earned premiums, underwriting expenses were 24.5% in the three month period ended June 30, 2023, compared to 25.4% in the three month period ended June 30, 2022.

For the six month

period ended June 30, 2023, this ratio decreased to 24.4% from 29.7% in the comparable period in 2022.

The decrease in the expense ratio during the three month and six month periods ended June 30, 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.

During periods in which the loss ratio decreases, commissions and underwriting

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

Bankers Fidelity

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:

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2023 and the comparable periods in

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Combined ratio

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 $1.1 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 $0.2 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.

Net earned premium revenue at Bankers Fidelity decreased $0.1 million, or 0.4%, during the three month period ended June 30, 2023, and $1.0 million, or 1.7%, during the six month period ended

June 30, 2023, from the comparable periods 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 June 30, 2023, and $7.4 million, or 9.8%, during the six

month period ended June 30, 2023, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $1.2 million, or 39.2%, during the three month period ended June 30, 2023, and $1.5 million, or

24.7%, during the six month period ended June 30, 2023, over the comparable periods in 2022, primarily as a result of new sales of the company’s group health and individual cancer products.

Gross earned premiums from the life insurance line of

business increased $0.9 million, or 26.2%, during the three month period ended June 30, 2023, and increased $2.0 million, or 24.5%, during the six month period ended June 30, 2023, over the comparable periods in 2022, 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 $1.5 million, or 9.5%, during the three month period ended June 30, 2023 and $3.0 million, or 9.5%, during the six month period ended June 30, 2023, from the comparable periods in 2022.

decrease in ceded premiums for the three month and six month periods ended June 30, 2023 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Insurance benefits and losses incurred decreased $2.9 million, or 15.5%, during the three month period ended June 30, 2023, and $5.8 million, or 14.7%, during the six month period ended June 30,

2023, from the comparable periods in 2022.

As a percentage of earned premiums, benefits and losses were 56.1% in the three month period ended June 30, 2023, compared to 66.1% in the three month period ended June 30, 2022.

For the six month

period ended June 30, 2023, this ratio decreased to 58.9% from 67.9% in the comparable period in 2022.

The decrease in the loss ratio for the three month and six month periods ended June 30, 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 business.

Commissions and underwriting expenses increased $3.5 million, or 47.1%, during the three month period ended June 30, 2023, and $5.4 million, or 33.8%, during the six month period ended June 30,

2023, over the comparable periods in 2022.

As a percentage of earned premiums, underwriting expenses were 38.5% in the three month period ended June 30, 2023, compared to 26.1% in the three month period ended June 30, 2022.

For the six month

period ended June 30, 2023, this ratio increased to 37.8% from 27.8% in the comparable period in 2022.

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

Investment income remained consistent during the three month period ended June 30, 2023, and increased $0.2 million, or 4.7%, during the six month period ended June 30, 2023, over the comparable

period in 2022.

The increase in investment income in the six month period ended June 30, 2023, from the comparable periods in 2022, 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 gains of $0.1 million during the three month period ended June 30, 2023, compared to net realized investment losses of $0.1 million during the three month

period ended June 30, 2022.

The Company had net realized investment gains of $0.1 during the six month period ended June 30, 2023 and net realized investment losses of $0.1 million during the six month period ended June 30, 2022.

realized investment gains during the three month and six month periods ended June 30, 2023 resulted primarily from the disposition of several of the Company’s investments in fixed maturity securities.

The net realized investment losses during the

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

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

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

Unrealized Gains (Losses) on Equity Securities

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

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.

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.

The Company recognized net unrealized gains on equity securities of $0.5 million during the three month period ended June 30, 2023 and unrealized losses on equity securities of $4.9 million during the three month period ended June 30, 2022.

Company recognized net unrealized losses on equity securities of $1.9 million during the six month period ended June 30, 2023 and unrealized losses on equity securities of $2.7 million during the six month period ended June 30, 2022.

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

Interest Expense

Interest expense increased $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.

Interest expense increased $0.4 million, or 94.9%, during the three month period ended June 30, 2023, and $0.8 million, or 102.7%, during the six month period ended June 30, 2023, from the

comparable periods 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”) and the revolving credit facility are directly related to LIBOR.

As expected, discontinuation of LIBOR occurred on June 30, 2023, which will affect the rates used in the Company’s credit arrangements after that date.

Congress enacted the Adjustable Interest Rate LIBOR Act (the “LIBOR Act”) to address LIBOR’s cessation and the Board of Governors of the Federal Reserve System (the “Board”) has issued regulations, 12 C.F.R.

Part 253, “Regulations

Implementing the Adjustable Interest Rate LIBOR Act (Regulation ZZ)” together with the LIBOR Act, constitute the “Federal LIBOR Legislation,” which relates to the LIBOR transition.

The trustee and administrator of the Junior Subordinated

Debentures has informed the Company that according to these laws, they have replaced the LIBOR rate for the debentures with a benchmark replacement rate and applicable spread adjustment recommended by the Board.

For more details about the LIBOR

transition see Note 7 (Credit Arrangements).

Liquidity and Capital Resources

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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.

future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed for the next 12 months and beyond.

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

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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.

At June 30, 2023, the Parent had approximately $5.3 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $4.1 million for the six month period ended June 30, 2023, compared to statutory net income of $2.2 million for the six month

period ended June 30, 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

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

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

The Company’s life and

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

The Company’s life and health

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

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

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recognizing realized investment gains of the individual insurance subsidiaries.

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.

At June 30, 2023, American Southern had $52.0 million of statutory capital and surplus and Bankers Fidelity had $35.7 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 March 31, 2023, the Parent received dividends of $1.8 million from its subsidiaries.

Through June 30, 2023, the Parent received dividends of $3.6 million from its subsidiaries.

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

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The margin ranges from 4.00% to 4.10%.

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.

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

At June 30, 2023, the effective interest rate was 9.45%.

As previously discussed, in Footnote 7 (Credit Arrangements) and in the Interest Expense section above, LIBOR was discontinued on June 30, 2023 and a new benchmark rate to be used after June 30, 2023, has been determined by the trustee and

administrator of the statutory trusts based on a benchmark replacement selected by the Board.

The Benchmark Replacement that will be used is the Term Secured Overnight Financing Rate (“SOFR”) published by CME Group Benchmark Administration

Limited (“CME”) and provides an indicative, forward-looking measurement of the SOFR based on market expectations implied from leading derivatives markets.

It has been determined that our contracts will be replaced with 3-month CME Term SOFR plus

applicable tenor spread of 0.26161 percent.

trust preferred securities.

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

trust preferred securities.

As of June 30, 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

the Company’s controlling shareholder.

At June 30, 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 the

Company’s controlling shareholder.

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

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The Series D Preferred Stock is not currently convertible.

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

At June 30, 2023, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.2 million.

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

As a member, BFLIC can obtain access to

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

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $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 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 March 31, 2023, BFLIC does not have any outstanding borrowings from the FHLB.

As a member, BFLIC

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

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $7.8 million, as of June 30, 2023.

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

As of June 30, 2023, BFLIC has pledged bonds having an amortized cost of $7.5 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 June 30, 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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million revolving credit facility that matures on April 12, 2024.

Under the Credit Agreement, the Company will pay interest on the unpaid principal balance of outstanding revolving loans at the LIBOR Rate (as defined in the Credit Agreement) plus

Under the Credit Agreement, the Company paid 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.

On June 28, 2023, the Company received notification from the Lender detailing replacement rates that would be used after the LIBOR cessation date of June 30, 2023, as provided in the Credit

Please see Note 7 (Credit Agreements) for more details about the LIBOR replacement.

The Credit Agreement requires the Company to comply with certain covenants, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35%

of the Company’s consolidated capitalization at any time.

The Credit Agreement also contains customary representations and warranties and events of default.

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

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

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

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

As of March 31, 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

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

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

Upon an event of default, the

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

As of June 30, 2023, the Company had outstanding borrowings of $3.0 million under the Credit

Cash and cash equivalents decreased from $28.9 million at December 31, 2022 to $24.2 million at June 30, 2023.

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

2023 was primarily attributable to net cash used in operating activities of $4.9 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

Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $0.7 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 financing.

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

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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