ATLANTIC AMERICAN CORP 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting system has been designed to provide reasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management recognizes that there are inherent limitations in the effectiveness of any internal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Furthermore, the application of any evaluations of effectiveness on future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were not effective as of that date due to a material weakness in internal control over financial reporting described below. 58 Table of Contents Management’s Report on Internal Control Over Financial Reporting Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the updated 2013 Internal Control – Integrated Framework . Based on that evaluation, management believes that internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) was not effective as of December 31, 2023, as a result of the material weakness described below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of management’s evaluation, we identified certain deficiencies in internal control that we believe rise to the level of a material weakness. Specifically, management determined that the design of the controls surrounding the process of reviewing insurance reserves and deferred acquisition costs within the Company’s life and health segment was not effective. This deficiency in design did not enable the timely detection of anomalies in these values at the level of precision necessary to detect misstated values that may be material. Notwithstanding these deficiencies, management believes that, because of the actions taken by management in identifying, and to address and correct, these deficiencies prior to the completion and filing of this Annual Report on Form 10-K, and the effective operation of other internal controls over financial reporting, the material weakness did not result in any identified material misstatements to our financial statements. As a result, there were no changes to any of our historical financial statements. Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to certain rules of the Securities and Exchange Commission that exempt non-accelerated filers, including the Company, from such requirement. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is currently in the process of remediating the material weakness as described above, which remediation efforts began in the quarter ended March 31, 2024 and include developing and implementing enhanced controls related to the review of values that are estimated using actuarial models. The enhancements include implementing reviews at the product level where management evaluates, for each of the Company’s life and health products, the components of underwriting income and how they interrelate. In addition, calculations that are independent from the actuarial models will, once fully developed, validate that the product parameters and actuarial assumptions are completely and accurately reflected within the actuarial models. The Company has also initiated the development of an array of analytical reports that will help facilitate the timely detection of anomalous values within the Company’s life and health segment. It is currently expected that these reports will be operational by September 30, 2024. These reports will include reconciliations of actuarial values from quarter to quarter, utilizing values estimated via the actuarial models and values that are produced by accounting processes. Inherent Limitations on Effectiveness of Controls No system of controls, no matter how well designed and implemented, can provide absolute assurance that the objectives of the system of controls are met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud within a company have been detected. Item 9B. Other Information None of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2023, as such terms are defined under Item 408(a) of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 59 Table of Contents PART III With the exception of certain information relating to the executive officers of the Company, which is provided in Part I hereof, the information relating to securities authorized for issuance under equity compensation plans and the information relating to the Company’s Code of Business Conduct and Ethics, each of which is included below, all information required by Part III (Items 10, 11, 12, 13 and 14 of Form 10-K) is incorporated by reference to the sections entitled “Election of Directors,” “Security Ownership of Certain Beneficial Owners and Management,” “Delinquent Section 16(a) Reports” (if applicable), “Executive Compensation,” “Certain Relationships and Related Person Transactions" and “Ratification of the Appointment of the Company's Independent Registered Public Accounting Firm” to be contained in the Company’s definitive proxy statement in connection with the Company’s 2024 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of the Company’s fiscal year end. Equity Compensation Plan Information The following table sets forth, as of December 31, 2023, the number of securities issuable upon exercise of outstanding options, warrants and rights, the weighted average exercise price thereof and the number of securities remaining available for future issuance under the Company’s equity compensation plans: Plan Category Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) Equity compensation plans approved by security holders — $ — 2,960,000 Equity compensation plans not approved by security holders (1) — — — Total — $ — 2,960,000 (1) All of the Company’s equity compensation plans have been approved by the Company’s shareholders. Code of Business Conduct and Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or any persons performing similar functions, as well as its directors and other employees. A copy of this Code of Business Conduct and Ethics has been filed as an exhibit to this annual report on Form 10-K. 60 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) List of documents filed as part of this report: 1. Financial Statements: See Index to Financial Statements contained in Item 8 hereof. 2. Financial Statement Schedules: Schedule II - Condensed financial information of the registrant Schedule III - Supplementary insurance information of the registrant Schedule IV - Reinsurance information for the registrant Schedule VI - Supplemental information concerning property-casualty insurance operations of the registrant Schedules other than those listed above are omitted as they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 3. Exhibits *: 3.1 Restated Articles of Incorporation of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K for the year ended December 31, 2008]. 3.2 Restated Bylaws of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed on March 4, 2016]. 4.1 Description of the registrant’s common stock registered pursuant to section 12 of the Securities Exchange Act of 1934 [incorporated by reference to Exhibit 4.1 to the registrant’s Form 10-K filed on March 24, 2020]. 10.01 Management Agreement, dated July 1, 1993, between the registrant and Atlantic American Life Insurance Company and Bankers Fidelity Life Insurance Company [incorporated by reference to Exhibit 10.41 to the registrant’s Form 10-Q for the quarter ended September 30, 1993]. 10.02 Tax Allocation Agreement, dated as of January 4, 2016, between the registrant and the registrant’s subsidiaries [incorporated by reference to Exhibit 10.02 to the registrant’s Form 10-K for the year ended December 31, 2017]. 10.03** Atlantic American Corporation 2012 Nonqualified Stock Purchase Plan [incorporated by reference to Exhibit 99.1 to the registrant’s Form S-8 (File No. 333-183207) filed on August 10, 2012]. 10.04** Atlantic American Corporation 2012 Equity Incentive Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q for the quarter ended March 31, 2013]. 10.05 Lease Agreement, dated as of November 1, 2007, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life Insurance Company [incorporated by reference to Exhibit 10.10 to the registrant’s Form 10-K for the year ended December 31, 2007]. 10.06 First Amendment to Lease Agreement, dated as of March 31, 2008, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life Insurance Company [incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q for the quarter ended March 31, 2008]. 10.07 Assignment and Assumption of Leases and Contracts, dated as of December 21, 2022, by and between Delta Life Insurance Company and 4370 Peachtree LLC. 10.09 Revolving Credit Agreement, dated as of May 12, 2021, by and between Atlantic American Corporation and Truist Bank [incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the SEC on May 13, 2021]. 10.10** Atlantic American Corporation 2022 Equity and Incentive Compensation Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on May 31, 2022]. 14.1 Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Form 10-K for the year ended December 31, 2003]. 21.1 Subsidiaries of the registrant [incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-K for the year ended December 31, 2015]. 23.1 Consent of FORVIS LLP, Independent Registered Public Accounting Firm. 31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 61 Table of Contents 31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 Atlantic American Corporation Compensation Clawback Policy 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * The registrant agrees to furnish to the Commission upon request a copy of any instruments defining the rights of security holders of the registrant that may be omitted from filing in accordance with the Commission’s rules and regulations. ** Management contract, compensatory plan or arrangement. Item 16. Form 10-K Summary None. 62 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATLANTIC AMERICAN CORPORATION (Registrant) By: /s/ J. Ross Franklin J. Ross Franklin Vice President and Chief Financial Officer Date: April 1, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Hilton H. Howell, Jr. President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) April 1, 2024 HILTON H. HOWELL, JR. /s/ J. Ross Franklin Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) April 1, 2024 J. ROSS FRANKLIN /s/ Robin R. Howell Director April 1, 2024 ROBIN R. HOWELL /s/ Mark E. Preisinger Director April 1, 2024 MARK E. PREISINGER /s/ Joseph M. Scheerer Director April 1, 2024 JOSEPH M. SCHEERER /s/ Scott G. Thompson Director April 1, 2024 SCOTT G. THOMPSON /s/ D. Keehln Wheeler Director April 1, 2024 D. KEEHLN WHEELER 63 Table of Contents Schedule II Page 1 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) BALANCE SHEETS ASSETS December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 2,774 $ 2,680 Investments 1,930 2,278 Investment in subsidiaries 117,637 113,079 Investments in unconsolidated trusts 1,238 1,238 Deferred tax asset, net 15,682 14,163 Income taxes receivable from subsidiaries 1,988 1,951 Other assets 6,733 6,681 Total assets $ 147,982 $ 142,070 LIABILITIES AND SHAREHOLDERS’ EQUITY Other payables $ 3,949 $ 4,130 Revolving credit facility 3,019 2,009 Junior subordinated debentures 33,738 33,738 Total liabilities 40,706 39,877 Shareholders’ equity 107,276 102,193 Total liabilities and shareholders’ equity $ 147,982 $ 142,070 See accompanying report of independent registered public accounting firm. 64 Table of Contents Schedule II Page 2 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) STATEMENTS OF OPERATIONS Year Ended December 31, 2023 2022 (In thousands) Revenue Fee income from subsidiaries $ 8,738 $ 7,624 Distributed earnings from subsidiaries 8,400 7,200 Unrealized losses on equity securities, net ( 51 ) ( 484 ) Other ( 455 ) 93 Total revenue 16,632 14,433 General and administrative expenses 15,336 13,583 Interest expense 3,269 1,952 ( 1,973 ) ( 1,102 ) Income tax benefit (1) ( 4,802 ) ( 3,934 ) 2,829 2,832 Equity in undistributed earnings of subsidiaries, net ( 3,000 ) ( 1,307 ) Net income (loss) $ ( 171 ) $ 1,525 (1) Under the terms of a tax-sharing agreement, income tax provisions for the subsidiary companies are computed on a separate company basis. Accordingly, the Company’s income tax benefit results from the utilization of the Parent’s separate return loss to reduce the consolidated taxable income of the Company. See accompanying report of independent registered public accounting firm. 65 Table of Contents Schedule II Page 3 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) 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 used in operating activities: Unrealized losses on equity securities, net 51 484 Depreciation and amortization 509 515 Compensation expense related to share awards 119 134 Loss (earnings) from equity method investees 294 ( 294 ) Equity in undistributed earnings of subsidiaries, net 3,000 1,307 (Increase) decrease in intercompany taxes ( 37 ) 220 Deferred income tax benefit ( 3,123 ) ( 2,336 ) Decrease in accounts payable and accrued expenses ( 181 ) ( 285 ) Other, net ( 509 ) ( 1,348 ) Net cash used in operating activities ( 48 ) ( 78 ) Cash flows from investing activities: Additions to property and equipment ( 39 ) ( 45 ) Net cash used in investing activities ( 39 ) ( 45 ) Cash flows from financing activities: Payment of dividends on Series D preferred stock ( 399 ) ( 399 ) Payment of dividends on common stock ( 408 ) ( 408 ) Proceeds from revolving credit facility, net 1,000 2,000 Treasury stock acquired — net employee share-based compensation ( 12 ) ( 108 ) Net cash provided by financing activities 181 1,085 Net increase in cash 94 962 Cash and cash equivalents at beginning of year 2,680 1,718 Cash and cash equivalents at end of year $ 2,774 $ 2,680 Supplemental disclosure: Cash paid for interest $ 3,227 $ 1,794 Cash paid for income taxes $ 2,582 $ 2,764 Intercompany tax settlement from subsidiaries $ 4,031 $ 3,946 See accompanying report of independent registered public accounting firm. 66 Table of Contents Schedule III Page 1 of 2 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION Segment Deferred Acquisition Costs Future Policy Benefits, Losses, Claims and Loss Reserves Unearned Premiums Other Policy Claims and Benefits Payable (In thousands) December 31, 2023 : Bankers Fidelity $ 41,150 $ 116,141 $ 2,561 $ 1,132 American Southern 2,700 63,832 28,756 — $ 43,850 $ 179,973 (1) $ 31,317 $ 1,132 December 31, 2022 : Bankers Fidelity $ 39,880 $ 110,238 $ 2,814 $ 1,255 American Southern 2,401 62,810 25,534 — $ 42,281 $ 173,048 (2) $ 28,348 $ 1,255 (1) Includes future policy benefits of $ 92,495 and losses and claims of $ 87,478 . (2) Includes future policy benefits of $ 85,564 and losses and claims of $ 87,484 . See accompanying report of independent registered public accounting firm. 67 Table of Contents Schedule III Page 2 of 2 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION Segment Premium Revenue Net Investment Income (Loss) Benefits, Claims, Losses and Settlement Expenses Amortization of Deferred Acquisition Costs Other Operating Expenses Casualty Premiums Written (In thousands) December 31, 2023 : Bankers Fidelity $ 110,382 $ 5,755 $ 71,485 $ 8,050 $ 29,942 $ — American Southern 68,443 4,507 51,015 8,390 8,356 71,665 Corporate & other — ( 204 ) — — 10,120 — $ 178,825 $ 10,058 $ 122,500 $ 16,440 $ 48,418 $ 71,665 December 31, 2022 : Bankers Fidelity $ 115,164 $ 5,414 $ 76,281 $ 9,295 $ 24,627 $ — American Southern 70,276 4,147 47,175 10,150 10,011 72,671 Corporate & other — 371 — — 8,216 — $ 185,440 $ 9,932 $ 123,456 $ 19,445 $ 42,854 $ 72,671 See accompanying report of independent registered public accounting firm. 68 Table of Contents Schedule IV ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES REINSURANCE INFORMATION Direct Amount Ceded to Other Companies Assumed From Other Companies Net Amounts Percentage of Amount Assumed to Net (Dollars in thousands) Year ended December 31, 2023 : Life insurance in force $ 814,241 $ ( 8,317 ) $ — $ 805,924 Premiums — Bankers Fidelity $ 166,368 $ ( 55,993 ) $ 7 $ 110,382 0.0 % American Southern 46,349 ( 5,902 ) 27,996 68,443 40.9 % Total premiums $ 212,717 $ ( 61,895 ) $ 28,003 $ 178,825 15.7 % Year ended December 31, 2022 : Life insurance in force $ 670,610 $ ( 9,597 ) $ — $ 661,013 Premiums — Bankers Fidelity $ 176,995 $ ( 61,839 ) $ 8 $ 115,164 0.0 % American Southern 51,844 ( 6,546 ) 24,978 70,276 35.5 % Total premiums $ 228,839 $ ( 68,385 ) $ 24,986 $ 185,440 13.5 % See accompanying report of independent registered public accounting firm. 69 Table of Contents Schedule VI ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS Claims and Claim Adjustment Expenses Incurred Related To Year Ended Deferred Policy Acquisition Costs Reserves Unearned Premiums Earned Premiums Net Investment Income Current Year Prior Years Amortization of Deferred Acquisition Costs Paid Claims and Claim Adjustment Expenses Premiums Written (In thousands) December 31, 2023 $ 2,700 $ 63,832 $ 28,756 $ 68,443 $ 4,507 $ 47,658 $ 3,357 $ 8,390 $ 48,144 $ 71,665 December 31, 2022 $ 2,401 $ 62,810 $ 25,534 $ 70,276 $ 4,147 $ 48,692 $ ( 1,517 ) $ 10,150 $ 42,948 $ 72,671 See accompanying report of independent registered public accounting firm. 70