ATLANTIC AMERICAN CORP 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page ATLANTIC AMERICAN CORPORATION Report of Independent Registered Public Accounting Firm ( FORVIS, LLP ), Atlanta, Georgia , PCAOB Firm ID No. 686 ) 25 Consolidated Balance Sheets as of December 31, 2023 and 2022 28 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 29 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 30 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022 31 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 32 Notes to Consolidated Financial Statements 33 24 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Atlantic American Corporation Atlanta, GA 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, 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 25 Table of Contents Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Insurance Reserves for Losses and Claims (Claim Reserves) As reflected on the consolidated balance sheet and discussed in Note 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. Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating the appropriateness of management’s actuarial reserving methodologies and assumptions; o Evaluating management’s hindsight analyses; o Comparing management’s carried reserve to the range calculated by management’s specialist for property casualty claim reserves; • Testing the completeness and accuracy of data provided by management that served as the basis for the actuarial analyses on a sample basis; and • Evaluating movement of the Company’s recorded property casualty claim reserves within the Company’s estimated reserve range year over year. Valuation of Insurance Reserves for Future Policy Benefits (Policy Reserves) As reflected on the consolidated balance sheet and discussed in Note 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. 26 Table of Contents The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment required to assess certain assumptions that impact policy reserves and the complexity of the actuarial calculations. Addressing the matter involved performing the following audit procedures, among others: • Involving our actuarial specialists to assist in our procedures in: o Evaluating whether the methodology applied by management is consistent in the aggregate with the methodology compliant with US GAAP; o Assessing the significant assumptions used by management for new insurance contracts issued during the current year by comparing the significant assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes to these assumptions; o Reviewing benefit reserve replication workbooks prepared by management for a sample of contracts; and o Evaluating management’s loss recognition testing of aggregate reserve sufficiency. • Testing the completeness and accuracy of data used by management in developing assumptions on a sample basis. We have served as the Company’s auditor since 2018. /s/ FORVIS, LLP Atlanta, GA April 1, 2024 27 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 (In thousands, except share and per share data) ASSETS Cash and cash equivalents $ 28,301 $ 28,863 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost: $ 238,626 and $ 236,766 ; no allowance for credit losses ) 218,219 208,729 Equity securities, at fair value (cost: $ 4,936 and $ 4,907 ) 9,413 11,562 Other invested assets (cost: $ 6,982 and $ 5,628 ) 6,381 5,386 Policy loans 1,778 1,759 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 237,067 228,712 Receivables: Reinsurance (net of allowance for uncollectible reinsurance of $ 61 and $ 0 ) 21,103 25,913 Insurance premiums and other (net of allowance for expected credit losses $ 217 and net of allowance for doubtful accounts $ 177 ) 23,690 15,386 Deferred income taxes, net 15,682 14,163 Deferred acquisition costs 43,850 42,281 Other assets 9,028 9,202 Intangibles 2,544 2,544 Total assets $ 381,265 $ 367,064 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds Future policy benefits $ 92,495 $ 85,564 Unearned premiums 31,317 28,348 Losses and claims 87,478 87,484 Other policy liabilities 1,132 1,255 Total insurance reserves and policyholder funds 212,422 202,651 Accounts payable and accrued expenses 24,811 26,473 Revolving credit facility 3,019 2,009 Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 273,990 264,871 Commitments and contingencies (Note 17) Shareholders’ equity: Preferred stock, $ 1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $ 5,500 redemption value 55 55 Common stock, $ 1 par, 50,000,000 shares authorized; 22,400,894 shares issued; 20,402,288 and 20,407,229 shares outstanding as of 2023 and 2022 , respectively 22,401 22,401 Additional paid-in capital 57,425 57,425 Retained earnings 50,929 51,982 Accumulated other comprehensive loss ( 16,121 ) ( 22,149 ) Unearned stock grant compensation ( 13 ) ( 132 ) Treasury stock, at cost, 1,998,606 and 1,993,665 shares as of 2023 and 2022 , respectively ( 7,401 ) ( 7,389 ) Total shareholders’ equity 107,275 102,193 Total liabilities and shareholders’ equity $ 381,265 $ 367,064 See the accompanying notes to the consolidated financial statements. 28 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2023 2022 (In thousands, except per share data) Revenue: Insurance premiums, net $ 178,825 $ 185,440 Net investment income 10,058 9,932 Realized investment gains, net 70 30 Unrealized losses on equity securities, net ( 2,177 ) ( 7,562 ) Other income 17 11 Total revenue 186,793 187,851 Benefits and expenses: Insurance benefits and losses incurred 122,500 123,456 Commissions and underwriting expenses 46,124 46,713 Interest expense 3,269 1,952 Other expense 15,465 13,634 Total benefits and expenses 187,358 185,755 Income (loss) before income taxes ( 565 ) 2,096 Income tax expense (benefit) ( 394 ) 571 Net income (loss) ( 171 ) 1,525 Preferred stock dividends ( 399 ) ( 399 ) Net income (loss) applicable to common shareholders $ ( 570 ) $ 1,126 Earnings (loss) per common share (basic and diluted) ( 0.03 ) 0.06 See the accompanying notes to the consolidated financial statements. 29 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2023 2022 (In thousands) Net income (loss) $ ( 171 ) $ 1,525 Other comprehensive gain (loss): Available-for-sale fixed maturity securities: Gross unrealized holding gain (loss) arising in the period 7,700 ( 50,377 ) Related income tax effect ( 1,617 ) 10,579 Subtotal 6,083 ( 39,798 ) Less: reclassification adjustment for net realized gains included in net income ( 70 ) ( 49 ) Related income tax effect 15 10 Subtotal ( 55 ) ( 39 ) Total other comprehensive income (loss), net of tax 6,028 ( 39,837 ) Total comprehensive income (loss) $ 5,857 $ ( 38,312 ) See the accompanying notes to the consolidated financial statements. 30 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year Ended December 31, (In thousands, except share and per share data) 2023 2022 Preferred stock: Balance, beginning of year $ 55 $ 55 Balance, end of year 55 55 Common stock: Balance, beginning of year 22,401 22,401 Balance, end of year 22,401 22,401 Additional paid-in capital: Balance, beginning of year 57,425 57,441 Restricted stock grants, net of forfeitures — ( 16 ) Balance, end of year 57,425 57,425 Retained earnings: Balance, beginning of year 51,982 51,264 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023 ( 75 ) — Net income (loss) ( 171 ) 1,525 Dividends on common stock ( 408 ) ( 408 ) Dividends accrued on preferred stock ( 399 ) ( 399 ) Balance, end of year 50,929 51,982 Accumulated other comprehensive income (loss): Balance, beginning of year ( 22,149 ) 17,688 Other comprehensive income (loss), net of tax 6,028 ( 39,837 ) Balance, end of year ( 16,121 ) ( 22,149 ) Unearned stock grant compensation: Balance, beginning of year ( 132 ) ( 73 ) Restricted stock grants, net of forfeitures — ( 193 ) Amortization of unearned compensation 119 134 Balance, end of year ( 13 ) ( 132 ) Treasury stock: Balance, beginning of year ( 7,389 ) ( 7,490 ) Restricted stock grants, net of forfeitures — 209 Net shares acquired related to employee share-based compensation plans ( 12 ) ( 108 ) Balance, end of year ( 7,401 ) ( 7,389 ) Total shareholders’ equity $ 107,275 $ 102,193 Dividends declared on common stock per share $ 0.02 $ 0.02 Common shares outstanding: Balance, beginning of year 20,407,229 20,378,576 Net shares acquired under employee share-based compensation plans ( 4,941 ) ( 36,347 ) Restricted stock grants, net of forfeitures — 65,000 Balance, end of year 20,402,288 20,407,229 See the accompanying notes to the consolidated financial statements. 31 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 (In thousands) Cash flows from operating activities: Net Income (loss) $ ( 171 ) $ 1,525 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 16,440 19,445 Acquisition costs deferred ( 18,009 ) ( 23,028 ) Realized investment gains, net ( 70 ) ( 30 ) Unrealized losses on equity securities, net 2,177 7,562 Losses (earnings) from equity method investees 360 ( 241 ) Compensation expense related to share awards 119 134 Provision for credit losses 26 — Depreciation and amortization 652 890 Deferred income tax benefit ( 3,121 ) ( 1,819 ) (Increase) decrease in receivables, net ( 3,520 ) 1,076 Increase in insurance reserves and policyholder funds 9,771 854 (Decrease) increase in accounts payable and accrued expenses ( 1,662 ) 1,008 Other, net ( 370 ) ( 923 ) Net cash provided by operating activities 2,622 6,453 Cash flows from investing activities: Proceeds from investments sold 5,044 3,902 Proceeds from investments matured, called or redeemed 9,744 9,806 Investments purchased ( 18,073 ) ( 17,010 ) Additions to property and equipment ( 80 ) ( 126 ) Net cash used in investing activities ( 3,365 ) ( 3,428 ) Cash flows from financing activities: Payment of dividends on Series D preferred stock ( 399 ) ( 399 ) Payment of dividends on common stock ( 408 ) ( 408 ) Treasury stock acquired — net employee share-based compensation ( 12 ) ( 108 ) Proceeds from revolving credit facility, net 1,000 2,000 Net cash provided by financing activities 181 1,085 Net (decrease) increase in cash ( 562 ) 4,110 Cash and cash equivalents at beginning of year 28,863 24,753 Cash and cash equivalents at end of year $ 28,301 $ 28,863 Supplemental cash flow information: Cash paid for interest $ 3,227 $ 1,794 Cash paid for income taxes $ 2,582 $ 2,764 See the accompanying notes to the consolidated financial statements. 32 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Note 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which, for insurance companies, differ in some respects from the statutory accounting practices prescribed or permitted by regulatory authorities. These financial statements include the accounts of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results achieved in any historical period are not necessarily indicative of results to be expected in any future period. At December 31, 2023, the Parent owned five insurance subsidiaries, Bankers Fidelity Life Insurance Company and its wholly-owned subsidiaries, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers Fidelity”), and American Southern Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company. American Southern Insurance Company also wholly-owned three non-insurance subsidiaries, Premier Adjusting and Claim Services, Inc., Automobile Safety Management, Inc. and Automated Systems of Georgia, Inc. (together with American Southern Insurance Company and American Safety Insurance Company known as “American Southern”). In addition, the Parent owned one non-insurance subsidiary, xCalibre Risk Services, Inc. The Parent has issued a guarantee of all liabilities of Bankers Fidelity. Premium Revenue and Cost Recognition Life insurance premiums are recognized as revenue when due; accident and health insurance premiums are recognized as revenue over the premium paying period and property and casualty insurance premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided. Losses, benefits and expenses are accrued as incurred and are associated with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. For traditional life insurance and long-duration health insurance, this association is accomplished by the provision of a future policy benefits reserve and the deferral and subsequent amortization of the costs of acquiring business, which are referred to as “deferred policy acquisition costs” (principally commissions, premium taxes, and other incremental direct costs of issuing policies). Deferred policy acquisition costs (“DAC”) are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used in computing the future policy benefits reserve. The Company provides for insurance benefits and losses on accident, health, and property-casualty claims based upon estimates of projected ultimate losses. DAC for property and casualty insurance and short-duration health insurance is amortized over the effective period of the related insurance policies. Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability of a particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued as earned. In periods in which revisions are made to the estimated loss reserves related to the particular insurance contract or group of insurance contracts subject to such commissions, corresponding adjustments are also made to the related accruals. DAC is expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance). 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 Intangibles consist of goodwill and other indefinite-lived intangible assets. Goodwill represents the excess of cost over the fair value of net assets acquired and is not amortized. Other indefinite-lived intangibles represent the value of licenses and are not amortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverse conditions exist that could indicate impairment. Conditions that could trigger impairment include, but are not limited to, a significant change in business climate that could affect the value of the related asset, an adverse action, or an assessment by a regulator. No impairment of the Company’s recorded intangibles was identified during any of the periods presented. 33 Table of Contents Investments The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and, accordingly, are carried at fair value with the after-tax difference from amortized cost, less allowance for credit losses (“ACL”), as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss. The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income. The fair values of fixed maturities and equity securities are largely determined from publicly quoted market prices, when available, or independent broker quotations. Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market prices. Prior to January 1, 2023, the Company applied other than temporary impairment (“OTTI”) guidance for securities in an unrealized loss position. An OTTI was recognized in earnings within realized investment gains (losses) when it was anticipated that the amortized cost would not be recovered. When either: (i) the Company had the intent to sell the security, or (ii) it was more likely than not that the Company would be required to sell the security before recovery, the reduction of amortized cost and the OTTI recognized in earnings was the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions existed, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected was recognized as a reduction of amortized cost and an OTTI in earnings. If the estimated fair value was less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors was recorded in OCI. On January 1, 2023, the Company adopted 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. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses). However, the ACL is limited by the amount that the fair value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI. Policy 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. The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance. The Company’s VIE interests principally consist of interests in limited partnerships and limited liability companies formed for the purpose of achieving diversified equity returns, 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 effective interest method. Dividends and interest income are recognized when earned or declared. The cost of securities sold is based on specific identification. Unrealized gains (losses) in the value of fixed maturities are accounted for as a direct increase (decrease) in accumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effect on net income. Income Taxes Deferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. They arise from differences between the financial reporting and tax basis of assets and liabilities and are adjusted for changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount of income taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance is recognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a deferred tax asset will not be realized. 34 Table of Contents Earnings Per Common Share Basic earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period. Diluted earnings per common share are based on the weighted average number of common and participating shares outstanding during the relevant period, plus options outstanding, if applicable, using the treasury stock method and the assumed conversion of the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per common share amounts are presented on a diluted basis. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with original maturities of three months or less from date of purchase. Reinsurance The Company’s insurance subsidiaries from time to time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks and to protect against catastrophic losses. In a reinsurance transaction, an insurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer. The reinsurer assumes the exposure in return for a portion of the premiums. The ceding of insurance does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet its obligations under the reinsurance agreement . 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 For employee and director share-based compensation awards, the Company determines a grant date fair value based on the price of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in the consolidated statement of operations on a straight-line basis over the requisite service period for the entire award. For non-employee share-based compensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award is measured as of the date performance is complete, which is the vesting date. Treasury Stock Treasury stock is reflected as a reduction of shareholders’ equity at cost. The Company uses the first-in-first-out (“FIFO”) purchase cost to determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additional paid-in capital when treasury stock is reissued. Recently Issued Accounting Standards Adoption of New Accounting Standards Reference Rate Reform . In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. 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 . 35 Table of Contents Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (including reinsurance recoverables, premium and other receivables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted the updated guidance as of January 1, 2023. The updated guidance was applied by a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2023, the beginning of the period of adoption. The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of $ 0.1 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance. This adjustment is primarily associated with reinsurance recoverables, premium and other receivables. The cumulative effect adjustment decreased retained earnings as of January 1, 2023 and increased the allowance for estimated uncollectible reinsurance. 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 $ 25,913 $ — Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023 75 Current period change for estimated uncollectible reinsurance ( 14 ) Write-offs of uncollectible reinsurance recoverables — Balance, end of period $ 21,103 $ 61 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 Losses Allowance for Doubtful Accounts/Expected Credit Losses Balance, beginning of period $ 15,386 $ 177 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023 — Current period change for expected credit losses 40 Write-offs of uncollectible insurance premiums and other receivables — Balance, end of period $ 23,690 $ 217 36 Table of Contents 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 taxes paid; 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. 15, 2024. 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 The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates and assumptions are used in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves, investments, and receivables, among others, and actual results could differ materially from management’s estimates. Note 2. Investments The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, 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: 2023 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Amortized Cost Fixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 50,059 $ 63 $ 4,944 $ — $ 54,940 Obligations of states and political subdivisions 8,106 15 1,424 — 9,515 Corporate securities: Utilities and telecom 21,309 143 2,582 — 23,748 Financial services 59,584 560 4,931 — 63,955 Other business – diversified 34,386 403 2,940 — 36,923 Other consumer – diversified 44,570 87 4,870 — 49,353 Total corporate securities 159,849 1,193 15,323 — 173,979 Redeemable preferred stocks: Other consumer – diversified 205 13 — — 192 Total redeemable preferred stocks 205 13 — — 192 Total fixed maturities $ 218,219 $ 1,284 $ 21,691 $ — $ 238,626 37 Table of Contents 2022 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Amortized Cost Fixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 44,412 $ 5 $ 5,926 $ 50,333 Obligations of states and political subdivisions 9,187 4 1,702 10,885 Corporate securities: Utilities and telecom 22,090 120 3,299 25,269 Financial services 59,054 397 7,085 65,742 Other business – diversified 31,058 161 4,689 35,586 Other consumer – diversified 42,705 35 6,089 48,759 Total corporate securities 154,907 713 21,162 175,356 Redeemable preferred stocks: Other consumer – diversified 223 31 — 192 Total redeemable preferred stocks 223 31 — 192 Total fixed maturities $ 208,729 $ 753 $ 28,790 $ 236,766 Bonds having an amortized cost of $ 14,647 and $ 12,333 and included in the tables above were on deposit with insurance regulatory authorities at December 31, 2023 and 2022, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $ 9,584 and $ 7,221 and included in the tables above were pledged as collateral to FHLB at December 31, 2023 and 2022, respectively. 2023 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 924 621 — 303 Communications 8,489 3,856 — 4,633 Total equity securities $ 9,413 $ 4,477 $ — $ 4,936 2022 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 790 516 — 274 Communications 10,772 6,139 — 4,633 Total equity securities $ 11,562 $ 6,655 $ — $ 4,907 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. 2023 2022 Carrying Value Amortized Cost Carrying Value Amortized Cost Due in one year or less $ 1,715 $ 1,750 $ 3,776 $ 3,797 Due after one year through five years 60,423 62,423 40,150 42,174 Due after five years through ten years 33,596 36,752 44,044 49,711 Due after ten years 86,857 97,984 87,719 103,095 Asset backed securities 35,628 39,717 33,040 37,989 Totals $ 218,219 $ 238,626 $ 208,729 $ 236,766 38 Table of Contents The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of December 31, 2023 and 2022. 2023 Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 5,194 $ 37 $ 39,476 $ 4,907 $ 44,670 $ 4,944 Obligations of states and political subdivisions 1,145 3 5,936 1,421 7,081 1,424 Corporate securities 539 13 138,283 15,310 138,822 15,323 Total temporarily impaired securities $ 6,878 $ 53 $ 183,695 $ 21,638 $ 190,573 $ 21,691 2022 Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury securities and obligations of U.S. Government agencies and authorities $ 23,763 $ 2,410 $ 19,259 $ 3,516 $ 43,022 $ 5,926 Obligations of states and political subdivisions 8,183 1,702 — — 8,183 1,702 Corporate securities 127,928 16,214 14,514 4,948 142,442 21,162 Total temporarily impaired securities $ 159,874 $ 20,326 $ 33,773 $ 8,464 $ 193,647 $ 28,790 Analysis of Securities in Unrealized Loss Positions As 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. 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 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 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 features. 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. 39 Table of Contents 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: 2023 2022 Fixed maturities $ 9,333 $ 9,141 Equity securities 332 327 Other 646 729 10,311 10,197 Investment expenses 253 265 Net investment income $ 10,058 $ 9,932 A summary of realized investment gains (losses) follows: 2023 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 70 $ — $ — $ 70 Losses — — — — Realized investment gains, net $ 70 $ — $ — $ 70 2022 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 101 $ — $ 1 $ 102 Losses ( 52 ) — ( 20 ) ( 72 ) Realized investment gains (losses), net $ 49 $ — $ ( 19 ) $ 30 Proceeds from the sales of available-for-sale fixed maturities were as follows: 2023 2022 Sales proceeds $ 5,035 $ 3,649 Gross gains 70 101 Gross losses — — Proceeds from the sales of equity securities were as follows: 2023 2022 Sales proceeds $ 2 $ 1 Gross gains — — Gross losses — — Proceeds from the sales of other invested assets were as follows: 2023 2022 Sales proceeds $ — $ 161 Gross gains — 1 Gross losses — ( 20 ) Sales of available-for-sale securities in 2023 and 2022 were primarily a result of improving the overall risk versus return profile of the portfolio. In addition, the Company sold its interest in a certain limited liability company held as other invested assets to a third-party in 2022. 40 Table of Contents The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2023 and 2022. 2023 2022 Net realized and unrealized gains (losses) recognized during the period on equity securities $ ( 2,177 ) $ ( 7,562 ) Less: Net realized gains recognized during the period on equity securities sold during the period — — Unrealized gains (losses) on equity securities, net $ ( 2,177 ) $ ( 7,562 ) The Company’s bond portfolio included 99 % investment grade securities, as defined by the NAIC, at December 31, 2023 and 2022. Variable Interest Entities The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance. The Company’s VIE interests principally consist of interests in limited partnerships and limited liability companies formed for the purpose of achieving diversified equity returns. The Company’s VIE interests, carried as a part of other invested assets, totaled $ 6,381 and $ 5,386 at December 31, 2023 and 2022, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238 at December 31, 2023 and 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 primary beneficiary. Therefore, the Company has not consolidated these VIEs. The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE. The Company has no arrangements with any of the VIEs to provide other financial support to or on behalf of the VIE. The Company’s maximum loss exposure relative to these investments was limited to the carrying value of the Company’s investment in the VIEs, which amount to $ 7,619 and $ 6,624 , at December 31, 2023 and 2022, respectively. As 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. The reduction in the Company’s outstanding commitments was a result of an additional investment of $ 1,354 in the partnership. Note 3. Disclosures About Fair Value of Financial Instruments The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels. Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks. Level 2 Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data. Level 3 Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. The Company’s financial instruments valued using Level 3 criteria consist of one 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 is valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations. 41 Table of Contents Recurring Fair Value Measurements Cash Equivalents . The carrying amount approximates fair value due to the short-term nature of the instruments. Fixed Maturities and Common and Non-Redeemable Preferred Stocks . The carrying amount is determined from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information is also considered, as applicable. Nonrecurring Fair Value Measurements Non-publicly Traded Invested Assets . The fair value of investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships. Policy Loans . Policy loans, which are categorized as Level 3 fair value measurements, are carried at the unpaid principal balances. Junior Subordinated Debentures . The fair value is estimated based on observable interest rates and yields for debt instruments having similar characteristics. As of December 31, 2023, financial instruments carried at fair value were measured on a recurring basis as summarized below: Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ — $ 218,219 $ — $ 218,219 Equity securities 9,228 — 185 9,413 Cash equivalents 14,834 — — 14,834 Total $ 24,062 $ 218,219 $ 185 $ 242,466 As of December 31, 2022, financial instruments carried at fair value were measured on a recurring basis as summarized below: Assets: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fixed maturities $ — $ 208,729 $ — $ 208,729 Equity securities 11,406 — 156 11,562 Cash equivalents 18,861 — — 18,861 Total $ 30,267 $ 208,729 $ 156 $ 239,152 The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of December 31, 2023 and 2022. Level in 2023 2022 Fair Value Hierarchy (1) Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets: Cash and cash equivalents Level 1 $ 28,301 $ 28,301 $ 28,863 $ 28,863 Fixed maturities Level 2 218,219 218,219 208,729 208,729 Equity securities (1) 9,413 9,413 11,562 11,562 Policy loans Level 3 1,778 1,778 1,759 1,759 Liabilities: Junior subordinated debentures, net Level 2 33,738 33,670 33,738 33,810 Revolving credit facility Level 2 3,019 3,019 2,009 2,009 (1) See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets. 42 Table of Contents Note 4. Deferred Policy Acquisition Costs The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31. 2023 2022 American Southern Bankers Fidelity American Southern Bankers Fidelity Deferred policy acquisition costs: Balance, beginning of year $ 2,401 $ 39,880 $ 2,390 $ 36,308 Capitalization 8,689 9,320 10,161 12,867 Amortization ( 8,390 ) ( 8,050 ) ( 10,150 ) ( 9,295 ) Balance, end of year $ 2,700 $ 41,150 $ 2,401 $ 39,880 Note 5. Internal-Use Software On March 3, 2021, the Company entered into a hosting arrangement through a service contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services. The software is managed, hosted, supported, and delivered as a cloud-based software service product offering (software-as-a-service). The initial term of the arrangement is five years from the effective date with a renewal term of an additional five years . Service fees related to the hosting arrangement are recorded as an expense in the Company’s condensed consolidated statement of operations as incurred. Implementation expenses incurred related to third party professional and consulting services have been capitalized. The Company will begin amortizing, on a straight-line basis over the expected ten year term of the hosting arrangement, when the software is substantially ready for its intended use. The Company incurred and capitalized implementation costs of $ 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. The Company 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. Note 6. Insurance Reserves and Policyholder Funds The following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims and loss adjustment expenses at December 31, 2023 and 2022. Amount of Insurance In Force, Net 2023 2022 2023 2022 Future policy benefits Life insurance policies: Ordinary life and annuities $ 50,040 $ 50,660 $ 172,907 $ 186,863 Group life 11,917 2,533 633,017 474,150 61,957 53,193 $ 805,924 $ 661,013 Accident and health insurance policies 30,538 32,371 92,495 85,564 Unearned premiums 31,317 28,348 Losses, claims and loss adjustment expenses 87,478 87,484 Other policy liabilities 1,132 1,255 Total insurance reserves and policyholder funds $ 212,422 $ 202,651 Annualized premiums for accident and health insurance policies were $ 84,127 and $ 89,471 at December 31, 2023 and 2022, respectively. 43 Table of Contents Future Policy Benefits 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 (v) 3.0 % to 4.0 % for 2010 through 2023 issues. Loss and Claim Reserves Loss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate of ultimate liability and claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. The estimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operations in the year in which such changes are known. Activity in the liability for unpaid loss and claim reserves is summarized as follows: 2023 2022 Balance at January 1 $ 87,484 $ 85,620 Less: Reinsurance recoverable on unpaid losses ( 17,647 ) ( 17,690 ) Net balance at January 1 69,837 67,930 Incurred related to: Current year 113,246 125,754 Prior years 1,418 (1) ( 4,228 ) (2) Total incurred 114,664 121,526 Paid related to: Current year 67,484 82,002 Prior years 44,217 37,617 Total paid 111,701 119,619 Net balance at December 31 72,800 69,837 Plus: Reinsurance recoverable on unpaid losses 14,678 17,647 Balance at December 31 $ 87,478 $ 87,484 (1) 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. (2) 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: 2023 2022 Total incurred losses $ 114,664 $ 121,526 Cash surrender value and matured endowments 1,323 1,598 Benefit reserve changes 6,513 332 Total insurance benefits and losses incurred $ 122,500 $ 123,456 Liability for Unpaid Losses, Claims and Loss Adjustment Expenses The following is information, by significant product lines, about incurred and paid claims development as of December 31, 2023, net of reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included within the net incurred claims amounts. The information presented for the years ended December 31, 2015 and prior is presented as supplementary information and is unaudited. 44 Table of Contents Medicare Supplement For the Years Ended December 31, As of December 31, 2023 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 57,179 $ 56,938 $ 56,981 $ 56,981 $ 56,976 $ 56,977 $ 56,976 $ 56,976 $ 56,976 $ 56,976 $ — 940 2015 55,482 54,939 54,993 54,990 54,984 54,985 54,985 54,985 54,985 — 898 2016 58,849 59,851 63,226 63,225 63,221 63,221 63,221 63,221 — 1,037 2017 67,960 69,655 69,643 69,635 69,633 69,633 69,632 — 1,512 2018 79,140 80,404 80,361 80,357 80,351 80,348 — 2,052 2019 88,765 87,028 86,988 86,986 86,980 — 2,246 2020 75,857 75,715 75,730 75,730 14 1,853 2021 65,267 61,579 61,785 52 1,771 2022 58,777 56,047 239 2,103 2023 48,367 11,979 1,864 $ 654,071 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 48,024 $ 56,938 $ 56,981 $ 56,981 $ 56,976 $ 56,977 $ 56,976 $ 56,976 $ 56,976 $ 56,976 2015 45,430 54,876 54,993 54,990 54,984 54,985 54,985 54,985 54,985 2016 49,165 59,747 63,226 63,225 63,221 63,221 63,221 63,221 2017 57,696 69,517 69,643 69,635 69,633 69,633 69,633 2018 66,565 80,222 80,361 80,355 80,351 80,348 2019 72,333 86,856 86,978 86,985 86,980 2020 63,129 75,527 75,710 75,715 2021 50,197 61,350 61,733 2022 46,111 55,808 2023 36,388 $ 641,787 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 12,284 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 (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. 45 Table of Contents Automobile Liability For the Years Ended December 31, As of December 31, 2023 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 20,812 $ 21,881 $ 22,041 $ 22,353 $ 21,682 $ 22,080 $ 22,100 $ 22,125 $ 22,165 $ 22,095 $ — 3,560 2015 18,521 19,857 20,017 20,007 20,086 20,680 20,849 20,955 21,021 — 3,537 2016 20,549 21,275 21,846 22,388 22,245 22,310 22,448 22,448 — 3,862 2017 22,179 24,212 23,766 25,180 26,009 26,153 26,231 1 3,813 2018 24,284 25,682 27,338 30,013 30,464 31,135 323 3,651 2019 25,241 24,045 25,724 28,042 28,513 397 3,606 2020 22,416 16,442 20,137 21,164 1,010 2,517 2021 25,887 21,172 24,957 1,899 2,774 2022 28,860 27,293 3,093 2,845 2023 33,266 16,714 2,558 $ 258,123 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 6,822 $ 13,807 $ 17,554 $ 20,177 $ 20,878 $ 21,735 $ 21,813 $ 21,786 $ 21,958 $ 22,095 2015 6,226 11,878 14,938 17,612 19,557 20,234 20,726 20,904 21,021 2016 6,796 13,141 16,397 19,613 21,408 21,809 22,448 22,448 2017 7,401 16,317 20,221 22,778 25,023 25,712 26,222 2018 6,989 15,647 21,121 24,662 27,671 29,201 2019 7,305 14,694 19,384 22,868 26,126 2020 5,172 9,941 14,693 18,133 2021 6,242 13,918 19,230 2022 7,023 18,010 2023 9,068 $ 211,554 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 46,569 Automobile Physical Damage For the Years Ended December 31, As of December 31, 2023 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2019 2020 2021 2022 2023 2019 $ 8,526 $ 8,026 $ 7,914 $ 7,881 $ 7,873 $ 1 1,495 2020 10,288 10,080 10,047 10,024 3 1,642 2021 14,296 13,385 13,305 4 1,900 2022 10,962 10,648 33 1,756 2023 6,460 96 1,401 $ 48,310 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2019 2020 2021 2022 2023 2019 $ 6,360 $ 8,005 $ 7,906 $ 7,867 $ 7,866 2020 8,347 9,952 10,008 9,992 2021 11,993 13,277 13,257 2022 8,475 10,368 2023 5,397 $ 46,880 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 1,430 46 Table of Contents General Liability For the Years Ended December 31, As of December 31, 2023 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 3,744 $ 501 $ 557 $ 476 $ 406 $ 497 $ 523 $ 519 $ 511 $ 514 $ 2 207 2015 4,421 1,037 1,227 1,044 867 855 855 870 870 — 149 2016 3,119 1,148 736 608 621 619 620 620 — 94 2017 1,490 488 513 738 738 839 777 — 84 2018 1,656 333 198 128 183 183 — 76 2019 1,916 707 455 515 909 117 95 2020 2,223 670 657 363 ( 66 ) 89 2021 2,567 1,329 1,328 215 102 2022 2,770 2,380 634 122 2023 2,887 1,906 87 $ 10,831 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 171 $ 299 $ 331 $ 369 $ 373 $ 493 $ 498 $ 502 $ 502 $ 505 2015 98 259 464 664 863 855 855 854 854 2016 116 203 568 608 617 619 620 620 2017 75 136 365 556 696 741 777 2018 65 90 115 128 183 183 2019 41 209 242 354 404 2020 208 385 462 539 2021 364 646 813 2022 402 1,169 2023 125 $ 5,989 All outstanding liabilities before 2014, net of reinsurance 341 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 5,183 Surety For the Years Ended December 31, As of December 31, 2023 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 3,214 $ 3,130 $ 2,990 $ 2,760 $ 2,685 $ 2,617 $ 2,818 $ 2,782 $ 2,852 $ 2,592 $ 4 54 2015 1,902 1,630 1,400 1,359 1,406 1,310 1,307 1,280 1,279 — 50 2016 3,314 1,812 1,865 1,876 1,865 1,678 1,670 1,666 — 47 2017 4,677 3,671 3,799 3,629 3,514 3,440 3,448 8 67 2018 3,528 1,938 1,381 956 767 750 — 64 2019 2,130 657 630 513 507 11 32 2020 2,263 574 465 460 — 23 2021 2,936 1,455 1,497 — 35 2022 3,202 2,339 72 50 2023 2,634 1,590 108 $ 17,172 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 $ 1,331 $ 2,327 $ 2,727 $ 2,739 $ 2,664 $ 2,593 $ 2,562 $ 2,562 $ 2,568 $ 2,570 2015 641 856 1,127 1,125 1,128 1,271 1,273 1,279 1,279 2016 1,054 1,732 1,772 1,873 1,862 1,677 1,670 1,666 2017 1,971 3,255 3,523 3,545 3,442 3,402 3,400 2018 1,157 1,454 1,361 941 760 749 2019 259 395 568 446 444 2020 97 460 464 459 2021 156 803 1,496 2022 970 2,191 2023 98 $ 14,352 All outstanding liabilities before 2014, net of reinsurance 33 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 2,853 47 Table of Contents For the property and casualty lines of business, the number of claims presented above equals the number of occurrences by type of claim reported to the Company. The number of claims reported during a given year corresponds to the number of claims records opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business. For automobile claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. The Company has consistently monitored claim frequency on this basis, and believes this provides more meaningful information than using claimant count which can change over the course of settling a claim. In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimate payment based on the known information of the claim at that time. Claims managers review and monitor all property and casualty claims in excess of $ 25,000 . As new information becomes available or payments are made on a claim, the case reserve is adjusted to reflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims are based on complex and subjective judgments and subject to change at any time as new information becomes available. In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Company as of the reporting date as well as potential adverse development on known case reserves. IBNR reserve estimates are derived through a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitative factors are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicated adjustments are made. Because of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove better or worse than indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized and could increase or decrease earnings for the period. The following is supplementary information about average historical claims duration as of December 31, 2023. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Reserve Line 1 st Year 2 nd Year 3 rd Year 4 th Year 5 th Year 6 th Year 7 th Year 8 th Year 9 th Year 10 th Year Medicare Supplement 81.9 % 17.1 % 0.2 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Automobile Liability 26.9 % 29.8 % 17.3 % 12.6 % 8.3 % 3.3 % 1.9 % 0.2 % 0.7 % 0.6 % Automobile Physical Damage 83.5 % 16.1 % - 0.3 % - 0.3 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % General Liability 21.9 % 22.2 % 21.2 % 14.6 % 13.1 % 5.7 % 1.4 % 0.2 % 0.0 % 0.6 % Surety 50.4 % 41.5 % 14.5 % - 10.6 % - 5.1 % - 1.1 % - 0.4 % 0.1 % 0.1 % 0.1 % The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and loss adjustment expenses is as follows: December 31, 2023 Net outstanding liabilities Medicare Supplement $ 12,284 Automobile Liability 46,569 Automobile Physical Damage 1,430 General Liability 5,183 Surety 2,853 Other short-duration insurance lines 2,391 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 70,710 Reinsurance recoverable on unpaid losses: Medicare Supplement 8,263 Automobile Liability 3,870 Automobile Physical Damage 303 General Liability 2,242 Other short-duration insurance lines — Total reinsurance recoverable on unpaid losses 14,678 Unallocated claims adjustment expenses 2,090 Total gross liability for unpaid losses, claims and loss adjustment expenses $ 87,478 48 Table of Contents Note 7. Reinsurance In accordance with general practice in the insurance industry, portions of the life, property and casualty insurance written by the Company are reinsured; however, the Company remains liable with respect to reinsurance ceded should any reinsurer be unable or unwilling to meet its obligations. Approximately 99.7 % of the Company’s reinsurance recoverables were due from a single reinsurer as of December 31, 2023. Reinsurance recoverables of $ 21,041 were due from General Re Corporation, rated “AA+” by Standard & Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against reinsurance recoverables, if appropriate. 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 retention. American Southern also issues individual surety bonds with face amounts generally up to $ 1.5 million, and limited to $ 5.0 million in aggregate per account, that are not reinsured. Life and Health Operations Bankers Fidelity has entered into reinsurance contracts ceding the excess of its life retention. Maximum retention by Bankers Fidelity on any one individual 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 Corporation. 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. The effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows: For the Year Ended December 31, 2023 American Southern Bankers Fidelity Total Direct premiums written $ 49,580 $ 166,093 $ 215,673 Assumed premiums written 27,987 29 28,016 Ceded premiums written ( 5,902 ) ( 55,933 ) ( 61,835 ) Net premiums written $ 71,665 $ 110,189 $ 181,854 Direct premiums earned $ 46,349 $ 166,368 $ 212,717 Assumed premiums earned 27,996 7 28,003 Ceded premiums earned ( 5,902 ) ( 55,993 ) ( 61,895 ) Net premiums earned $ 68,443 $ 110,382 $ 178,825 Provision for benefits and losses incurred $ 52,899 $ 110,995 $ 163,894 Reinsurance loss recoveries ( 1,884 ) ( 39,510 ) ( 41,394 ) Insurance benefits and losses incurred $ 51,015 $ 71,485 $ 122,500 49 Table of Contents For the Year Ended December 31, 2022 American Southern Bankers Fidelity Total Direct premiums written $ 52,404 $ 176,119 $ 228,523 Assumed premiums written 26,814 9 26,823 Ceded premiums written ( 6,547 ) ( 61,701 ) ( 68,248 ) Net premiums written $ 72,671 $ 114,427 $ 187,098 Direct premiums earned $ 51,844 $ 176,995 $ 228,839 Assumed premiums earned 24,978 8 24,986 Ceded premiums earned ( 6,546 ) ( 61,839 ) ( 68,385 ) Net premiums earned $ 70,276 $ 115,164 $ 185,440 Provision for benefits and losses incurred $ 49,568 $ 124,478 $ 174,046 Reinsurance loss recoveries ( 2,393 ) ( 48,197 ) ( 50,590 ) Insurance benefits and losses incurred $ 47,175 $ 76,281 $ 123,456 Components of reinsurance receivables at December 31, 2023 and 2022 were as follows: December 31, 2023 American Southern Bankers Fidelity Total Recoverable on unpaid losses, net of allowance $ 6,415 $ 8,263 $ 14,678 Recoverable on unpaid benefits — 5,470 5,470 Recoverable on paid losses — 108 108 Ceded unearned premiums — 621 621 Ceded advanced premiums — 226 226 Total reinsurance receivables $ 6,415 $ 14,688 $ 21,103 December 31, 2022 American Southern Bankers Fidelity Total Recoverable on unpaid losses $ 8,265 $ 9,382 $ 17,647 Recoverable on unpaid benefits — 6,788 6,788 Recoverable on paid losses — 618 618 Ceded unearned premiums — 681 681 Ceded advanced premiums — 179 179 Total reinsurance receivables $ 8,265 $ 17,648 $ 25,913 Note 8. Income Taxes Total income taxes were allocated as follows: 2023 2022 Total tax expense (benefit) on income $ ( 394 ) $ 571 Tax expense (benefit) on components of shareholders’ equity: Net unrealized income (losses) on investment securities 1,602 ( 10,589 ) Total tax expense (benefit) $ 1,208 $ ( 10,018 ) 50 Table of Contents A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax expense (benefit) is as follows: 2023 2022 Federal income tax provision at the statutory rate $ ( 119 ) $ 440 Statutory rate 21 % 21 % Dividends-received deduction ( 24 ) ( 24 ) Meals and entertainment 15 61 Vested stock and club dues 16 14 Parking disallowance 17 17 Penalties and fines — 149 Adjustment for prior years’ estimates to actual ( 299 ) ( 86 ) Income tax expense (benefit) $ ( 394 ) $ 571 Effective tax rate 69.7 % 27.2 % 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 . Also contributing to differences between the effective tax rate and the federal statutory income tax rate were the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $ 86 in the year ended December 31, 2022. Other contributing factors to the differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and the dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income. Deferred tax assets and liabilities at December 31, 2023 and 2022 were comprised of the following: 2023 2022 Deferred tax assets: Deferred acquisition costs $ 8,808 $ 7,953 Net unrealized investment losses 3,342 4,489 Insurance reserves 2,898 1,597 Impaired assets 791 791 Bad debts and other 337 252 Net operating loss 559 — Total deferred tax assets 16,735 15,082 Deferred tax liabilities: Deferred and uncollected premiums $ ( 1,053 ) $ ( 835 ) Net unrealized investment gains — — Other — ( 84 ) Total deferred tax liabilities ( 1,053 ) ( 919 ) Net deferred tax asset $ 15,682 $ 14,163 The components of income tax expense (benefit) were: 2023 2022 Current – Federal $ 2,727 $ 2,390 Deferred – Federal ( 3,121 ) ( 1,819 ) Total $ ( 394 ) $ 571 The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2020, 2021 and 2022 are considered open tax years that remain subject to examination by the Internal Revenue Service. 51 Table of Contents Note 9. Credit Arrangements 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 issued regulations, 12 C.F.R. Part 253, “Regulations Implementing the Adjustable Interest Rate LIBOR Act (Regulation ZZ),” which relate to the LIBOR transition. Bank Debt On May 12, 2021, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with Truist Bank as the lender (the “Lender”). The Credit Agreement provides for an unsecured $ 10,000 revolving credit facility that matures on April 12, 2024 . 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 that exceeds 35 % of the Company’s consolidated capitalization at any time. The Credit Agreement also contains customary representations and warranties and events of default. Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of December 31, 2023 and 2022, the Company had outstanding borrowings of $ 3,019 and $ 2,009 , respectively, under the Credit Agreement. Junior Subordinated Debentures The Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of: (i) issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of 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 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 December 31, 2023 and 2022, was as follows: Atlantic American Statutory Trust I Atlantic American Statutory Trust II JUNIOR SUBORDINATED DEBENTURES (1)(2) Balance December 31, 2023 $ 18,042 $ 23,196 Less: Treasury debt (3) — ( 7,500 ) Net balance December 31, 2023 $ 18,042 $ 15,696 Net balance December 31, 2022 $ 18,042 $ 15,696 Coupon rate 3-Month SOFR + 0.26161 spread adj + 4.00% 3-Month SOFR + 0.26161 spread adj + 4.10% Interest payable Quarterly Quarterly Maturity date December 4, 2032 May 15, 2033 Redeemable by issuer Yes Yes TRUST PREFERRED SECURITIES Issuance date December 4, 2002 May 15, 2003 Securities issued 17,500 22,500 Liquidation preference per security $ 1 $ 1 Liquidation value $ 17,500 $ 22,500 Coupon rate 3-Month SOFR + 0.26161 spread adj + 4.00% 3-Month SOFR + 0.26161 spread adj + 4.10% Distribution payable Quarterly Quarterly Distribution guaranteed by (4) Atlantic American Corporation Atlantic American Corporation 52 Table of Contents (1) For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities. (2) The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries. (3) In 2014, the Company acquired $ 7,500 of the Junior Subordinated Debentures. (4) The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation. Note 10. Leases The Company has two operating lease agreements, each for the use of office space in the ordinary course of business. The first lease renews annually on an automatic basis and based on original assumptions, management is reasonably certain to exercise the renewal option through 2026. The original term of the second lease was ten years and amended in January 2017 to provide for an additional seven years , with a termination date on September 30, 2026. The rate used in determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for each of the years ended December 31, 2023 and 2022 was $ 1,014 . Additional information regarding the Company’s real estate operating leases is as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 Other information on operating leases: Cash payments included in the measurement of lease liabilities reported in operating cash flows $ 1,048 1,031 Right-of-use assets included in other assets on the consolidated balance sheet 2,614 3,405 Weighted average discount rate 6.8 % 6.8 % Weighted average remaining lease term in years 2.9 years 3.9 years The following table presents maturities and present value of the Company’s lease liabilities: Lease Liability 2024 $ 1,065 2025 1,083 2026 942 Thereafter — Total undiscounted lease payments 3,090 Less: present value adjustment 293 Operating lease liability included in accounts payable and accrued expenses on the consolidated balance sheet $ 2,797 As of December 31, 2023, the Company has no operating leases that have not yet commenced. Note 11. Benefit Plans Equity Incentive Plan On May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan 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. 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. 53 Table of Contents On May 24, 2022, the Company’s shareholders approved the 2022 Equity and Incentive Compensation Plan (the “2022 Plan”). The 2022 Plan authorizes the grant of up to 3,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, performance units and other awards, and succeeded the 2012 Plan for the purpose of providing the Company’s non-employee directors, consultants, officers and other employees incentives and rewards for performance and service. During the year ended 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. There were no stock options granted or outstanding under the 2022 Plan in 2023 or 2022. 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 . 401(k) Plan The Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Code in May 1995. The Plan covers substantially all of the Company’s employees. Effective January 1, 2009, the Company modified the Plan such that the Plan would operate on a safe harbor basis. Under the Plan, employees may defer up to 50 % of their compensation, not to exceed the annual deferral limit. The Company’s total matching contribution for 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. Agent Stock Purchase Plan The Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012. The purpose of the Agent Stock Purchase Plan is to promote and advance the interests of the Company and its shareholders by providing independent agents who qualify as participants with an opportunity to purchase the common stock of the Company. Under the Agent Stock Purchase Plan, payment for shares of common stock of the Company is made by either deduction from an agent’s commission payment or a direct cash payment. Stock purchases are made at the end of each calendar quarter at the then current market value. Note 12. Preferred Stock The Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2023 and 2022, respectively. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a par value of $ 1 per share and a redemption value of $ 100 per share; accrue annual dividends at a rate of $ 7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. The Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of $ 18 at December 31, 2023 and 2022. During each of 2023 and 2022, the Company paid Series D Preferred Stock dividends of $ 399 . Note 13. Earnings Per Common Share Basic earnings per share was computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share reflected the effect of potentially dilutive securities. 54 Table of Contents A reconciliation of the numerator and denominator of the income per common share calculations is as follows: For the Year Ended December 31, 2023 Income Weighted Average Shares Outstanding (In thousands) P er Share Amount Basic and Diluted Loss Per Common Share Net loss before preferred stock dividends $ ( 171 ) 20,404 - Less preferred stock dividends ( 399 ) — Net loss applicable to common shareholders $ ( 570 ) 20,404 $ ( 0.03 ) For the Year Ended December 31, 2022 Income Weighted Average Shares Outstanding (In thousands) Per Share Amount Basic and Diluted Earnings Per Common Share Net income before preferred stock dividends $ 1,525 20,390 - Less preferred stock dividends ( 399 ) — Net income applicable to common shareholders $ 1,126 20,390 $ 0.06 The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2023 and 2022 since its impact would have been antidilutive. Note 14. Statutory Reporting The assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differences between SAP and GAAP are that under SAP: (i) carrying value of certain investments differ on a GAAP versus SAP basis, such as fixed maturities that are shown at amortized cost for SAP versus fair value for GAAP (ii) certain assets that are non-admitted assets are eliminated from the balance sheet; (iii) acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policies under GAAP; (iv) the provision that is made for deferred income taxes is different than under GAAP; (v) the timing and methodology of establishing certain reserves is different than under GAAP; (vi) reinsurance is shown net on balance sheet for SAP and (vii) certain valuation allowances attributable to certain investments are required under SAP such as asset valuation reserve and interest maintenance reserve. The Company meets the minimum capital requirements in the states in which it does business. The amount of reported statutory net income and capital and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 was as follows: 2023 2022 Bankers Fidelity, net income $ 7,017 $ 3,865 American Southern, net income 3,964 5,743 Statutory net income $ 10,981 $ 9,608 Bankers Fidelity, capital and surplus $ 38,299 $ 36,672 American Southern, capital and surplus 51,774 53,023 Statutory capital and surplus $ 90,073 $ 89,695 Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by its insurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. The Parent received dividends of $ 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. 55 Table of Contents Note 15. Related Party Transactions In the normal course of business the Company has engaged in transactions with entities affiliated with the controlling shareholder of the Company. These transactions include the leasing of office space, certain investing and financing activities, as well as inconsequential administrative and consulting services. At December 31, 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 square feet of office and covered garage space from one such controlled entity. During the years ended December 31, 2023 and 2022, the Company paid $ 1,199 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. Each of Delta Life Insurance Company and 4370 Peachtree LLC is controlled by an affiliate of the Company. Certain financing for the Company has also been provided by this entity in the form of an investment in the Series D Preferred Stock (See Note 12). During the years ended December 31, 2023 and 2022, the Company paid this entity $ 399 in dividends on the Series D Preferred Stock. Certain members of the Company’s management and board of directors are shareholders and on the board of directors of Gray Television, Inc. (“Gray”). As of December 31, 2023 and 2022, the Company owned 880,272 shares of Gray Class A common stock and 106,000 shares of Gray common stock. The aggregate carrying value of these investments in Gray at December 31, 2023 and 2022 was $ 8,490 and $ 10,772 , respectively. 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. Note 16. Segment Information The Parent’s primary insurance subsidiaries operate with relative autonomy and each company is evaluated based on its individual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as well as from investment income. Substantially all revenue other than that in the corporate and other segment is from external sources. For the Year Ended December 31, 2023 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 68,443 $ 110,382 $ — $ — $ 178,825 Insurance benefits and losses incurred 51,015 71,485 — — 122,500 Expenses deferred ( 8,689 ) ( 9,320 ) — — ( 18,009 ) Amortization and depreciation expense 8,389 8,050 509 — 16,948 Other expenses 17,046 39,262 21,875 ( 12,264 ) 65,919 Total expenses 67,761 109,477 22,384 ( 12,264 ) 187,358 Underwriting income 682 905 — — 1,587 Net investment income (loss) 4,507 5,755 3,325 ( 3,529 ) 10,058 Other income (loss) 7 7 8,738 ( 8,735 ) 17 Subtotal 5,196 6,667 ( 10,321 ) — 1,542 Net realized gains — 70 — — 70 Unrealized losses on equity securities ( 111 ) ( 2,015 ) ( 51 ) — ( 2,177 ) Income (loss) before income taxes $ 5,085 $ 4,722 $ ( 10,372 ) $ — $ ( 565 ) Total revenues $ 72,846 $ 114,199 $ 12,012 $ ( 12,264 ) $ 186,793 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 149,236 $ 203,079 $ 146,585 $ ( 117,635 ) $ 381,265 56 Table of Contents For the Year Ended December 31, 2022 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 70,276 $ 115,164 $ — $ — $ 185,440 Insurance benefits and losses incurred 47,175 76,281 — — 123,456 Expenses deferred ( 10,161 ) ( 12,867 ) — — ( 23,028 ) Amortization and depreciation expense 10,240 9,452 498 — 20,190 Other expenses 20,082 37,337 17,432 ( 9,714 ) 65,137 Total expenses 67,336 110,203 17,930 ( 9,714 ) 185,755 Underwriting income 2,940 4,961 — — 7,901 Net investment income (loss) 4,147 5,414 2,461 ( 2,090 ) 9,932 Other income (loss) 3 8 7,624 ( 7,624 ) 11 Subtotal 7,090 10,383 ( 7,845 ) — 9,628 Net realized gains (losses) ( 28 ) 58 — — 30 Unrealized losses on equity securities ( 449 ) ( 6,629 ) ( 484 ) — ( 7,562 ) Income (loss) before income taxes $ 6,613 $ 3,812 $ ( 8,329 ) $ — $ 2,096 Total revenues $ 73,949 $ 114,015 $ 9,601 $ ( 9,714 ) $ 187,851 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 144,455 $ 195,028 $ 140,661 $ ( 113,080 ) $ 367,064 Note 17. Commitments and Contingencies Litigation From time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and 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 Like all domestic insurance companies, the Company’s insurance subsidiaries are subject to regulation and supervision in the jurisdictions in which they do business. Statutes typically delegate regulatory, supervisory, and administrative powers to state insurance commissioners. From time to time, and in the ordinary course of business, the Company receives notices and inquiries from state insurance departments with respect to various matters. In 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. Note 18. 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 effect. 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. 57 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.