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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-06-30 · 427 added, 320 removed, 883 unchanged (46% of the section changed)

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ATLANTIC AMERICAN CORPORATION

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

Report of Independent Registered Public Accounting Firm ( FORVIS, LLP ), Atlanta, Georgia , PCAOB Firm ID No.

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

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

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022

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Atlantic American Corporation

Atlanta, Georgia

Opinion on the Consolidated Financial Statements

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

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

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

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

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

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

We have audited the accompanying consolidated balance sheets of Atlantic American Corporation and subsidiaries (the “Company”) as of

December 31, 2023, and 2022, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes and schedules

(collectively, referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its

operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America (US GAAP).

Basis for Opinion

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

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

financial statements based on our audits.

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

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

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with

respect to the Company in accordance with the U.S.

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

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

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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

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

Accordingly, we express no such opinion.

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

and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether due to error or fraud.

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

As part of our

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

Accordingly, we

express no such opinion.

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

performing procedures that respond to those risks.

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

Our audits also included evaluating the accounting principles

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

Our audits also included evaluating the accounting principles used

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

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

Critical Audit Matters

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

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

The communication of

critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the

accounts or disclosures to which they relate.

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

communicated to the audit committee and that:

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

The communication of critical audit

matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or

disclosures to which they relate.

Valuation of Insurance Reserves for Losses and Claims (Claim Reserves)

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

claims (claim reserves), were $87.5 million as of December 31, 2022.

As reflected on the consolidated balance sheet and discussed in Note 6 to the financial statements, the Company’s insurance reserves for losses and claims (claim

reserves), were $87.5 million as of December 31, 2023.

The Company’s claim reserves relate primarily to its property casualty lines of business and Medicare supplement business.

The process of establishing claim reserves requires the

use of estimates and judgments based on circumstances underlying the insured loss at the date of accrual.

Management’s judgments include claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, estimates

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

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

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

The process of establishing claim reserves requires the use of

estimates and judgments based on circumstances underlying the insured loss at the date of accrual.

Management’s judgments include claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, estimates of

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

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

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

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

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

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

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

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

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

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

As reflected on the consolidated balance sheet and discussed in Note 6 to the financial statements, the Company’s insurance reserves for future policy

benefits (policy reserves) were $92.5 million as of December 31, 2023.

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

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

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

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

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

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

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

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

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

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

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

Actuarial System Conversion

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

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

commission and underwriting expenses.

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

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

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

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

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

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

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

Ensure the proper implementation of the new actuarial valuation system;

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

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

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

Involving our actuarial specialists to assist in our procedures in:

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

methodology compliant with GAAP;

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

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

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

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

June 30, 2023

/s/ FORVIS, LLP

April 1, 2024

ATLANTIC AMERICAN CORPORATION

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$ 238,626 and

no allowance for credit losses )

Equity securities, at fair value (cost:

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Total investments

Insurance premiums and other, net of allowance for doubtful accounts of $ 177 and

$ 188 as of 2022

and 2021 , respectively

Reinsurance (net of allowance for uncollectible reinsurance of $ 61 and $ 0 )

Insurance premiums and other (net of allowance for expected credit losses $ 217 and

net of allowance for doubtful accounts $ 177 )

Deferred income taxes, net

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Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Unearned stock grant compensation

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ATLANTIC AMERICAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF

Year Ended December 31,

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Realized investment gains, net

Unrealized gains (losses) on equity securities, net

Unrealized losses on equity securities, net

Total revenue

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Total benefits and expenses

Income before income taxes

Income tax expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Preferred stock dividends

Net income applicable to common shareholders

Earnings per common share (basic and diluted)

Net income (loss) applicable to common shareholders

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

See the accompanying notes to the consolidated financial statements.

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CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

COMPREHENSIVE INCOME (LOSS)

Year Ended December 31,

(In thousands)

Other comprehensive loss:

Net income (loss)

Other comprehensive gain (loss):

Available-for-sale fixed maturity securities:

Gross unrealized holding loss arising in the period

Gross unrealized holding gain (loss) arising in the period

Related income tax effect

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Related income tax effect

Total other comprehensive loss, net of tax

Total comprehensive loss

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

See the accompanying notes to the consolidated financial statements.

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Restricted stock grants, net of forfeitures

Issuance of shares under stock plans

Balance, end of year

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Balance, beginning of year

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

Net income (loss)

Dividends on common stock

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Balance, beginning of year

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Balance, end of year

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Net shares acquired related to employee share-based compensation plans

Issuance of shares under stock plans

Balance, end of year

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Net shares acquired under employee share-based compensation plans

Issuance of shares under stock plans

Restricted stock grants, net of forfeitures

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Cash flows from operating activities:

Net Income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

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Realized investment gains, net

Unrealized losses (gains) on equity securities, net

(Earnings) loss from equity method investees

Unrealized losses on equity securities, net

Losses (earnings) from equity method investees

Compensation expense related to share awards

Provision for credit losses

Depreciation and amortization

Deferred income tax benefit

Decrease in receivables, net

(Increase) decrease in receivables, net

Increase in insurance reserves and policyholder funds

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in accounts payable and accrued expenses

Net cash provided by operating activities

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Additions to property and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

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Payment of dividends on common stock

Proceeds from shares issued under stock plans

Treasury stock acquired — net employee share-based compensation

Proceeds from revolving credit facility, net

Net cash provided by (used in) financing activities

Net increase in cash

Net cash provided by financing activities

Net (decrease) increase in cash

Cash and cash equivalents at beginning of year

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See the accompanying notes to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL

(Dollars in thousands)

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property and casualty and short-duration health insurance).

Insurance Premiums and Other Receivables

Receivables amounts due from reinsurers, insureds and agents are evaluated

periodically for collectibility.

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

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.

Intangibles consist of goodwill and other indefinite-lived intangible assets.

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The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and,

accordingly, are carried at fair value with the after-tax difference from amortized cost, as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss.

The Company’s equity

securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income.

The fair values of fixed maturities and equity securities are largely determined from publicly quoted

market prices, when available, or independent broker quotations.

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

value of securities with publicly quoted market prices.

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

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

liability companies and are accounted for using the equity method.

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

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

accordingly, are carried at fair value with the after-tax difference from amortized cost, less allowance for credit losses (“ACL”), as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive

income or loss.

The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income.

The fair values of fixed maturities and equity securities are

largely determined from publicly quoted market prices, when available, or independent broker quotations.

Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore

ultimately greater price volatility than the value of securities with publicly quoted market prices.

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

An OTTI was recognized in earnings within realized investment gains (losses) when it was anticipated that

the amortized cost would not be recovered.

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

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

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

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

If the estimated fair value was less than the present value of projected future cash flows expected to be

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

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.

Company has the intent to sell the security;

or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference

between the security’s amortized cost and estimated fair value.

If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is

recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses).

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

This limitation is

known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is

recorded in OCI.

loans are carried at unpaid principal balance and are fully collateralized by the cash surrender value of the underlying insurance contract.

Real estate is carried at historical cost and is evaluated for impairment when circumstances would

indicate that fair value may be less than carrying value.

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

The Company’s VIE interests principally consist of interests in limited partnerships and limited

liability companies formed for the purpose of achieving diversified equity returns, which are included in other invested assets on the balance sheet and are accounted for using the equity method.

The Company does not have power over the

activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary.

Therefore, the Company has not consolidated these VIEs.

Also included in the Company’s VIEs are investments in

unconsolidated trusts, which are presented on the balance sheet and carried at cost.

The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE.

The Company has no arrangements with any of the VIEs to provide

other financial support to or on behalf of the VIE.

The Company reviews its investments in other invested assets for impairment no less frequently than quarterly and monitors the performance throughout the year.

If the Company becomes aware of

an impairment of an other invested asset at the balance sheet date, it will recognize an impairment by recording a reduction in the carrying value of the other invested asset with a corresponding charge to net investment income.

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

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

Property and Casualty Operations

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

Limits per occurrence within the reinsurance treaties are as follows:

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

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

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

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

Life and Health Operations

Bankers Fidelity has entered into reinsurance contracts ceding the

excess of its life retention.

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

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

Certain prior year reinsurance agreements also remain in force

although they no longer provide reinsurance for new business.

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

thresholds are set annually.

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

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

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

million of new annualized Medicare supplement premium was ceded.

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

Assets and liabilities

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

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

the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.

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

Share-Based Transactions

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Adoption of New Accounting Standards

Income Taxes – Simplifying the Accounting for Income Taxes.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

This updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending

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

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

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

Future Adoption of New Accounting Standards

Reference Rate Reform .

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London

Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract

modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination.

Additionally, a company may make a one-time election to sell,

transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020.

This standard may be elected over time

through December 31, 2024 as reference rate reform activities occur.

The Company is currently assessing the effect of adopting this guidance on its financial condition and results of operations.

Accounting for Long-Duration Contracts.

In August 2018, the FASB issued ASU No.

2018-12, Financial Services

—Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”).

This guidance (1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to

discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplifies the amortization of deferred acquisition costs, and (4)

improves the effectiveness of the required disclosures.

ASU 2018-12 is effective for interim and annual reporting periods beginning after December 15, 2024, although earlier adoption is permitted.

The Company is currently evaluating the new

guidance, but has not yet determined the method.

The Company will adopt on January 1, 2025.

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.

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.

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.

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

Impact of Adoption on Condensed Consolidated Balance Sheet

Reinsurance Recoverables

The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at

January 1, 2023 and December 31, 2023, and the changes in the allowance for estimated uncollectible reinsurance for the year ended December 31, 2023.

Year ended December 31, 2023

(in thousands)

Reinsurance Recoverables,

Net of Allowance for Estimated

Uncollectible Reinsurance

Allowance for Estimated

Uncollectible Reinsurance

Balance, beginning of period

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

Current period change for estimated uncollectible reinsurance

Write-offs of uncollectible reinsurance recoverables

Balance, end of period

Insurance Premium and Other Receivables

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

2023 and December 31, 2023, and the changes in the allowance for doubtful accounts/expected credit losses for the year ended December 31, 2023.

Year ended December 31, 2023

(in thousands)

Insurance Premiums and

Other, Net of Expected Credit

Allowance for Doubtful

Accounts/Expected Credit

Balance, beginning of period

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

Current period change for expected credit losses

Write-offs of uncollectible insurance premiums and other receivables

Balance, end of period

Future Adoption of New Accounting Standards

Accounting for Long-Duration Contracts.

In August 2018, the FASB issued ASU No.

2018-12, Financial

Services —Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”).

This guidance (1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies

the rate used to discount future cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplifies the amortization of deferred

acquisition costs, and (4) improves the effectiveness of the required disclosures.

ASU 2018-12 is effective for annual reporting periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025, although earlier

adoption is permitted.

The Company is currently evaluating the new guidance, but has not yet determined the method.

The Company will adopt on January 1, 2025.

Segment Reporting .

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting- An Amendment for Improvements to Reportable Segment Disclosures (Topic 280).

The amendments in ASU 2023-07 improve reportable segment

disclosure requirements through enhanced disclosures about significant segment expenses.

The amendment;

introduces a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (CODM);

extends certain annual disclosures to interim periods;

clarifies single reportable segment entities must apply ASC 280 in its entirety, permits more than one measure of segment profit or loss to be reported under certain conditions, and

requires disclosure of the title and position of the CODM.

The amendments in this update do not change or remove existing disclosure requirements.

The Update is effective for fiscal years beginning after December 15, 2023, and interim periods

within fiscal years beginning after December 15, 2024, although early adoption is permitted.

The Company is evaluating the new guidance and any effect it will have on the Company’s financials.

Income Taxes .

In December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

The amendment requires that all entities disclose on an annual basis the following information about income

the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes;

and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in

which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received).

All entities also are required to disclose;

income (or loss) from continuing operations before income tax

expense (or benefit) disaggregated between domestic and foreign;

and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

The ASU, which also includes certain other amendments to

improve the effectiveness of income tax disclosures, is effective for public business entities for annual periods beginning after Dec.

The Company is evaluating the new guidance and any effect it will have on the Company’s financials.

Use of Estimates in the Preparation of Financial Statements

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in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves, investments, and receivables, among others, and actual results could differ materially from management’s estimates.

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

investments in fixed maturities and equity securities, aggregated by type and industry, as of December 31, 2022 and December 31, 2021.

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 December 31, 2023 and December 31, 2022.

Fixed maturities were comprised of the following:

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Financial services

Other business – diversified

Communications

Total equity securities

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Financial services

Other business – diversified

Communications

Total equity securities

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

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

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

Due in one year or less

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Government agencies and authorities

Obligations of states and political subdivisions

Corporate securities

Total temporarily impaired securities

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

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

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

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

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

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

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

There were no OTTI charges

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

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

and 61 securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed

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

The increase in the number and value of securities in an unrealized loss position during the year ended December 31, 2022, was primarily

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

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

the securities in an unrealized loss position.

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

as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of December 31, 2022.

Analysis of Securities in Unrealized Loss Positions

of December 31, 2023 and 2022, there were 311 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.

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 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

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 reasonably

available 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

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

Assuming 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.

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 December 31, 2023.

The Company did no t record any other than temporary impairments as

of December 31, 2022.

Investment income was earned from the following sources:

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Invested Assets

Realized investment gains, net

Realized investment gains (losses), net

Proceeds from the sales of available-for-sale fixed maturities were as follows:

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Sales of available-for-sale securities in 2023 and 2022 were primarily a result of improving the overall risk versus return profile of the

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

In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party in 2022.

The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2023

2022 and 2021.

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

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The Company’s bond portfolio included 99 %

investment grade securities, as defined by the NAIC, at December 31, 2022.

investment grade securities, as defined by the NAIC, at December 31, 2023 and 2022.

Variable Interest Entities

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The Company’s maximum loss exposure relative to these investments was limited to the carrying value of the Company’s investment in the VIEs, which amount to $ 7,619 and $ 6,624 , at December 31, 2023 and 2022, respectively.

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

of December 31, 2023 and 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.

reduction in the Company’s outstanding commitments was a result of an additional investment of $ 1,354 in the partnership.

Disclosures About Fair Value of Financial Instruments

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the asset or liability.

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

As of December 31, 2022 and December 31, 2021, the value of the fixed maturity

valued using Level 3 criteria was $ 0 and $ 250 , respectively.

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

As of December 31, 2023 and December 31, 2022, the value of the equity security valued using Level 3 criteria was $ 185 and $ 156 , respectively.

The equity security is

not traded and valued at cost.

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

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

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Equity securities

Other invested assets

Investments in unconsolidated trusts

Junior subordinated debentures, net

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Internal-Use Software

On March 3, 2021, the Company entered into a hosting arrangement through a service

contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services.

The software is managed, hosted, supported, and delivered as a cloud-based software service product offering

(software-as-a-service).

The initial term of the arrangement is five years from the effective date with a renewal term of an additional

Service fees related to the hosting arrangement are recorded as an expense in the

Company’s condensed consolidated statement of operations as incurred.

On March 3, 2021, the Company entered into a hosting arrangement through a service contract with a third party software

solutions vendor to provide a suite of policy, billing, claim, and customer management services.

The software is managed, hosted, supported, and delivered as a cloud-based software service product offering (software-as-a-service).

term of the arrangement is five years from the effective date with a renewal term of an additional five years .

Service fees related to the hosting arrangement are recorded as an expense in the Company’s condensed consolidated

statement of operations as incurred.

Implementation expenses incurred related to third party professional and consulting services have been capitalized.

The Company will begin amortizing, on a straight-line basis

over the expected ten year term of the hosting arrangement, when the software is substantially ready for its intended use.

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

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

The Company expects the software will be substantially ready for its

intended use during 2023.

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

for year ended December 31, 2022.

The Company will begin amortizing, on a straight-line basis over the expected ten year term of the hosting arrangement, when the software is substantially ready for its intended use.

The Company incurred and capitalized

implementation costs of $ 1,545 and $ 2,522

during the years ended December 31, 2023 and 2022, respectively.

The Company has capitalized $ 4,567 and $ 3,022 in implementation costs in other assets in its condensed consolidated balance sheet as of December 31, 2023 and 2022, respectively.

expects the software will be substantially ready for its intended use during 2024.

Accordingly, the Company has no t recorded any

amortization expense related to software implementation costs for years ended December 31, 2023 and 2022.

Insurance Reserves and Policyholder Funds

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Future Policy Benefits

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

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

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

anticipated trends and are generally established at contract inception.

The assumptions include a margin for adverse experience development.

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

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

(iii) 9.0 % for 1980 through 1987

issues, (iv) 5.0 % to 7.0 %

for 1988 through 2009 issues, (v) 4.0 %

for 2010 through 2012 issues, (vi) 3.5 %

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

mortality rates, disablement rates, benefit utilization rates, and lapse rates after giving effect to possible risks of unexpected adverse claim experience.

The mortality, disablement rates, benefit utilization rates, and lapse assumptions are

based upon the Company’s experience and incorporate a margin for adverse experience development.

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

The interest rates

assumed, which reflect future investment yields at the time policies are issued, are generally:

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

for 1980 through 1987 issues, (iv) 5.0 %

to 7.0 % for 1988 through 2009

issues, and (vii) 3.0 % for 2021

and 2022 issues.

issues, and (v) 3.0 % to 4.0 %

for 2010 through 2023 issues.

Loss and Claim Reserves

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Balance at December 31

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

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

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

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

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:

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As of December 31,

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of

Reported Claims

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

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

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

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

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

Additional adjustments to the estimated ultimate

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

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

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

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

incurred claims.

the Centers for Medicare and Medicaid Services (or its designee) for payment in the given year.

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

Estimated ultimate claims incurred, using claims data reported during

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

Additional adjustments to the

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

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

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

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

estimated ultimate incurred claims.

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

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As of December 31,

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance

Reported Claims

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of

Accident Year

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As of December 31, 2023

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance

Incurred Losses, Claims and Allocated Loss Adjustment Expenses,

Net of Reinsurance

Accident Year

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As of December 31,

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of

Accident Year

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As of December 31,

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance

Reported Claims

Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of

Accident Year

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Reinsurance recoverables of $ 21,041 were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M.

Allowances for uncollectible amounts are established against

reinsurance recoverables, if appropriate.

Allowances for uncollectible amounts are established

against reinsurance recoverables, if appropriate.

Property and Casualty Operations

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

Limits per occurrence within the reinsurance treaties are as follows:

Inland marine and commercial automobile physical damage - $ 225 ,000

excess of $ 125 ,000 retention;

and automobile liability and general liability - excess coverage of $ 2.0 million less retentions that may vary from $ 150 ,000

to $ 500 ,000 depending on the account.

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

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

Life and Health Operations

Bankers Fidelity has entered into reinsurance contracts ceding the excess of its life retention.

Maximum retention by Bankers

Fidelity on any one individual life insurance policyholder is $ 200 ,000.

As of December 31, 2023, $ 8.3 million of the $ 814.2 million of

life insurance in force at Bankers Fidelity was reinsured under a combination of coinsurance and yearly renewable term agreements.

Certain prior year reinsurance agreements also remain in force although they no longer provide reinsurance for

new business.

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

Ceding thresholds are set annually.

During 2023, the liability of the reinsurer was 50 % of all new Medicare Supplement

business issued by the Company on amounts up to a maximum retention of $ 15.0 million of annualized premium.

Accordingly, $ 0.8 million of the Company’s $ 1.5

million of new annualized Medicare Supplement premium was ceded.

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

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December 31, 2023

Recoverable on unpaid losses

Recoverable on unpaid losses, net of allowance

Recoverable on unpaid benefits

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Total income taxes were allocated as follows:

Total tax expense on income

Tax benefit on components of shareholders’ equity:

Net unrealized losses on investment securities

Total tax benefit

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

Total tax expense (benefit) on income

Tax expense (benefit) on components of shareholders’ equity:

Net unrealized income (losses) on investment securities

Total tax expense (benefit)

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

Federal income tax provision at the statutory rate

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Adjustment for prior years’ estimates to actual

Income tax expense

Income tax expense (benefit)

Effective tax rate

The primary difference between the effective tax rate and the federal statutory income tax rate for 2022 resulted from a permanent difference related to penalties and fines

The primary difference between the effective tax rate and the federal statutory income tax rate for 2023 resulted from the adjustment for prior years’ estimates to actual of $ 299 in the year ended December 31, 2023, which included the return to provision adjustment that is generally updated at the completion of the third

quarter of each fiscal year and an adjustment for partnership valuation.

Also contributing to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to meals and

entertainment.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2022 resulted from a permanent difference related to penalties and fines

incurred of $ 149 .

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The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2021 resulted from the adjustment for prior years’ estimates to actual that

are generally updated at the completion of the third quarter of each fiscal year and were $ 85 in the year ended December 31, 2021.

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

Another contributing factor was the DRD.

Deferred tax assets and liabilities at December 31, 2023 and 2022 were comprised of the following:

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Bad debts and other

Net operating loss

Total deferred tax assets

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Total deferred tax liabilities

Net deferred tax asset (liability)

The components of income tax expense were:

Net deferred tax asset

The components of income tax expense (benefit) were:

Current – Federal

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Credit Arrangements

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.

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.

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 issued regulations, 12 C.F.R.

Part 253, “Regulations

Implementing the Adjustable Interest Rate LIBOR Act (Regulation ZZ),” which relate to the LIBOR transition.

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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an unsecured $ 10,000 revolving credit facility that matures on April 12, 2024 .

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

Agreement) plus 2.00 %, subject to a LIBOR floor rate of 1.00 %.

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, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness

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due and payable and terminate the revolving commitments.

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

As of December 31, 2023 and 2022, the Company had outstanding borrowings of $ 3,019 and $ 2,009 , respectively, 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;

gross proceeds of the 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.

At December 31,

2023, the effective interest rate was 9.69 %.

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

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 %

The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2023 and 2022, was as follows:

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Net balance December 31, 2022

LIBOR + 4.00 %

3-Month SOFR + 0.26161 spread adj + 4.00%

3-Month SOFR + 0.26161 spread adj + 4.10%

Interest payable

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

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

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

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

employees incentives and rewards for performance and service.

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

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

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

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

price at date of grant.

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

As such, no grants have been or will be made under the 2012 Plan on or after its expiration, but outstanding awards granted

thereunder will continue in accordance with their terms.

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

The 2022 Plan authorizes the grant of up to 3,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards, and succeeded the 2012 Plan for the

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

During the year ended 2023, there were no restricted shares issued under the 2022 Plan.

During the year ended

2022, a total of 40,000 restricted shares, with an estimated fair value of $ 122 were issued under the 2022 Plan, and a total of 25,000 restricted

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

The estimated fair value of the restricted shares

issued was based on the common stock price at date of grant.

Stock grants are generally issued from treasury shares.

Vesting of restricted shares generally occurs after a one

to three year period following the date of grant.

The Company accounts for forfeitures as they occur.

Vesting of restricted shares generally occurs after a one to three year period following the date of grant.

The Company accounts for

forfeitures as they occur.

There were no stock options granted or outstanding under the 2022 Plan in 2023 or 2022.

Shares available for future grant under the 2012 Plan at December

31, 2021 were 935,200 .

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

As such, no grants have

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

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

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

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

Vesting of restricted shares generally occurs after a one

to three year period following the date of grant.

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

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

Shares available for future grant under the 2022 Plan at December 31, 2023 and 2022 were 2,960,000 .

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

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Under the Plan, employees may defer up to 50 % of their compensation, not to exceed the annual deferral limit.

The Company’s total matching contribution for 2022 and 2021 was $ 255 and $ 272 , respectively, and

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

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

The Company’s total matching contribution for 2023 and 2022 was $ 283 and $ 255 , respectively, and consisted

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

In addition to the matching contribution, the Company also provided a 3 %

safe harbor non-elective contribution in 2023 and 2022 of $ 629 and $ 569 , respectively.

All contributions were made in cash.

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

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

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

contributions is based on a five-year graded schedule.

Agent Stock Purchase Plan

The Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012.

The purpose of the Agent Stock Purchase

Plan is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company.

Under the Agent Stock Purchase Plan,

payment for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment.

The purpose of the Agent Stock Purchase Plan

is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company.

Under the Agent Stock Purchase Plan, payment

for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment.

Stock purchases are made at the end of each calendar quarter at the then current market value.

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(In thousands)

Basic and Diluted Earnings Per Common Share

Net income before preferred stock dividends

Basic and Diluted Loss Per Common Share

Net loss before preferred stock dividends

Less preferred stock dividends

Net income applicable to common shareholders

Net loss applicable to common shareholders

For the Year Ended December 31, 2022

16 unchanged sentences

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

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

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

(v) the timing and methodology of establishing certain reserves is different than

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

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

1 unchanged sentence

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

Bankers Fidelity, net income (loss)

Bankers Fidelity, net income

American Southern, net income

5 unchanged sentences

subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner.

The Parent received dividends of $ 7,200 and $ 8,400 in the years ended 2022 and 2021, respectively, from its subsidiaries.

dividend payments to the Parent by the insurance subsidiaries in excess of $ 8,739 would require prior approval.

The Parent received dividends of $ 8,400 and $ 7,200 in the years ended 2023 and 2022, respectively, from its

subsidiaries.

In 2024, dividend payments to the Parent by the insurance subsidiaries in excess of $ 8,757 would require prior approval.

Related Party Transactions

1 unchanged sentence

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

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

At December 31, 2023, two members of the Company’s board of directors, including the Company’s Chairman, President and Chief Executive Officer, were considered to be affiliates of the majority shareholder.

The Company leases approximately 49,586

2 unchanged sentences

and $ 880 , respectively, under this lease.

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

to the building to 4370 Peachtree LLC.

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

title to the building to 4370 Peachtree LLC.

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

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

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

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

3 unchanged sentences

The aggregate carrying value of these investments in Gray at December 31, 2023 and 2022 was $ 8,490 and $ 10,772 , respectively.

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

voluntary employee benefit plans.

In each of the years ended December 31, 2023 and 2022, Gray paid the Company approximately $ 2,050 and $ 1,708 in insurance premiums related to certain voluntary employee

benefit plans.

Segment Information

14 unchanged sentences

Other income (loss)

Net realized gains (losses)

Net realized gains

Unrealized losses on equity securities

9 unchanged sentences

Total expenses

Underwriting income (loss)

Underwriting income

Net investment income (loss)

Other income (loss)

Net realized gains

Unrealized gains on equity securities

Net realized gains (losses)

Unrealized losses on equity securities

Income (loss) before income taxes

1 unchanged sentence

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.

From time to time, the 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.

3 unchanged sentences

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

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

from state insurance departments with respect to various matters.

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

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

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

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.

Subsequent Events

On April 1, 2024 , the Company announced that the board of directors declared an annual cash dividend of $ 0.02 per share of common stock that is payable to shareholders of record at the close of business on April 12, 2024 .

On March 22, 2024, the Company entered into a First Amendment (the "Amendment") to its Revolving Credit Agreement (as

amended, the “Credit Agreement”) with Truist Bank as the lender (the “Lender”).

The Amendment, among other things, (a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of

outstanding revolving loans at the Adjusted Term SOFR rate (as defined in the Credit Agreement), plus 2.00 %, (b) extends the

maturity date of the revolving credit facility to March 22, 2027 and (c) requires that the Company maintain a consolidated net

worth of not less than $ 64.2 million.

Except as modified by the Amendment, the existing terms of the Credit Agreement remain in

On February 21, 2024, a third-party service provider the Company utilizes for certain medical network claims data

identified a cybersecurity incident, resulting in disruption of services.

In response to the incident the Company examined our data and systems thoroughly and has not detected any breach of our systems.

Subsequent to the incident, the

Company transitioned to an alternative service provider as a permanent solution.

We do not believe the cybersecurity incident at our third-party service provider materially affected or is reasonably likely to materially affect the Company

or our business strategy, results of operations, or financial condition.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data