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 Mazars, LLP ), Atlanta, Georgia , PCAOB Firm ID No. 686 ) 24 Consolidated Balance Sheets as of December 31, 2024 and 2023 27 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 28 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024 and 2023 29 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024 and 2023 30 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 31 Notes to Consolidated Financial Statements 32 23 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Atlantic American Corporation Atlanta, Georgia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Atlantic American Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America (US GAAP). Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 audit to obtain reasonable assurance about whether the consolidated 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 its 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 consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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 consolidated 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. 24 Table of Contents Shareholders and Board of Directors Atlantic American Corporation Valuation of Insurance Reserves for Losses and Claims (Claim Reserves) As reflected on the consolidated balance sheet and discussed in Note 7 to the consolidated financial statements, the Company’s insurance reserves for losses and claims (claim reserves), were $93.7 million as of December 31, 2024. 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 7 to the consolidated financial statements, the Company’s insurance reserves for future policy benefits (policy reserves) were $98.5 million as of December 31, 2024. Policy reserves are related to life and health insurance policies and are based upon significant assumptions including future investment yields, mortality rates, withdrawal rates and expenses after giving effect to possible risks of unexpected claim experience. These assumptions are based on historical experience modified as necessary to reflect anticipated trends and are generally established at contract inception. The principal considerations for our determination that the valuation of policy reserves is a critical audit matter are the high degree of judgment 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 25 Table of Contents Shareholders and Board of Directors Atlantic American Corporation 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. /s/ Forvis Mazars, LLP We have served as the Company’s auditor since 2018. Atlanta, Georgia March 25, 2025 26 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2024 2023 (In thousands, except share and per share data) ASSETS Cash and cash equivalents $ 35,570 $ 28,301 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost: $ 236,299 and $ 238,626 ; no allowance for credit losses ) 212,612 218,219 Equity securities, at fair value (cost: $ 4,939 and $ 4,936 ) 7,900 9,413 Other invested assets (cost: $ 7,946 and $ 6,982 ) 6,616 6,381 Policy loans 1,722 1,778 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 230,126 237,067 Receivables: Reinsurance (net of allowance for uncollectible reinsurance of $ 51 and $ 61 ) 22,942 21,103 Insurance premiums and other (net of allowance for expected credit losses $ 201 and $ 217 ) 27,458 23,690 Deferred income taxes, net 18,118 15,682 Deferred acquisition costs 44,842 43,850 Other assets 11,828 9,028 Intangibles 2,544 2,544 Total assets $ 393,428 $ 381,265 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds Future policy benefits $ 98,464 $ 92,495 Unearned premiums 31,178 31,317 Losses and claims 93,707 87,478 Other policy liabilities 1,757 1,132 Total insurance reserves and policyholder funds 225,106 212,422 Accounts payable and accrued expenses 30,948 24,811 Revolving credit facility 4,023 3,019 Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 293,815 273,990 Commitments and contingencies (Note 18) 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; 20,399,758 and 20,402,288 shares outstanding as of 2024 and 2023 , respectively 22,401 22,401 Additional paid-in capital 57,425 57,425 Retained earnings 45,854 50,929 Accumulated other comprehensive loss ( 18,712 ) ( 16,121 ) Unearned stock grant compensation ( 2 ) ( 13 ) Treasury stock, at cost, 2,001,136 and 1,998,606 shares as of 2024 and 2023 , respectively ( 7,408 ) ( 7,401 ) Total shareholders’ equity 99,613 107,275 Total liabilities and shareholders’ equity $ 393,428 $ 381,265 See the accompanying notes to the consolidated financial statements. 27 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2024 2023 (In thousands, except per share data) Revenue: Insurance premiums, net $ 178,731 $ 178,825 Net investment income 9,791 10,058 Realized investment gains, net 1,210 70 Unrealized losses on equity securities, net ( 1,516 ) ( 2,177 ) Other income 11 17 Total revenue 188,227 186,793 Benefits and expenses: Insurance benefits and losses incurred 125,831 122,500 Commissions and underwriting expenses 48,030 46,124 Interest expense 3,419 3,269 Other expense 16,211 15,465 Total benefits and expenses 193,491 187,358 Loss before income taxes ( 5,264 ) ( 565 ) Income tax benefit ( 996 ) ( 394 ) Net loss ( 4,268 ) ( 171 ) Preferred stock dividends ( 399 ) ( 399 ) Net loss applicable to common shareholders $ ( 4,667 ) $ ( 570 ) Loss per common share (basic and diluted) ( 0.23 ) ( 0.03 ) See the accompanying notes to the consolidated financial statements. 28 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2024 2023 (In thousands) Net loss $ ( 4,268 ) $ ( 171 ) Other comprehensive gain (loss): Available-for-sale fixed maturity securities: Gross unrealized holding gain (loss) arising in the period ( 3,263 ) 7,700 Related income tax effect 685 ( 1,617 ) Subtotal ( 2,578 ) 6,083 Less: reclassification adjustment for net realized gains included in net income ( 17 ) ( 70 ) Related income tax effect 4 15 Subtotal ( 13 ) ( 55 ) Total other comprehensive income (loss), net of tax ( 2,591 ) 6,028 Total comprehensive income (loss) $ ( 6,859 ) $ 5,857 See the accompanying notes to the consolidated financial statements. 29 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year Ended December 31, (In thousands, except share and per share data) 2024 2023 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 57,425 Balance, end of year 57,425 57,425 Retained earnings: Balance, beginning of year 50,929 51,982 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023 — ( 75 ) Net loss ( 4,268 ) ( 171 ) Dividends on common stock ( 408 ) ( 408 ) Dividends accrued on preferred stock ( 399 ) ( 399 ) Balance, end of year 45,854 50,929 Accumulated other comprehensive loss: Balance, beginning of year ( 16,121 ) ( 22,149 ) Other comprehensive income (loss), net of tax ( 2,591 ) 6,028 Balance, end of year ( 18,712 ) ( 16,121 ) Unearned stock grant compensation: Balance, beginning of year ( 13 ) ( 132 ) Amortization of unearned compensation 11 119 Balance, end of year ( 2 ) ( 13 ) Treasury stock: Balance, beginning of year ( 7,401 ) ( 7,389 ) Net shares acquired related to employee share-based compensation plans ( 7 ) ( 12 ) Balance, end of year ( 7,408 ) ( 7,401 ) Total shareholders’ equity $ 99,613 $ 107,275 Dividends declared on common stock per share $ 0.02 $ 0.02 Common shares outstanding: Balance, beginning of year 20,402,288 20,407,229 Net shares acquired under employee share-based compensation plans ( 2,530 ) ( 4,941 ) Balance, end of year 20,399,758 20,402,288 See the accompanying notes to the consolidated financial statements. 30 Table of Contents ATLANTIC AMERICAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2024 2023 (In thousands) Cash flows from operating activities: Net loss $ ( 4,268 ) $ ( 171 ) Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 16,645 16,440 Acquisition costs deferred ( 17,637 ) ( 18,009 ) Realized investment gains, net ( 1,210 ) ( 70 ) Unrealized losses on equity securities, net 1,516 2,177 Losses from equity method investees 766 360 Compensation expense related to share awards 11 119 (Benefit) provision for credit losses ( 26 ) 26 Depreciation and amortization 366 652 Deferred income tax benefit ( 1,747 ) ( 3,121 ) Increase in receivables, net ( 5,581 ) ( 3,520 ) Increase in insurance reserves and policyholder funds 12,684 9,771 Increase (decrease) in accounts payable and accrued expenses 6,137 ( 1,662 ) Other, net ( 2,856 ) ( 370 ) Net cash provided by operating activities 4,800 2,622 Cash flows from investing activities: Proceeds from investments sold and policy loans redeemed 2,567 5,044 Proceeds from investments matured, called or redeemed 13,791 9,744 Investments purchased ( 13,850 ) ( 18,073 ) Additions to property and equipment ( 225 ) ( 80 ) Net cash provided by (used in) investing activities 2,283 ( 3,365 ) 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 ( 7 ) ( 12 ) Proceeds from revolving credit facility, net 1,000 1,000 Net cash provided by financing activities 186 181 Net increase (decrease) in cash 7,269 ( 562 ) Cash and cash equivalents at beginning of year 28,301 28,863 Cash and cash equivalents at end of year $ 35,570 $ 28,301 Supplemental cash flow information: Cash paid for interest $ 3,445 $ 3,227 Cash paid for income taxes $ 580 $ 2,582 See the accompanying notes to the consolidated financial statements. 31 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, 2024, 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 collectability. 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. 32 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. 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. 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. 33 Table of Contents 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 . 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. 34 Table of Contents Segment Reporting . In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting- An Amendment for Improvements to Reportable Segment Disclosures (Topic 280) ( “ ASU 2023-07 ” ). 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 Topic 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 adopted ASU No. 2023-07 on December 31, 2024. Refer to Note 17 of Notes to Consolidated Financial Statements for details regarding the Company’s Segment Information. 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 and considering appropriate cohorts to be reported, such as lines of business and both premium paying and nonpremium paying policies. The Company expects to use the modified retrospective method upon adoption. Although the financial impact on the financial statements has not been determined, it is presumed to be material. 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 December 15, 2024. The Company is evaluating the new guidance and any effect it will have on the Company’s financials. Expense Disaggregation Disclosures . In November 2024, the FASB issued ASU No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (“ASU 2024-03”). This Update requires disaggregated disclosure of income statement expenses for public business entities (“PBE”). The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 adds ASC 220-40 to require a footnote disclosure about specific expenses by requiring companies to disaggregate, in a tabular presentation, each relevant expense caption on the face of the income statement that includes employee compensation, depreciation, and intangible asset amortization. The tabular disclosure would also include certain other expenses, which do not apply to the Company. The ASU does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. ASU 2024-03 is effective for all PBEs for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently 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, 2024 and December 31, 2023. 35 Table of Contents Fixed maturities were comprised of the following: 2024 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 $ 22,251 $ 24 $ 2,144 $ — $ 24,371 Loan backed and structured securities 22,290 17 2,457 — 24,730 Obligations of states and political subdivisions 7,623 9 1,517 — 9,131 Corporate securities: Utilities and telecom 24,623 108 3,206 — 27,721 Financial services 59,564 563 4,768 — 63,769 Other business – diversified 34,117 160 3,919 — 37,876 Other consumer – diversified 41,957 33 6,585 — 48,509 Total corporate securities 160,261 864 18,478 — 177,875 Redeemable preferred stocks: Other consumer – diversified 187 — 5 — 192 Total redeemable preferred stocks 187 — 5 — 192 Total fixed maturities $ 212,612 $ 914 $ 24,601 $ — $ 236,299 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 $ 22,849 $ 51 $ 1,951 $ — $ 24,749 Loan backed and structures securities 27,210 12 2,993 — 30,191 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 Bonds having an amortized cost of $ 15,065 and $ 14,647 and included in the tables above were on deposit with insurance regulatory authorities at December 31, 2024 and 2023, respectively, in accordance with statutory requirements. In addition, the Company maintains cash and cash equivalents on deposit with insurance regulatory authorities of $ 226 at December 31, 2024 and 2023. Additionally, bonds having an amortized cost of $ 9,209 and $ 9,584 and included in the tables above were pledged as collateral to FHLB at December 31, 2024 and 2023, respectively. 2024 Estimated Fair Value Gross Unrealized Gains Gross Unrealized Losses Cost Equity securities: Common and non-redeemable preferred stocks: Financial services 1,149 843 — 306 Communications 6,751 2,118 — 4,633 Total equity securities $ 7,900 $ 2,961 $ — $ 4,939 36 Table of Contents 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 The carrying value and amortized cost of the Company’s investments in fixed maturities at December 31, 2024 and 2023 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. 2024 2023 Carrying Value Amortized Cost Carrying Value Amortized Cost Due in one year or less $ 7,484 $ 7,497 $ 1,715 $ 1,750 Due after one year through five years 62,722 64,703 60,423 62,423 Due after five years through ten years 32,820 35,552 33,596 36,752 Due after ten years 80,199 95,466 86,857 97,984 Asset backed securities 29,387 33,081 35,628 39,717 Totals $ 212,612 $ 236,299 $ 218,219 $ 238,626 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, 2024 and 2023. 2024 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 $ 3,753 $ 33 $ 16,136 $ 2,111 $ 19,889 $ 2,144 Loan backed and structured securities 1,010 5 16,069 2,452 17,079 2,457 Obligations of states and political subdivisions — — 5,839 1,517 5,839 1,517 Corporate securities 18,510 755 125,930 17,723 144,440 18,478 Redeemable preferred stocks 188 5 — — 188 5 Total temporarily impaired securities $ 23,461 $ 798 $ 163,974 $ 23,803 $ 187,435 $ 24,601 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 $ 4,197 $ 17 $ 15,639 $ 1,934 $ 19,836 $ 1,951 Loan backed and structured securities 997 20 23,837 2,973 24,834 2,993 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 37 Table of Contents Analysis of Securities in Unrealized Loss Positions As of December 31, 2024 and 2023, there were 213 and 222 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, 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. 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, 2024 and 2023. Investment income was earned from the following sources: 2024 2023 Fixed maturities $ 9,520 $ 9,333 Equity securities 335 332 Other 191 646 10,046 10,311 Investment expenses 255 253 Net investment income $ 9,791 $ 10,058 A summary of realized investment gains (losses) follows: 2024 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 19 $ — $ 1,193 $ 1,212 Losses ( 2 ) — — ( 2 ) Realized investment gains, net $ 17 $ — $ 1,193 $ 1,210 2023 Fixed Maturities Equity Securities Other Invested Assets Total Gains $ 70 $ — $ — $ 70 Losses — — — — Realized investment gains, net $ 70 $ — $ — $ 70 38 Table of Contents Proceeds from the sales of available-for-sale fixed maturities were as follows: 2024 2023 Sales proceeds $ — $ 5,035 Gross gains — 70 Gross losses — — Proceeds from the sales of equity securities were as follows: 2024 2023 Sales proceeds $ — $ 2 Gross gains — — Gross losses — — Proceeds from the sales of other invested assets were as follows: 2024 2023 Sales proceeds $ 2,510 $ — Gross gains 1,193 — Gross losses — — Sales of available-for-sale securities in 2024 and 2023 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 2024. The following table presents the portion of unrealized gains (losses) related to equity securities still held for the years ended December 31, 2024 and 2023. 2024 2023 Net realized and unrealized losses recognized during the period on equity securities $ ( 1,516 ) $ ( 2,177 ) Less: Net realized gains recognized during the period on equity securities sold during the period — — Unrealized losses on equity securities, net $ ( 1,516 ) $ ( 2,177 ) The Company’s bond portfolio included 99 % investment grade securities, as defined by the NAIC, at December 31, 2024 and 2023. 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 $ 6,616 and $ 6,381 at December 31, 2024 and 2023, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $ 1,238 at December 31, 2024 and 2023. 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 $ 7,854 and $ 7,619 , at December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, the Company had outstanding commitments totaling $ 2,200 and $ 4,518 , 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 $ 2,318 in the partnership. 39 Table of Contents 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, 2024 and December 31, 2023, the value of the equity security valued using Level 3 criteria was $ 189 and $ 185 , 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. 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. 40 Table of Contents As of December 31, 2024, 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 $ — $ 212,612 $ — $ 212,612 Equity securities 7,711 — 189 7,900 Cash equivalents 14,948 — — 14,948 Total $ 22,659 $ 212,612 $ 189 $ 235,460 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 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, 2024 and 2023. Level in 2024 2023 Fair Value Hierarchy (1) Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Assets: Cash and cash equivalents Level 1 $ 35,570 $ 35,570 $ 28,301 $ 28,301 Fixed maturities Level 2 212,612 212,612 218,219 218,219 Equity securities (1) 7,900 7,900 9,413 9,413 Policy loans Level 3 1,722 1,722 1,778 1,778 Liabilities: Junior subordinated debentures, net Level 2 33,738 35,443 33,738 33,670 Revolving credit facility Level 2 4,023 4,023 3,019 3,019 (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. Note 4. Allowance for Expected Credit Losses Reinsurance Recoverables The following table presents the balances of reinsurance recoverables, net of the allowance for expected credit losses, at December 31, 2024 and 2023, and the changes in the allowance for expected credit losses for the year ended December 31, 2024 and 2023. At and year ended December 31, 2024 Reinsurance Recoverables, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Balance, beginning of period $ 21,103 $ 61 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023 — Current period change for estimated uncollectible reinsurance ( 10 ) Write-offs of uncollectible reinsurance recoverables — Balance, end of period $ 22,942 $ 51 41 Table of Contents At and year ended December 31, 2023 Reinsurance Recoverables, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses 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 December 31, 2024 and 2023, and the changes in the allowance for expected credit losses for the year ended December 31, 2024 and 2023. At and year ended December 31, 2024 Insurance Premiums and Other, Net of Expected Credit Losses Allowance for Expected Credit Losses Balance, beginning of period $ 23,690 $ 217 Current period change for expected credit losses ( 16 ) Write-offs of uncollectible insurance premiums and other receivables — Balance, end of period $ 27,458 $ 201 At and year ended December 31, 2023 Insurance Premiums and Other, Net of Expected Credit Losses Allowance for 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 Note 5. Deferred Policy Acquisition Costs The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31. 2024 2023 American Southern Bankers Fidelity American Southern Bankers Fidelity Deferred policy acquisition costs: Balance, beginning of year $ 2,700 $ 41,150 $ 2,401 $ 39,880 Capitalization 8,498 9,139 8,689 9,320 Amortization ( 8,332 ) ( 8,313 ) ( 8,390 ) ( 8,050 ) Balance, end of year $ 2,866 $ 41,976 $ 2,700 $ 41,150 42 Table of Contents Note 6. 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 , as amended , was three years . The arrangement was renewed in March 2024 for an additional five years , with a subsequent renewal term of 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 remaining term of the hosting arrangement, when the software is substantially ready for its intended use. The Company incurred and capitalized implementation costs of $ 108 and $ 1,545 during the years ended December 31, 2024 and 2023, respectively. The Company has capitalized $ 4,675 and $ 4,567 in implementation costs in other assets in its condensed consolidated balance sheet as of December 31, 2024 and 2023, respectively. The Company expects the software will be substantially ready for its intended use during 2025. Accordingly, the Company has no t recorded any amortization expense related to software implementation costs for years ended December 31, 2024 and 2023. Note 7. 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, 2024 and 2023. Amount of Insurance In Force, Net 2024 2023 2024 2023 Future policy benefits Life insurance policies: Ordinary life and annuities $ 49,467 $ 50,040 $ 165,856 $ 172,907 Group life 19,129 11,917 809,896 633,017 68,596 61,957 $ 975,752 $ 805,924 Accident and health insurance policies 29,868 30,538 98,464 92,495 Unearned premiums 31,178 31,317 Losses, claims and loss adjustment expenses 93,707 87,478 Other policy liabilities 1,757 1,132 Total insurance reserves and policyholder funds $ 225,106 $ 212,422 Annualized premiums for accident and health insurance policies were $ 82,730 and $ 84,127 at December 31, 2024 and 2023, respectively. 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, morbidity, 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 2024 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. 43 Table of Contents Activity in the liability for unpaid loss and claim reserves is summarized as follows: 2024 2023 Balance at January 1 $ 87,478 $ 87,484 Less: Reinsurance recoverable on unpaid losses ( 14,678 ) ( 17,647 ) Net balance at January 1 72,800 69,837 Incurred related to: Current year 112,393 113,246 Prior years 5,708 (1) 1,418 (2) Total incurred 118,101 114,664 Paid related to: Current year 64,300 67,484 Prior years 50,284 44,217 Total paid 114,584 111,701 Net balance at December 31 76,317 72,800 Plus: Reinsurance recoverable on unpaid losses 17,390 14,678 Balance at December 31 $ 93,707 $ 87,478 (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 frequency and severity in the inflationary factors, as well as unfavorable development in the 2021 and 2022 accident years. (2) Prior years’ development was primarily the result of unfavorable development in the property and casualty operations predominately in the automobile liability line of business due to inflationary factors, partially offset by favorable development in the Medicare supplement line of business in the life and health operations. Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred: 2024 2023 Total incurred losses $ 118,101 $ 114,664 Cash surrender value and matured endowments 1,225 1,323 Benefit reserve changes 6,505 6,513 Total insurance benefits and losses incurred $ 125,831 $ 122,500 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, 2024, 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. Medicare Supplement For the Years Ended December 31, As of December 31, 2024 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 55,482 $ 54,939 $ 54,993 $ 54,990 $ 54,984 $ 54,985 $ 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 63,221 — 1,037 2017 67,960 69,655 69,643 69,635 69,633 69,633 69,632 69,633 — 1,512 2018 79,140 80,404 80,361 80,357 80,351 80,348 80,348 — 2,052 2019 88,765 87,028 86,988 86,986 86,980 86,978 — 2,246 2020 75,857 75,715 75,730 75,730 75,708 — 1,853 2021 65,267 61,579 61,785 61,740 14 1,771 2022 58,777 56,047 55,970 50 2,107 2023 48,367 47,029 234 2,159 2024 43,708 12,208 1,769 $ 639,320 44 Table of Contents Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 45,430 $ 54,876 $ 54,993 $ 54,990 $ 54,984 $ 54,985 $ 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 63,221 2017 57,696 69,517 69,643 69,635 69,633 69,633 69,633 69,633 2018 66,565 80,222 80,361 80,355 80,351 80,348 80,348 2019 72,333 86,856 86,978 86,985 86,980 86,978 2020 63,129 75,527 75,710 75,715 75,708 2021 50,197 61,350 61,733 61,726 2022 46,111 55,808 55,920 2023 36,388 46,795 2024 31,500 $ 626,814 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 12,506 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. For Medicare Supplement policies, the estimated ultimate claims incurred, using claims data reported during each month of any given year, are calculated using the chain ladder method. Because claim patterns vary significantly during the year, this method is modified to reflect claim experience over the corresponding four-month period prior to the statement date during the prior two calendar years, and recent claim experience during a twelve-month period from sixteen months prior to the valuation date through five months prior to the valuation 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 liability for Medicare Supplement claims that are Incurred but Not Reported (the IBNR) is calculated by subtracting both paid claims through the valuation date and claims in the course of settlement as of the valuation date from the estimated ultimate claims. Thirty-six months of loss data are used to develop the estimated ultimate incurred claims. For other accident and health products and life products, similar approaches are used and modified to reflect the unique aspects of the products. Automobile Liability For the Years Ended December 31, As of December 31, 2024 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 18,521 $ 19,857 $ 20,017 $ 20,007 $ 20,086 $ 20,680 $ 20,849 $ 20,955 $ 21,021 $ 21,016 $ — 3,537 2016 20,549 21,275 21,846 22,388 22,245 22,310 22,448 22,448 22,448 — 3,863 2017 22,179 24,212 23,766 25,180 26,009 26,153 26,231 26,254 1 3,813 2018 24,284 25,682 27,338 30,013 30,464 31,135 31,170 109 3,651 2019 25,241 24,045 25,724 28,042 28,513 29,216 71 3,608 2020 22,416 16,442 20,137 21,164 21,459 163 2,523 2021 25,887 21,172 24,957 27,041 733 2,791 2022 28,860 27,293 31,633 2,446 2,918 2023 33,266 33,626 3,710 2,910 2024 34,105 15,837 2,450 $ 277,968 45 Table of Contents Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 6,226 $ 11,878 $ 14,938 $ 17,612 $ 19,557 $ 20,234 $ 20,726 $ 20,904 $ 21,021 $ 21,016 2016 6,796 13,141 16,397 19,613 21,408 21,809 22,448 22,448 22,448 2017 7,401 16,317 20,221 22,778 25,023 25,712 26,222 26,249 2018 6,989 15,647 21,121 24,662 27,671 29,201 30,507 2019 7,305 14,694 19,384 22,868 26,126 28,778 2020 5,172 9,941 14,693 18,133 20,466 2021 6,242 13,918 19,230 24,798 2022 7,023 18,010 24,137 2023 9,068 22,232 2024 8,939 $ 229,570 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 48,398 Automobile Physical Damage For the Years Ended December 31, As of December 31, 2024 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2020 2021 2022 2023 2024 2020 $ 10,288 $ 10,080 $ 10,047 $ 10,024 $ 10,013 $ 4 1,645 2021 14,296 13,385 13,305 13,329 2 1,913 2022 10,962 10,648 10,564 3 1,772 2023 6,460 6,485 13 1,591 2024 7,418 135 1,542 $ 47,809 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2020 2021 2022 2023 2024 2020 $ 8,347 $ 9,952 $ 10,008 $ 9,992 $ 9,973 2021 11,993 13,277 13,257 13,302 2022 8,475 10,368 10,528 2023 5,397 6,340 2024 5,864 $ 46,007 All outstanding liabilities before 2020, net of reinsurance 6 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 1,808 General Liability For the Years Ended December 31, As of December 31, 2024 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 4,421 $ 1,037 $ 1,227 $ 1,044 $ 867 $ 855 $ 855 $ 870 $ 870 $ 871 $ 4 150 2016 3,119 1,148 736 608 621 619 620 620 620 — 94 2017 1,490 488 513 738 738 839 777 777 — 84 2018 1,656 333 198 128 183 183 193 2 77 2019 1,916 707 455 515 909 516 19 98 2020 2,223 670 657 363 793 45 91 2021 2,567 1,329 1,328 1,267 33 105 2022 2,770 2,380 2,530 408 135 2023 2,887 1,445 528 116 2024 3,139 1,834 86 $ 12,151 46 Table of Contents Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 98 $ 259 $ 464 $ 664 $ 863 $ 855 $ 855 $ 854 $ 854 $ 855 2016 116 203 568 608 617 619 620 620 620 2017 75 136 365 556 696 741 777 777 2018 65 90 115 128 183 183 185 2019 41 209 242 354 404 433 2020 208 385 462 539 593 2021 364 646 813 1,178 2022 402 1,169 1,622 2023 125 399 2024 239 $ 6,901 All outstanding liabilities before 2015, net of reinsurance 208 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 5,458 Surety For the Years Ended December 31, As of December 31, 2024 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance IBNR Reserves Cumulative Number of Reported Claims Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 1,902 $ 1,630 $ 1,400 $ 1,359 $ 1,406 $ 1,310 $ 1,307 $ 1,280 $ 1,279 $ 1,279 $ — 50 2016 3,314 1,812 1,865 1,876 1,865 1,678 1,670 1,666 1,660 — 47 2017 4,677 3,671 3,799 3,629 3,514 3,440 3,448 3,403 2 67 2018 3,528 1,938 1,381 956 767 750 750 — 64 2019 2,130 657 630 513 507 439 — 32 2020 2,263 574 465 460 402 — 23 2021 2,936 1,455 1,497 1,475 — 36 2022 3,202 2,339 2,296 32 51 2023 2,634 1,627 12 122 2024 2,324 1,402 33 $ 15,655 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 $ 641 $ 856 $ 1,127 $ 1,125 $ 1,128 $ 1,271 $ 1,273 $ 1,279 $ 1,279 $ 1,279 2016 1,054 1,732 1,772 1,873 1,862 1,677 1,670 1,666 1,660 2017 1,971 3,255 3,523 3,545 3,442 3,402 3,400 3,394 2018 1,157 1,454 1,361 941 760 749 748 2019 259 395 568 446 444 439 2020 97 460 464 459 400 2021 156 803 1,496 1,475 2022 970 2,191 2,180 2023 98 1,602 2024 392 $ 13,569 All outstanding liabilities before 2015, net of reinsurance 78 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance $ 2,164 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. 47 Table of Contents 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, 2024. Average Annual Percentage Payout of Incurred Claims by Age, Net of Subrogation and 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 80.9 % 17.8 % 0.2 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Automobile Liability 25.8 % 29.6 % 17.3 % 13.8 % 9.6 % 4.3 % 2.8 % 0.3 % 0.3 % 0.0 % Automobile Physical Damage 83.2 % 14.5 % 0.6 % 0.1 % - 0.2 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % General Liability 16.8 % 20.0 % 21.5 % 17.3 % 14.6 % 2.2 % 1.5 % 0.0 % 0.0 % 0.1 % Surety 48.5 % 49.5 % 13.2 % 11.4 % - 7.1 % - 0.7 % - 0.1 % 0.0 % - 0.2 % 0.0 % 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, 2024 Net outstanding liabilities Medicare supplement $ 12,506 Automobile liability 48,398 Automobile physical damage 1,808 General liability 5,458 Surety 2,164 Other short-duration insurance lines 3,778 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 74,112 Reinsurance recoverable on unpaid losses: Medicare supplement 8,788 Automobile liability 5,493 Automobile physical damage — General liability 3,109 Other short-duration insurance lines — Total reinsurance recoverable on unpaid losses 17,390 Unallocated claims adjustment expenses 2,205 Total gross liability for unpaid losses, claims and loss adjustment expenses $ 93,707 Note 8. 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 99.8 % of the Company’s reinsurance recoverables were due from a single reinsurer as of December 31, 2024. Reinsurance recoverables of $ 22,887 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. 48 Table of Contents 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, 2024, $ 7.2 million of the $ 975.8 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 2024, 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, $ 5.1 million of the Company’s $ 10.1 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, 2024 American Southern Bankers Fidelity Total Direct premiums written $ 45,837 $ 164,141 $ 209,978 Assumed premiums written 27,833 9 27,842 Ceded premiums written ( 5,979 ) ( 53,236 ) ( 59,215 ) Net premiums written $ 67,691 $ 110,914 $ 178,605 Direct premiums earned $ 46,149 $ 164,282 $ 210,431 Assumed premiums earned 27,519 9 27,528 Ceded premiums earned ( 5,979 ) ( 53,249 ) ( 59,228 ) Net premiums earned $ 67,689 $ 111,042 $ 178,731 Provision for benefits and losses incurred $ 58,024 $ 109,349 $ 167,373 Reinsurance loss recoveries ( 2,257 ) ( 39,285 ) ( 41,542 ) Insurance benefits and losses incurred $ 55,767 $ 70,064 $ 125,831 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 Components of reinsurance receivables at December 31, 2024 and 2023 were as follows: December 31, 2024 American Southern Bankers Fidelity Total Recoverable on unpaid losses, net of allowance $ 8,602 $ 8,788 $ 17,390 Recoverable on unpaid benefits — 4,607 4,607 Recoverable on paid losses — — — Ceded unearned premiums — 608 608 Ceded advanced premiums — 337 337 Total reinsurance receivables $ 8,602 $ 14,340 $ 22,942 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 Note 9. Income Taxes Total income taxes were allocated as follows: 2024 2023 Total tax benefit on income $ ( 996 ) $ ( 394 ) Tax expense (benefit) on components of shareholders’ equity: Net unrealized income (losses) on investment securities ( 689 ) 1,602 Total tax expense (benefit) $ ( 1,685 ) $ 1,208 A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as follows: 2024 2023 Federal income tax provision at the statutory rate $ ( 1,105 ) $ ( 119 ) Statutory rate 21 % 21 % Dividends-received deduction ( 25 ) ( 24 ) Meals and entertainment 76 15 Vested stock and club dues 3 16 Parking disallowance 20 17 Adjustment for prior years’ estimates to actual 35 ( 299 ) Income tax benefit $ ( 996 ) $ ( 394 ) Effective tax rate 18.9 % 69.7 % The primary difference between the effective tax rate and the federal statutory income tax rate for 2024 resulted from a permanent difference related to meals and entertainment. Also contributing to differences between the effective tax rate and the federal statutory income tax rate was 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 $ 35 in the year ended December 31, 2024. Another contributing factor to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to 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. 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. 50 Table of Contents Deferred tax assets and liabilities at December 31, 2024 and 2023 were comprised of the following: 2024 2023 Deferred tax assets: Deferred acquisition costs $ 9,508 $ 8,808 Net unrealized investment losses 4,350 3,342 Insurance reserves 3,139 2,898 Impaired assets 791 791 Bad debts and other 482 337 Net operating loss 1,940 559 Total deferred tax assets 20,210 16,735 Deferred tax liabilities: Deferred and uncollected premiums $ ( 2,092 ) ( 1,053 ) Total deferred tax liabilities ( 2,092 ) ( 1,053 ) Net deferred tax asset $ 18,118 $ 15,682 The components of income tax benefit were: 2024 2023 Current – Federal $ 751 $ 2,727 Deferred – Federal ( 1,747 ) ( 3,121 ) Total $ ( 996 ) $ ( 394 ) The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2021, 2022 and 2023 are considered open tax years that remain subject to examination by the Internal Revenue Service. Note 10. Credit Arrangements Bank Debt On May 12, 2021, the Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $ 10,000 revolving credit facility that originally matured 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 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 , (c) requires the monthly payment of an unused commitment fee of 0.2 % of the unused facility amount, and (d) requires that the Company maintain a consolidated net worth of not less than $ 64,200 . Except as modified by the Amendment, the existing terms of the original Credit Agreement remain in effect. 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 and maintaining a minimum consolidated net worth, as previously mentioned. 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, 2024 and 2023, the Company had outstanding borrowings of $ 4,023 and $ 3,019 , respectively, under the Credit Agreement. For the year ended 2024 and 2023, the Company incurred $ 283 and $ 200 in interest expense, respectively, on the revolving credit facility borrowing. During the year ended 2024 and 2023, the Company paid $ 9 and $ 0 , respectively, in fees on the available unused amount of the revolving credit facility of $ 6,000 . At December 31, 2024 and 2023, the effective interest rate was 6.67 % and 7.46 %, respectively. 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. 51 Table of Contents The outstanding $ 18,042 and $ 15,696 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. 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 % plus an applicable margin, ranging from 4.00 % to 4.10 %. At December 31, 2024, the effective interest rate was 8.82 %. The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2024 and 2023, was as follows: Atlantic American Statutory Trust I Atlantic American Statutory Trust II JUNIOR SUBORDINATED DEBENTURES (1)(2) Balance December 31, 2024 $ 18,042 $ 23,196 Less: Treasury debt (3) — ( 7,500 ) Net balance December 31, 2024 $ 18,042 $ 15,696 Net balance December 31, 2023 $ 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 (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 11. Leases The Company has two operating lease agreements, each for the use of office space in the ordinary course of business. The original term of the first lease was to automatically renew on an annual basis and was amended on December 26, 2024, when the Company and its subsidiary, Bankers Fidelity Life Insurance Company, entered into a Second Amendment to Lease Agreement (the “Second Amendment”) with 4370 Peachtree LLC. The Second Amendment amends the Lease Agreement, dated November 1, 2007, by and among the same parties (as previously amended, the “Lease Agreement”), pursuant to which the Company leases space for its principal offices and for some of its insurance operations in an office building located in Atlanta, Georgia. Pursuant to the Second Amendment, the Lease Agreement was modified to increase the base rent payable by the Company, beginning January 1, 2025. The Second Amendment also provides for rent adjustment on January 1, 2027, January 1, 2030 and each five years thereafter. 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. 52 Table of Contents 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, 2024 and 2023 was $ 1,014 . Additional information regarding the Company’s real estate operating leases is as follows: Year Ended December 31, 2024 Year Ended December 31, 2023 Other information on operating leases: Cash payments included in the measurement of lease liabilities reported in operating cash flows $ 1,065 1,048 Right-of-use assets included in other assets on the consolidated balance sheet 5,225 2,614 Weighted average discount rate 6.8 % 6.8 % Weighted average remaining lease term in years 7.9 years 2.9 years The following table presents maturities and present value of the Company’s lease liabilities: Lease Liability 2025 $ 1,207 2026 1,066 2027 645 2028 645 2029 645 Thereafter 3,595 Total undiscounted lease payments 7,803 Less: present value adjustment 2,445 Operating lease liability included in accounts payable and accrued expenses on the consolidated balance sheet $ 5,358 Note 12. Benefit Plans Equity Incentive Plan 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 2024 and 2023, there were no restricted shares issued under the 2022 Plan. The estimated fair value of the restricted shares issued are 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 2024 and 2023. 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 2024 and 2023 was $ 306 and $ 283 , 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 2024 and 2023 of $ 682 and $ 629 , 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. 53 Table of Contents 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 13. Preferred Stock The Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2024 and 2023, 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, 2024 and 2023. During each of 2024 and 2023, the Company paid Series D Preferred Stock dividends of $ 399 . Note 14. Loss Per Common Share Basic loss per share was computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted loss per share reflected the effect of potentially dilutive securities. A reconciliation of the numerator and denominator of the loss per common share calculations is as follows: For the Year Ended December 31, 2024 Loss Weighted Average Shares Outstanding (In thousands) P er Share Amount Basic and Diluted Loss Per Common Share Net loss before preferred stock dividends $ ( 4,268 ) 20,400 - Less preferred stock dividends ( 399 ) — Net loss applicable to common shareholders $ ( 4,667 ) 20,400 $ ( 0.23 ) For the Year Ended December 31, 2023 Loss Weighted Average Shares Outstanding (In thousands) Per 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 ) The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common share calculation for 2024 and 2023 since its impact would have been antidilutive. 54 Table of Contents Note 15. 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: 2024 2023 Bankers Fidelity, net income $ 1,359 $ 7,017 American Southern, net income 1,442 3,964 Statutory net income $ 2,801 $ 10,981 Bankers Fidelity, capital and surplus $ 32,443 $ 38,299 American Southern, capital and surplus 47,670 51,774 Statutory capital and surplus $ 80,113 $ 90,073 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 $ 9,000 and $ 8,400 in the years ended 2024 and 2023, respectively, from its subsidiaries. In 2025, dividend payments to the Parent by the insurance subsidiaries in excess of $ 6,347 would require prior approval. Note 16. 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, 2024, 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, 4370 Peachtree LLC. During the years ended December 31, 2024 and 2023, the Company paid $ 1,153 and $ 1,199 , respectively, under this lease. On December 26, 2024, the Company and its subsidiary, Bankers Fidelity Life Insurance Company, entered into a Second Amendment to Lease Agreement (the “Second Amendment”) with 4370 Peachtree LLC. The Second Amendment amends the Lease Agreement, dated November 1, 2007, by and among the same parties (as previously amended, the “Lease Agreement”), pursuant to which the Company leases space for its principal offices and for some of its insurance operations in an office building located in Atlanta, Georgia. Pursuant to the Second Amendment, the Lease Agreement was modified to increase the base rent payable by the Company, beginning January 1, 2025. The Second Amendment also provides for rent adjustment on January 1, 2027, January 1, 2030 and each five years thereafter. 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 13). During the years ended December 31, 2024 and 2023, 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 Media, Inc., formerly Gray Television, Inc. (“Gray”). As of December 31, 2024 and 2023, 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, 2024 and 2023 was $ 6,751 and $ 8,490 , respectively. In each of the years ended December 31, 2024 and 2023, Gray paid the Company approximately $ 2,173 and $ 2,050 in insurance premiums related to certain voluntary employee benefit plans. 55 Table of Contents Note 17. 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. The Company’s strategy is to focus on well-defined geographic, demographic and/or product niches within the insurance marketplace. Substantially all revenue other than that in the corporate and other segment is from external sources. The Company adopted ASU No. 2023-07, Segment Reporting- An Amendment for Improvements to Reportable Segment Disclosures (Topic 280) in December 2024. The most significant provision was for the Company to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”). Our CODM is the Company’s Chairman, President and Chief Executive Officer. The segment’s most significant expenses include insurance benefits and losses incurred and other expenses, such as commissions and underwriting. Interest expense at the segment level is insignificant. To assess profitability on a reportable segment basis, the CODM reviews income (loss) before income taxes. For the Year Ended December 31, 2024 American Southern Bankers Fidelity Corporate & Other Adjustments & Eliminations Consolidated Insurance premiums, net $ 67,689 $ 111,042 $ — $ — $ 178,731 Insurance benefits and losses incurred 55,767 70,064 — — 125,831 Expenses deferred ( 8,498 ) ( 9,139 ) — — ( 17,637 ) Amortization and depreciation expense 8,390 8,357 1 — 16,748 Other expenses 15,673 42,660 23,356 ( 13,140 ) 68,549 Total expenses 71,332 111,942 23,357 ( 13,140 ) 193,491 Underwriting income ( 3,643 ) ( 900 ) — — ( 4,543 ) Net investment income (loss) 4,151 5,544 3,705 ( 3,609 ) 9,791 Other income (loss) 5 6 9,531 ( 9,531 ) 11 Subtotal 513 4,650 ( 10,121 ) — ( 4,958 ) Net realized gains 666 544 — — 1,210 Unrealized losses on equity securities ( 291 ) ( 1,039 ) ( 186 ) — ( 1,516 ) Income (loss) before income taxes $ 888 $ 4,155 $ ( 10,307 ) $ — $ ( 5,264 ) Total revenues $ 72,220 $ 116,097 $ 13,050 $ ( 13,140 ) $ 188,227 Intangibles $ 1,350 $ 1,194 $ — $ — $ 2,544 Total assets $ 147,214 $ 210,819 $ 144,522 $ ( 109,127 ) $ 393,428 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 (losses) — 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 Note 18. 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 19. Subsequent Events On March 25, 2025 , 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 9, 2025 . 57 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.