What changed in this filing

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Item 1. Financial Statements

2023-11-13 compared with 2023-08-08 · 369 added, 338 removed, 736 unchanged (49% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30,

Cash and cash equivalents

47 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Insurance premiums, net

Net investment income

Realized investment gains (losses), net

Unrealized gains (losses) on equity securities, net

Realized investment gains, net

Unrealized losses on equity securities, net

Total revenue

15 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE LOSS

Dollars in thousands)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss):

Other comprehensive loss:

Available-for-sale fixed maturity securities:

Gross unrealized holding gains (losses) arising in the period

Gross unrealized holding losses arising in the period

Related income tax effect

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

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

Related income tax effect

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Total other comprehensive loss, net of tax

Total comprehensive loss

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

ATLANTIC AMERICAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’ EQUITY

Dollars in thousands except share data)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Preferred stock:

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Balance, end of period

Accumulated other comprehensive income (loss):

Accumulated other comprehensive loss:

Balance, beginning of period

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Balance, end of period

20 unchanged sentences

In thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Amortization of (additions to) acquisition costs, net

Realized investment (gains) losses, net

Realized investment gains, net

Unrealized losses on equity securities, net

Losses from equity method investees

Losses (earnings) from equity method investees

Compensation expense related to share awards

2 unchanged sentences

Increase in receivables, net

Increase in insurance reserves and policyholder funds

(Decrease) increase in insurance reserves and policyholder funds

Decrease in accounts payable and accrued expenses

37 unchanged sentences

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 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.

The Company’s financial condition and results of operations and cash flows as of and for the three month and nine month periods ended September 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

13 unchanged sentences

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

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 operations.

Financial Instruments – Credit Losses.

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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 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

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

uncollectible reinsurance for the nine months ended September 30, 2023.

At and for the nine

months ended September 30, 2023

(in thousands)

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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 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

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

for doubtful accounts/expected credit losses for the nine months ended September 30, 2023.

At and for the nine months ended September 30, 2023

(in thousands)

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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

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

and December 31, 2022.

Fixed maturities were comprised of the following:

June 30, 2023

September 30, 2023

Credit Losses

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Bonds having an amortized cost of $ 11,778

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

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

31, 2022, respectively, in accordance with statutory requirements.

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,

Additionally, bonds having an amortized cost of $ 6,883 and $ 7,221 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at September 30, 2023 and December

31, 2022, respectively.

Equity securities were comprised of the following:

June 30, 2023

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

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

June 30, 2023

September 30, 2023

December 31, 2022

5 unchanged sentences

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 June 30, 2023 and December 31, 2022.

June 30, 2023

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

September 30, 2023

Less than 12 months

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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.

As of September 30, 2023 and December 31, 2022, there were 251 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.

drivers of the declines are due to general market drivers, such as the recent increases 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

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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.

In addition, 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.

The Company had no ACL on its available-for-sale fixed maturities as of September 30, 2023.

The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2023 and 2022.

Three Months Ended

June 30, 2023

September 30, 2023

Invested Assets

Realized investment losses, net

Realized investment gains, net

Three Months Ended

June 30, 2022

September 30, 2022

Invested Assets

Realized investment gains, net

Six Months Ended

June 30, 2023

Nine Months Ended

September 30, 2023

Invested Assets

Realized investment gains, net

Six Months Ended

June 30, 2022

Nine Months Ended

September 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.

Realized investment gains (losses), net

The following table presents the change in unrealized losses related to equity securities still held for the three month and nine month periods

ended September 30, 2023 and 2022.

Three Months Ended

Six Months Ended

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

September 30,

Nine Months Ended

September 30,

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

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

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

Variable Interest Entities

1 unchanged sentence

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

The Company’s VIE interests, carried as a part of other invested assets, totaled $ 6,398 and $ 5,386 as of September 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.

as of September 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 $ 7,962 and $ 6,624 , as of June 30, 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 $ 7,636 and $ 6,624 , as of September 30, 2023 and December 31,

2022, respectively.

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

As of September 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.

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prices included in Level 1, for an asset or liability or prices for similar assets or liabilities.

The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S.

Treasury securities, U.S.

The Company’s financial instruments valued using Level 2 criteria include most of its fixed maturities, which consist of U.S.

securities, U.S.

Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks.

In determining fair value measurements of its fixed

maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers.

Prices for the majority of the Company’s Level 2

fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g.

interest rates, yield curves, prepayment

speeds, default rates, loss severities) or can be corroborated by observable market data.

In determining fair value measurements of its fixed maturities

and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers.

Prices for the majority of the Company’s Level 2 fixed

maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g.

interest rates, yield curves, prepayment speeds,

default rates, loss severities) or can be corroborated by observable market data.

that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk).

3 unchanged sentences

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

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.

As of September 30, 2023 and December 31, 2022, the value of the equity security valued using Level 3 criteria was $ 185 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 June 30, 2023, financial instruments carried at fair value were measured on a recurring basis as summarized below:

of September 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 June 30, 2023

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

and December 31, 2022.

June 30, 2023

September 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 $ 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 six months ended June 30, 2023.

The Company incurred and capitalized implementation costs of $ 1,218 and $ 1,357 during the nine months ended September 30, 2023 and 2022, respectively.

As a result, the Company has capitalized $ 4,240 in implementation costs in other assets within its condensed consolidated balance sheet as of September 30, 2023.

The Company expects the

software will be substantially ready for its intended use in the first half of 2024 .

Accordingly, the Company has no t recorded any amortization expense related to software implementation costs for the three months and nine months ended September 30, 2023.

Insurance Reserves for Losses and Claims

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

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

Nine Months Ended

September 30,

Beginning insurance reserves for losses and claims, gross

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Ending insurance reserves for losses and claims, gross

In establishing property and casualty reserves, the Company initially reserves for losses at

the higher end of the reasonable range if no other value within the range is determined to be more probable.

Selection of such an initial loss estimate is an attempt by management to give recognition that initial claims information

received generally is not conclusive with respect to legal liability, is generally not comprehensive with respect to magnitude of loss and generally, based on historical experience, will develop more adversely as time passes and more

information becomes available.

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 unfavorable development in the

automobile liability line of business in the property and casualty operations due to inflationary factors.

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

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

Following is a reconciliation of total incurred losses to total

insurance benefits and losses incurred:

Six Months Ended

Nine Months Ended

September 30,

Total incurred losses

2 unchanged sentences

Total insurance benefits and losses incurred

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.

As expected, discontinuation of London Interbank Offered Rate ( “ LIBOR ” ) occurred on June 30, 2023 (“LIBOR Cessation Date”) and affected 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.

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

2 unchanged sentences

facility that matures on April 12, 2024 .

Under the Credit Agreement, the Company will pay interest on the unpaid principal balance of

outstanding revolving loans at the LIBOR Rate (as defined in the Credit Agreement) plus 2.00 %, subject to a LIBOR floor rate of 1.00 %.

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.

Prior to July 1, 2023, the Company paid interest on the unpaid principal balance of

outstanding revolving loans at the 1 -month LIBOR Rate (as defined in the Credit Agreement) plus 2.00 %, subject to a LIBOR floor rate of 1.00 %.

Effective July 1, 2023, the interest rate on the unpaid principal balance of outstanding revolving loans is determined based on a reference rate of the 1 -month

Term Secured Overnight Financing Rate (“SOFR”) published by Chicago Mercantile Exchange Group Benchmark Administration Limited (“CME”) (as defined in the Credit Agreement) plus a spread adjustment of 0.11448 % plus 2.00 %, subject to a SOFR floor rate of 1.00 %.

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

As of September 30, 2023, the Company had outstanding borrowings including accrued interest of $ 3,019 under the Credit Agreement.

Junior Subordinated Debentures

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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 outstanding $ 18.0 million and $ 15.7 million of Junior Subordinated Debentures mature on December 4, 2032

and May 15, 2033 , respectively, are callable quarterly, in whole or in part, only at the option of the Company.

Prior to July 1,

2023, the interest rate was based on 3 -month LIBOR plus an applicable margin.

The margin ranges from 4.00 % to 4.10 %.

Effective July 1,

2023, the interest rate is determined based on a reference rate of the 3 -month SOFR plus applicable tenor spread of 0.26161 percent plus an applicable margin, ranging from 4.00 % to 4.10 %.

The financial structure of each of

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

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

Atlantic American

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JUNIOR SUBORDINATED DEBENTURES (1) (2)

Principal amount owed June 30 , 2023

Principal amount owed September 30 , 2023

Treasury debt (3)

Net balance June 30 , 2023

Net balance September 30 , 2023

Net balance December 31, 2022

LIBOR + 4.00 %

LIBOR + 4.10 %

3-Month SOFR + 0.26161 spread adj + 4.00%

3-Month SOFR + 0.26161 spread adj + 4.10%

Interest payable

8 unchanged sentences

Liquidation value

LIBOR + 4.00 %

LIBOR + 4.10 %

3-Month SOFR + 0.26161 spread adj + 4.00%

3-Month SOFR + 0.26161 spread adj + 4.10%

Distribution payable

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Three Months Ended

June 30 , 2023

September 30 , 2023

Average Shares

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Three Months Ended

June 30 , 2022

September 30 , 2022

Average Shares

3 unchanged sentences

Net loss applicable to common shareholders

Six Months Ended

Nine Months Ended

September 30,

Average Shares

3 unchanged sentences

Net income applicable to common shareholders

Six Months Ended

Nine Months Ended

September 30,

Average Shares

3 unchanged sentences

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, except for the three month period ended June 30, 2023, since its impact would have

been antidilutive.

have been antidilutive.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Federal income tax provision at statutory rate of 21 %

4 unchanged sentences

Penalties and fines

Adjustment for prior years’ estimates to actual

Income tax expense (benefit)

1 unchanged sentence

Three Months Ended

Six 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 six months ended June 30, 2023 and June 30, 2022 was $ 507 .

Lease expense reported for the nine months ended September 30, 2023 and September 30, 2022 was $ 761 .

Additional information regarding the Company’s real estate

operating leases is as follows:

Six Months Ended

Nine Months Ended

September 30,

Other information on operating leases:

11 unchanged sentences

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

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

have not yet commenced.

As of September 30, 2023, the Company has no operating leases

that have not yet commenced.

Commitments and Contingencies

From time to time, the

Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and in the ordinary course of its business.

In the opinion of management, any such known claims are not expected to have a material effect on the

financial condition or results of operations of the Company.

Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and arising in the ordinary course of its business.

In the opinion of management, any such known claims are not expected to have a material effect on

the financial condition or results of operations of the Company.

Regulatory Matters

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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.

September 30,

American Southern

2 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

American Southern

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

American Southern

2 unchanged sentences

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

1 unchanged sentence

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 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”).

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

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

1 unchanged sentence

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.

Each operating company is

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

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions

that affect reported amounts and related disclosures.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and

assumptions that affect reported amounts and related disclosures.

Actual results could differ significantly from those estimates.

The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of

The Company has identified certain estimates that involve a higher degree of judgment and are subject to a

significant degree of variability.

The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the 2022 Annual Report.

Except as disclosed in Note 2 of Notes to Condensed Consolidated Financial

Statements, the Company’s critical accounting policies are consistent with those disclosed in the 2022 Annual Report.

Except as disclosed in Note 2 of Notes to Condensed

Consolidated Financial Statements, the Company’s critical accounting policies are consistent with those disclosed in the 2022 Annual Report.

Overall Corporate Results

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:

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Insurance premiums, net

Net investment income

Realized investment gains (losses), net

Unrealized gains (losses) on equity securities, net

Realized investment gains, net

Unrealized losses on equity securities, net

Total revenue

6 unchanged sentences

Net income (loss)

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 for the three month and six month periods ended June 30, 2023 and the comparable periods in 2022 is as follows:

In addition to measures of operating performance determined in accordance with GAAP, management also considers and evaluates performance by analyzing the non-GAAP measure operating income

We define operating income (loss) as net income (loss) excluding:

(i) income tax expense (benefit);

(ii) realized investment (gains) losses, net;

and (iii) unrealized (gains) losses on equity securities, net.

Management believes

operating income (loss) 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 for the three month and nine month periods ended September 30, 2023 and the comparable periods in 2022 is as follows:

Three Months Ended

Six 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 (losses), net

Unrealized (gains) losses on equity securities, net

Realized investment gains, net

Unrealized losses on equity securities, net

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.

On a consolidated basis, the Company had net income of $1.8 million, or $0.08 per diluted share, for the three month period ended September 30, 2023, compared to net loss of $0.7 million, or

$(0.04) per diluted share, for the three month period ended September 30, 2022.

The Company had net income of $2.1 million, or $0.09 per diluted share, for the nine month period ended September 30, 2023, compared to net income of $0.5 million,

or $0.01 per diluted share, for the nine month period ended September 30, 2022.

The increase in net income for the three month and nine periods ended September 30, 2023 was primarily the result of a more favorable loss experience in the life

and health operations, from the comparable periods in 2022, coupled with a decrease in unrealized losses on equity securities.

Partially offsetting this increase in net income for the nine month period ended September 30, 2023 was an increase

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

For the three month period ended September 30, 2023, premium revenue decreased $2.6 million, or 5.7%, to $43.7 million from $46.4 million in the comparable period in 2022.

For the nine month

period ended September 30, 2023, premium revenue decreased $4.6 million, or 3.3%, to $135.9 million from $140.5 million in the comparable period in 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 was a decrease in premium revenue in the automobile physical damage line of business in the property and casualty operations.

Operating income increased $1.9 million in the three month period ended September 30, 2023 from the three month period ended September 30, 2022.

For the nine month period ended September 30,

2023, operating income decreased $0.3 million from the comparable period in 2022.

The increase in operating income for the three month period ended September 30, 2023 was primarily the result of a more favorable loss experience in the life and

health operations, from the comparable period in 2022.

The decrease in operating income for the nine month period ended September 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 and individual 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 and six month periods ended June 30, 2023 and the comparable periods in 2022:

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Commissions and underwriting expenses

Underwriting income (loss)

Underwriting income

Expense ratio

Combined ratio

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.

Gross written premiums at American Southern decreased $1.5 million, or 12.4%, during the three month period ended September 30, 2023 and decreased $5.2 million, or 8.2%, during the nine month

period ended September 30, 2023, from the comparable periods in 2022.

The decrease in gross written premiums during the three month and nine month periods ended September 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 $0.1 million, or 5.2%, during the three month period ended September 30, 2023 and decreased $0.4 million, or 9.1%, during the nine month period ended September 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:

The following presents American Southern’s net earned premiums by line of business for the three month and nine month periods ended September 30, 2023 and the comparable periods in 2022:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

2 unchanged sentences

General liability

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.

Net earned premiums decreased $1.1 million, or 6.1%, during the three month period ended September 30, 2023, and $2.1 million, or 3.9%, during the nine month period ended September 30, 2023,

over the comparable periods in 2022.

mentioned, partially offset during the nine month period ended September 30, 2023, 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.

2 unchanged sentences

A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss.

The combined ratio is divided into two components, the

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 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.

The combined ratio is divided into two components,

the 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 decreased $0.2 million, or 1.2%, during the three month period ended September 30, 2023, and increased $1.5 million, or 4.2%, during

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

As a percentage of earned premiums, insurance benefits and losses incurred were 71.7% in the three month period ended September 30, 2023, compared to 68.2% in

the three month period ended September 30, 2022.

For the nine month period ended September 30, 2023, this ratio increased to 73.7% from 68.0% in the comparable period in 2022.

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

month periods ended September 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 general liability 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 $0.3 million, or 6.1%, during the three month period ended September 30, 2023, and $2.4 million, or 15.8% during the nine month period ended

September 30, 2023, over the comparable periods in 2022.

As a percentage of earned premiums, underwriting expenses were 26.2% in each of the three month periods ended September 30, 2023 and 2022.

For the nine month period ended September 30,

2023, this ratio decreased to 25.0% from 28.5% in the comparable period in 2022.

The decrease in the expense ratio during the three month and nine month periods ended September 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 and six month periods ended June 30, 2023 and the comparable periods in

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

periods in 2022:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

11 unchanged sentences

Combined ratio

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.

Net earned premium revenue at Bankers Fidelity decreased $1.6 million, or 5.4%, during the three month period ended September 30, 2023, and $2.5 million, or 2.9%, during the nine month period

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

Gross earned premiums from the Medicare supplement line of business decreased $3.8 million, or 10.4%, during the three month period ended September 30, 2023, and $11.2 million, or

10.0%, during the nine month period ended September 30, 2023, due primarily to non-renewals exceeding the level of new business writings.

Other health product premiums increased $0.1 million, or 3.9%, during the three month period ended

September 30, 2023, and $1.6 million, or 17.1%, during the nine month period ended September 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.

earned premiums from the life insurance line of business increased $0.6 million, or 15.6%, during the three month period ended September 30, 2023, and increased $2.6 million, or 21.6%, during the nine month period ended September 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 9.6%, during the three month period ended September 30, 2023 and $4.5 million, or 9.6%, during the nine month period

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

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

Insurance benefits and losses incurred decreased $3.7 million, or 19.7%, during the three month period ended September 30, 2023, and $9.4 million, or 16.3%, during the nine month period ended

September 30, 2023, from the comparable periods in 2022.

As a percentage of earned premiums, benefits and losses were 55.0% in the three month period ended September 30, 2023, compared to 64.7% in the three month period ended September 30,

For the nine month period ended September 30, 2023, this ratio decreased to 57.6% from 66.8% in the comparable period in 2022.

The decrease in the loss ratio for the three month and nine month periods ended September 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,

Commissions and underwriting expenses decreased $1.1 million, or 10.9%, during the three month period ended September 30, 2023, and increased $4.4 million, or 16.8%, during the nine month

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

As a percentage of earned premiums, underwriting expenses were 32.4% in the three month period ended September 30, 2023, compared to 34.4% in the three month period ended

September 30, 2022.

For the nine month period ended September 30, 2023, this ratio increased to 36.1% from 30.0% in the comparable period in 2022.

The decrease in the expense ratio for the three month period ended September 30, 2023 was

primarily due to a decrease in commission expenses in the Medicare supplement line of business as a result of non-renewals exceeding the level of new business writings, as previously mentioned.

The increase in the expense ratio for the nine

month period ended September 30, 2023 was due to an increase in administrative costs related to the growth in the group and individual lines of business, coupled with increased Medicare supplement servicing costs.

Net Investment Income and Realized Gains

Investment income decreased $0.3 million, or 12.0%, during the three month period ended September 30, 2023, and decreased $0.1 million, or 1.1%, during the nine month period ended September 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

The decrease in investment income in the three month and nine month periods ended September 30, 2023, from the comparable periods in 2022, was primarily attributable to the decrease in the equity in

earnings from investments in the Company's limited liability companies of $0.6 million in each of the aforementioned periods.

The Company had no net realized investment gains during the three month period ended September 30, 2023, compared to net realized investment gains of $0.1 million during the three month period

ended September 30, 2022.

The Company had net realized investment gains of $0.1 million during the nine month period ended September 30, 2023 and net realized investment gains of less than $0.1 million during the nine month period ended

September 30, 2022.

The net realized investment gains during the nine month period ended September 30, 2023 resulted primarily from the disposition of several of the Company's investments in fixed maturity securities.

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 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 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.

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.

The Company recognized net unrealized losses on equity securities of $1.5 million during the three month period ended September 30, 2023 and unrealized losses on equity securities of $2.8 million during the three month period ended September

The Company recognized net unrealized losses on equity securities of $3.4 million during the nine month period ended September 30, 2023 and unrealized losses on equity securities of $5.5 million during the nine month period ended

September 30, 2022.

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.

Interest Expense

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).

Interest expense increased $0.3 million, or 62.5%, during the three month period ended September 30, 2023, and $1.1 million, or 86.4%, during the nine month period ended September 30, 2023,

from the comparable periods in 2022.

Changes in interest expense were primarily due to changes in the Term Secured Overnight Financing Rate (“SOFR”) published by CME Group Benchmark Administration Limited (“CME”), 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 SOFR.

As expected, discontinuation of London Interbank Offered Rate (“LIBOR”)

occurred on June 30, 2023, affected 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”) 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.

For more details about the LIBOR transition see Note 7 (Credit Arrangements).

Liquidity and Capital Resources

8 unchanged sentences

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 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.

At September 30, 2023, the Parent had approximately $4.8 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported statutory net income of $8.9 million for the nine month period ended September 30, 2023, compared to statutory net income of $5.7 million for the

nine month period ended September 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 under

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

determined under GAAP.

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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Company is limited by state insurance regulations.

Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before

recognizing realized investment gains of the individual insurance subsidiaries.

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

Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings

before recognizing realized investment gains of the individual insurance subsidiaries.

At September 30, 2023, American Southern had $53.4 million of statutory capital and surplus and Bankers Fidelity had $37.4 million of statutory capital and

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

Through September 30, 2023, the Parent received dividends of $5.4 million from its subsidiaries.

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

The amounts charged to and paid by the subsidiaries include reimbursements for various shared

services and other expenses incurred directly on behalf of the subsidiaries by the Parent.

The amounts charged to and paid by the subsidiaries include reimbursements for various

shared services and other expenses incurred directly on behalf of the subsidiaries by the Parent.

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 outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are

callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of three-month LIBOR plus an applicable margin.

callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of 3-month CME Term SOFR plus applicable tenor spread of 0.26161 percent plus an applicable margin.

The margin ranges from 4.00% to 4.10%.

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.

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.

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.

September 30, 2023, the effective interest rate was 9.70%.

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.

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 September 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 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.

At September 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;

accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the

option of the board of directors of the Company) and are cumulative.

accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at

the option of the board of directors of the Company) and are cumulative.

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

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The Series D Preferred Stock is not currently convertible.

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

At September 30, 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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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.

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

As of September 30, 2023, BFLIC has pledged bonds having an amortized cost of $6.9 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, 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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$10.0 million revolving credit facility that matures on April 12, 2024.

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%.

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.

Under the Credit Agreement, the Company paid interest on the unpaid principal balance of outstanding revolving loans at 1-month SOFR plus a spread adjustment of 0.11448%

plus 2.00%, subject to a SOFR 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

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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 $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.

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 September 30, 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 $23.9 million at September 30, 2023.

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

September 30, 2023 was primarily attributable to net cash used in operating activities of $3.5 million.

Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $2.0 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 $0.6 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