What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-10-16 compared with 2025-03-25 · 423 added, 279 removed, 101 unchanged (87% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the

“Parent”) and its subsidiaries (collectively with the Parent, the “Company”) for the years ended December 31, 2024 and 2023.

This discussion should be read in conjunction with the consolidated financial statements and notes thereto included

elsewhere herein.

Operating results achieved in any historical period are not necessarily indicative of results to be expected in any future period.

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries

(collectively with the Parent, the “Company”) for the years ended December 31, 2025 and 2024.

This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein.

Operating results

achieved in any historical period are not necessarily indicative of results to be expected in any future period.

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

American Southern Insurance Company and

American Safety Insurance Company (together known as “American Southern”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company

(together known as “Bankers Fidelity”) in the life and health insurance industry.

American Southern Insurance Company and American Safety Insurance

Company (together known as “American Southern”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company (together known as “Bankers

Fidelity”) in the life and health insurance industry.

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

Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, in

management’s belief, conform to general practices within the insurance industry.

Revision of Previously Issued Financial

connection with the preparation of the Company’s consolidated financial

statements for the year ended December 31, 2025, management identified errors

relating to the recognition of due-premium receivables and related premium

revenue within the Company’s group whole life and group accident and health

evaluated the errors in accordance with ASC Topic 250, Accounting Changes

and Error Corrections , and SEC Staff Accounting Bulletins No.

99, M ateriality ,

108, Considering the Effects of Prior Year Misstatements When

Quantifying Misstatements in Current Year Financial Statements .

considered the errors under both the rollover and iron-curtain methods and

evaluated relevant quantitative and qualitative factors, both individually and

in the aggregate with other identified misstatements.

on this evaluation, management concluded that the errors were not material,

individually or in the aggregate, to any of the Company’s previously issued

annual or interim financial statements.

further concluded that correcting the cumulative errors entirely in the

consolidated statement of operations for the year ended December 31, 2025 would

materially misstate the Company’s 2025 results of operations.

Accordingly, the

Company has revised the 2024 financial information presented in this Annual

Report on Form 10-K to reflect the correction of the errors in the appropriate

prior periods.

revisions did not change management’s conclusion that the Company’s previously

issued annual or interim financial statements were fairly presented, in all

material respects, in accordance with accounting principles generally accepted

in the United States.

The Company has not amended its previously filed Annual

Report on Form 10-K for the year ended December 31, 2024.

All 2024 amounts

presented in this Management’s Discussion and Analysis of Financial Condition

and Results of Operations reflect the revised amounts unless otherwise

Nature of the Errors

identified deficiencies in the design and operating effectiveness of controls

over the recording and reconciliation of premium receivables and the

application of premium payments held in suspense within the Company’s group

whole life and group accident and health business.

Company did not design and maintain effective controls to timely and accurately

reconcile enrollment, billing and cash receipt information at the individual

policyholder level and to resolve differences among third-party enrollment

data, the policy administration system and the general ledger.

As a result, the Company did not maintain

controls operating at a sufficient level of precision to determine whether

recorded premium receivables were valid, whether amounts held in suspense

should be applied to individual policyholders or otherwise recognized, and

whether the related amounts were recorded in the appropriate period and were

appropriately classified in the consolidated financial statements.

the Company has revised its previously reported 2024 financial information to

remove the affected receivables and premium revenue.

Effect of the Corrections

revisions to the Company’s consolidated financial statements as of and for the

year ended December 31, 2024 principally resulted in:

● a $5.580 million reduction in insurance premiums and

other receivables;

● a $1.172 million increase in deferred income taxes, net;

● a $2.923 million reduction in accounts payable and

accrued expenses;

● a $1.485 million reduction in retained earnings;

● a $0.351 million reduction in 2024 insurance

premiums, net and income (loss) before income taxes;

● a $0.277 million increase in 2024 net loss

revisions did not affect the Company’s cash and cash equivalents or total net

cash provided by operating activities for the year ended December 31, 2024.

revisions affected certain components of the reconciliation of net income to

net cash provided by operating activities but did not affect total net cash

provided by operating activities.

foregoing summary is not intended to present all effects of the revisions.

Note 1, Revision of Previously Issued Financial Statements, to the consolidated

financial statements for a reconciliation of the amounts previously reported to

the amounts as revised.

Certain amounts as of and for the year ended December 31, 2024 within this Form 10-K have been restated to conform with the current year accounting and presentation as a result of

the Company’s required adoption of Accounting Standards Update No.

2018-12, Financial Services—Insurance (Topic 944)— Targeted Improvements to the Accounting for Long Duration Contracts .

Refer to Note 1 of

Notes to Consolidated Financial Statements for more information regarding the Company’s adoption of LDTI and the related impact to the consolidated financial statements.

Critical Accounting Estimates

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, in management’s belief, conform to

general practices within the insurance industry.

The following is an explanation of the Company’s accounting policies and the resultant estimates considered most significant by management.

These accounting policies

inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies.

Atlantic American does not expect that changes in the estimates determined

using these policies will have a material effect on the Company’s financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.

Cash and investments comprised 68% of the Company’s total assets at December 31, 2024.

Substantially all of the Company’s

investments are in bonds and common and preferred stocks, the values of which are subject to significant market fluctuations.

The Company carries all fixed maturities, which includes bonds and redeemable preferred stocks, as available for sale, and

equity securities, which includes common and non-redeemable preferred stocks, at their estimated fair values.

On January 1, 2023, the Company adopted accounting standards update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on

Financial Instruments (“ASU 2016-13”), using a modified retrospective approach.

Under ASU 2016-13, for securities in an unrealized loss position, a credit loss is recognized in earnings within realized investment gains (losses) when it is

anticipated that the amortized cost will not be recovered.

These accounting policies inherently require significant

judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies.

Atlantic American does not expect that changes in the estimates determined using these policies will have a

material effect on the Company’s financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.

Investments comprised 62% of the Company’s total assets at December 31, 2025.

Substantially all of the Company’s investments are in bonds and common and

preferred stocks, the values of which are subject to market fluctuations, which could be significant.

The Company carries all fixed maturity securities, which includes bonds and redeemable preferred stocks, as available for sale, and equity

securities, which includes common and non-redeemable preferred stocks, at their estimated fair values.

The Company determines the fair values of certain financial instruments based on the fair value hierarchy established in Financial Accounting Standard Board (“FASB”) Accounting Standards Codification

(“ASC”) 820-10-20, Fair Value Measurements and Disclosures (“ASC 820-10-20”).

The fair values of fixed maturity securities and equity securities are largely determined by nationally quoted market prices, when

available, or independent broker quotations.

See Note 2 and Note 3 of Notes to Consolidated Financial Statements with respect to assets and liabilities carried at fair value and information about the inputs used to value those financial instruments,

by hierarchy level, in accordance with ASC 820-10-20.

For fixed maturity available-for-sale securities in an unrealized loss position, a credit loss is recognized in earnings within realized investment gains (losses) when it is anticipated that the

amortized cost will not be recovered.

(i) the Company has the intent to sell the security;

or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of

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

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

present value of projected future cash flows expected to be collected is recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses).

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

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

If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected

future cash flows expected to be collected is recognized as a credit loss by establishing an Allowance for Credit Losses (“ACL”) with a corresponding charge to earnings in realized investment gains (losses).

However, the ACL is limited by the amount

2 unchanged sentences

in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI.

The Company determines the fair values of certain financial instruments based on the fair value hierarchy established in Accounting Standards Codification (“ASC”) 820-10-20,

Fair Value Measurements and Disclosures (“ASC 820-10-20”).

The fair values of fixed maturities and equity securities are largely determined by nationally quoted market prices, when available, or independent

broker quotations.

accordance with ASC 820-10-20.

Future policy benefits comprised 34% of the Company’s total liabilities at December 31, 2024.

These liabilities relate primarily to

life insurance products and are based upon assumed future investment yields, mortality rates, and lapse rates after giving effect to possible risks of adverse deviation.

The assumed mortality and lapse rates are based upon the Company’s experience

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

If actual results differ from the initial assumptions, the amount of the Company’s recorded liability could require adjustment.

Unpaid loss and loss adjustment expenses comprised 32% of the Company’s total liabilities at December 31, 2024.

This liability

includes estimates for:

(1) unpaid losses on claims reported prior to December 31, 2024, (2) future development on those reported claims, (3) unpaid ultimate losses on claims incurred prior to December 31, 2024 but not yet reported and (4) unpaid

loss adjustment expenses for reported and unreported claims incurred prior to December 31, 2024.

Quantification of loss estimates for each of these components involves a significant degree of judgment and estimates may vary, materially, from period

Estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the Company.

Development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to December 31, 2024

but not yet reported, and estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis.

The Company’s actuaries develop ranges of estimated development on

reported and unreported claims as well as loss adjustment expenses using various methods, including the paid-loss development method, the reported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson

Any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the business environment and the Company’s administrative policies.

Further, external factors, such as

legislative changes, medical cost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses.

The Company’s approach is to select an estimate of ultimate losses based

on comparing results of a variety of reserving methods, as opposed to total reliance on any single method.

Unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business, and when current results differ from

the original assumptions used to develop such estimates, the amount of the Company’s recorded liability for unpaid loss and loss adjustment expenses is adjusted.

In the event the Company’s actual reported losses in any period are materially in

excess of the previously estimated amounts, such losses, to the extent reinsurance coverage does not exist, could have a material adverse effect on the Company’s results of operations.

Receivables are amounts due from reinsurers, insureds and agents, and any sales of investment securities not yet settled, and

comprised 13% of the Company’s total assets at December 31, 2024.

Insured and agent balances are evaluated periodically for collectability.

Annually, the Company performs an analysis of the creditworthiness of the reinsurers with whom the Company

contracts using various data sources.

Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise could result in uncollectible amounts and losses to the Company.

Allowances for uncollectible amounts are established,

as and when a loss has been determined probable, against the related receivable.

Losses are 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 experience.

Deferred acquisition costs comprised 11% of the Company’s total assets at December 31, 2024.

Deferred acquisition costs are

commissions, premium taxes, and other incremental direct costs of contract acquisition that results directly from and are essential to the contract transaction(s) and would not have been incurred by the Company had the contract transaction(s) not

The deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner.

Traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the

estimated premium-paying period of the related policies using assumptions consistent with those used in computing the related liability for policy benefit reserves.

Deferred acquisition costs for property and casualty insurance and short-duration

health insurance are amortized over the effective period of the related insurance policies.

Deferred policy acquisition costs are 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).

Assessments of recoverability for property and casualty and short-duration health insurance are

extremely sensitive to the estimates of a subsequent year’s projected losses related to the unearned premiums.

Projected loss estimates for a current block of business for which unearned premiums remain to be earned may vary significantly from the

indicated losses incurred in any previous calendar year.

Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial

reporting purposes and the amounts that are recognized for tax purposes.

Future policy benefits represented approximately 27% of total liabilities at December 31, 2025, compared to 28% at December 31, 2024.

The LFPB is established

under ASC Topic 944 Financial Services-Insurance for products classified as Long-Duration.

The Company’s products that are so classified include Individual and group life insurance policies, Medicare

Supplement policies, and other guaranteed renewable accident and health policies.

Effective January 1, 2025, the Company adopted Accounting Standards Update (“ASU”) No.

2018-12, Financial Services—Insurance (Topic 944):

Targeted Improvements to

the Accounting for Long-Duration Contracts , as subsequently amended by ASU Nos.

2019-09, 2020-11 and 2022-05.

The Company applied LDTI using the modified retrospective transition method as of January 1, 2024 (the “Transition Date”) to its

whole life, Medicare Supplement and certain guaranteed-renewable accident and health insurance products.

Under LDTI, the LFPB reflects the present value of estimated future policyholder benefits and claim settlement expenses less the present value of estimated net policyholder premiums.

These estimates are based on

actuarial assumptions for mortality, voluntary policyholder terminations, and claims under accident and health policies.

These assumptions are developed based on an evaluation of recent experience and the then-current legal, economic, and operating

environment that is conducted at least annually.

Changes in the LFPB that are attributable to changes in these assumptions are recognized in earnings.

Historical experience is updated each quarter through retrospective unlocking to reflect actual

cash flows, and changes in the LFPB that are caused by differences between actual and expected experience are also recognized in earnings.

Under LDTI, the discount rate assumption consists of a locked in rate and a current rate.

The current rate is derived from a yield curve of upper medium grade fixed income securities obtained from

Bloomberg, reflecting yields across maturities ranging from one month to fifty years and based on single A rated corporate securities.

For policies issued after January 1, 2024 (“the Transition Date”), the locked in rate equals the current rate in

effect during the quarter of issuance, while for policies issued prior to the Transition Date, the locked in rate represents the historical expected investment yield at policy issuance.

The current discount rate is updated quarterly, with changes

recognized in OCI.

In addition to the normal policy activity, the year-over-year change in the liability and related AOCI balances is driven by updates to actuarial assumptions, differences between actual and expected

experience, and changes in discount rates, and remains sensitive to changes in these assumptions.

For the purposes of calculating the NPR and the LFPB, insurance contracts are grouped into cohorts that do not span more than one issue year.

Medicare Supplement cohorts are determined by legal

entity and issue year, life insurance cohorts are established separately for individual and group policies (with further distinction for limited‑pay versus other individual life products), and other accident and health products are grouped by issue

The NPR is the ratio of the present value of expected future benefits and related claim expenses to the present value of expected future gross premiums.

The NPR used to accrue the LFPB in each period

is determined by using the historical and present value of expected future benefits and claim settlement expenses for the cohort divided by the historical and present value of expected future gross premiums for the cohort.

For contracts in force at

the Transition Date, the NPR reflects the applicable carrying amount under the Company’s modified retrospective transition method.

For contracts issued after the Transition Date, the NPR is established based on expected benefits, related expenses and

gross premiums as of the applicable contract issue date.

At each reporting date, actual experience is incorporated into the calculation, and the NPR is recalculated using actual experience and current assumptions about future cash flows.

The NPR is capped

If the calculated NPR for a cohort exceeds 100%, the Company increases the LFPB by the amount necessary to reduce the NPR to 100% and recognizes the resulting loss immediately in earnings.

The LFPB for an individual cohort may not be less

Changes in discount rates do not affect the NPR and are recognized separately in OCI.

The liability for unpaid claims and claim adjustment expenses was $113.8 million at December 31, 2025, or approximately 36% of the Company’s total

The related reinsurance recoverable was $19.3 million, resulting in a net liability of $94.5 million.

The liability is a critical accounting estimate because the ultimate amount and timing of claim payments cannot be known with certainty

until claims are resolved.

Relatively small changes in estimates of ultimate losses may materially affect the recorded liability and the benefits and losses recognized in the period of revision.

The Company accrues liabilities for unpaid claims and claim adjustment expenses when insured events occur.

The balance includes obligations under short-duration contracts, principally property and

casualty insurance products and group accident and health products, and claims that have been incurred under long-duration products, principally individual life, group whole life, Medicare Supplement and certain guaranteed-renewable individual

accident and health products.

For long-duration contracts, expected future benefit payments are incorporated into the liability for future policy benefits before the related insured event occurs;

amounts payable for insured events that have occurred

are accrued as unpaid claims.

The Company separately presents the liability for unpaid claims and the liability for future policy benefits in the Consolidated Balance Sheets.

Insurance liabilities are recorded gross of reinsurance, and related

reinsurance recoverables are reported separately.

The use of reinsurance does not relieve the Company of its obligations to policyholders.

The liability includes (i) case reserves for claims that have been reported but not fully paid, (ii) expected development on reported claims, (iii) incurred-but-not-reported claims, and (iv)

allocated and unallocated claim adjustment expenses.

Case reserves are established using claim adjusters’ evaluations and information available about individual claims.

Estimates for future claim development, incurred-but-not-reported claims and

claim adjustment expenses are developed using actuarial analyses of the Company’s historical experience and other relevant information.

The Company’s actuaries estimate ultimate losses and claim adjustment expenses by significant product line and accident year using multiple methods, including paid-loss development, reported-loss

development, paid Bornhuetter-Ferguson and reported Bornhuetter-Ferguson methods.

The loss-development methods use historical paid or reported claim-development patterns to project ultimate losses.

The Bornhuetter-Ferguson methods combine emerging

claim experience with an independently selected expected loss ratio.

No single method is determinative.

The relative weight assigned to each method varies based on the credibility and maturity of the available data, the characteristics of the product

line and current claim trends.

Management selects its best estimate after evaluating the resulting range of actuarial estimates.

Significant assumptions and judgments include expected loss ratios;

claim reporting, development and payment patterns;

claim frequency and severity;

medical cost inflation and utilization;

and social inflation;

litigation and settlement trends;

legislative and regulatory changes;

large-loss activity;

policy terms and benefit structures;

changes in business and product mix;

and changes in underwriting, claims administration and

reserving practices.

These factors can affect product lines and accident years differently, and changes in one factor may not be offset by changes in another.

The estimates are reviewed each reporting period using actual claim emergence, claim payments and current information.

When experience differs from prior assumptions, or when changes in methods or

assumptions are warranted, the estimated ultimate losses and claim adjustment expenses are revised.

The effect of a revision is recognized in benefits and losses in the period in which the change in estimate is made.

Significant changes in reserving

methodologies and assumptions, if any, are described in the notes to the consolidated financial statements.

See Note 1, Summary of Significant Accounting Policies;

Note 8, Other Insurance Reserves and Policyholder Funds;

and Note 9, Reinsurance, in the Notes to Consolidated Financial Statements for

additional information about the Company’s reserve policies, claims-development experience and reinsurance arrangements.

Deferred acquisition costs (“DAC”), which comprised approximately 10% of total assets at December 31, 2025, represent commissions, premium taxes and other

incremental direct costs of successfully acquiring insurance contracts that would not have been incurred absent such transactions.

DAC associated with long-duration contracts is grouped on a basis consistent with the related insurance contracts and amortized on a constant-level basis over the expected term of those contracts.

remaining term is calculated based on assumptions of expected mortality, lapses, and other contract terminations that are consistent with the assumptions used to measure the related liability for future policy benefits.

These assumptions are

reviewed at least annually and are updated as warranted whenever experience changes significantly.

Actual contract terminations are reflected in the amortization calculation when they occur.

DAC associated with short-duration contracts is amortized over the related coverage period in proportion to premium revenue recognized.

The Company evaluates the recoverability of short-duration DAC

when indications exist that expected claims, claim adjustment expenses, maintenance costs and other related expenses may exceed anticipated premium revenue.

If a premium deficiency exists, DAC is reduced to the extent necessary, and an additional

liability is recognized for any remaining deficiency.

Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the

amounts that are recognized for tax purposes.

These deferred income taxes are measured by applying currently enacted tax laws and rates.

Valuation allowances are recognized to reduce the deferred tax asset to the amount

that is deemed more likely than not to be realized.

Valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more likely

than not to be realized.

In assessing the likelihood of realization, management considers estimates of future taxable income and tax planning strategies.

Share-based transactions include 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.

Refer to Note 1 of Notes to Consolidated Financial Statements for details regarding the Company’s significant accounting policies.

14 unchanged sentences

Corporate and Other

Loss before income taxes

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income or loss, and believes it is a useful metric for investors, potential

investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as income tax expense, which is subject to timing,

regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized or unrealized investment gains or losses, which are not a

part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).

A reconciliation of net loss, the most directly comparable GAAP measure, to operating income (loss) is as follows:

Income (loss) before income taxes

Net income (loss)

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income or loss, and believes it is a useful metric for investors, potential investors, securities

analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as income tax expense, which is subject to timing, regulatory and rate changes

depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized or unrealized investment gains or losses, which are not a part of the Company’s primary

operations and are, to a limited extent, subject to discretion in terms of timing of realization).

A reconciliation of net income (loss), the most directly comparable GAAP measure, to operating income (loss) is as follows:

Year Ended December 31,

1 unchanged sentence

Reconciliation of Non-GAAP Financial Measure

Income tax benefit

Realized investment gains, net

Unrealized losses on equity securities, net

Net income (loss)

Income tax expense (benefit)

Realized investment (gains) losses, net

Unrealized (gains) losses on equity securities, net

Non-GAAP operating income (loss)

On a consolidated basis, the Company had net loss of $4.3 million, or $(0.23) per diluted share, in 2024, compared to net loss of $0.2 million, or $(0.03) per diluted share,

The increase in net loss was primarily due to an unfavorable loss experience in the property and casualty operations due to the frequency and severity of claims in the automobile liability line of business as well as an increase in claims

costs in the automobile physical damage line of business.

Also contributing to the increase in net loss was an increase in administrative costs related to the growth in the group lines of business within the life and health operations.

offsetting this decrease was an increase in net realized investment gains mainly due to gains of $1.2 million from the sale of the Company's interest in a certain limited liability company as well as gains from the sale of a number of the Company's

investments in fixed maturities.

On a consolidated basis, the Company had net income of $6.0 million, or $0.28 per diluted share, in 2025, compared to net loss of $1.4 million, or $(0.09) per diluted share, in 2024.

The increase in

net income was primarily due to an increase in net earned premiums in the property and casualty operations due to a rate increase upon renewal of a program within the automobile liability line of business, as well as increases in earned premiums in

the inland marine cargo and automobile physical damage lines of business that were due to increased premium writings.

Also contributing to the increase in net income was the Company’s recognition of net unrealized gains on equity securities of $4.5

million and net unrealized losses of $1.5 million during the years ended December 2025 and 2024, respectively.

Another contributing factor to the increase in net income was an increase in the net earned premiums for the Medicare Supplement line of

business due to new sales within the life and health operations.

Partially offsetting this increase was a decrease in net earned premiums in the group life and group accident and health lines of business, as well as increases in the insurance

benefits and losses incurred and the future policy benefit remeasurement gain, within the life and health operations.

Also partially offsetting the increase in net income was an increase in insurance benefits and losses incurred in the property and

casualty operations, primarily due to increased losses in the automobile physical damage and inland marine lines of business.

Total revenue was $210.4 million in 2025 as compared to $188.41 million in 2024.

Premium revenue decreased slightly to $178.7 million in 2024 from $178.8 million in 2023.

decrease in premium revenue was primarily attributable to a decrease in earned premiums in the automobile physical damage line of business due to a decline in demand within the trucking industry within the property and casualty operations.

Partially offsetting the decrease in premium revenue was an increase in earned premiums in the group accident and health, group life and the other individual health lines of business due to new sales within the life and health operations.

Operating loss was $5.0 million in 2024 as compared to operating income of $1.5 million in 2023.

The decrease in operating income was primarily due to an unfavorable loss

experience in the property and casualty operations due to the frequency and severity of claims in the automobile liability line of business as well as an increase in claims costs in the automobile physical damage line of business as discussed

Also contributing to the decrease in operating income was an increase in administrative costs related to the growth in the group lines of business within the life and health operations.

Premium revenue increased to $196.1 million in 2025 from $178.6 million in 2024.

The increase in premium revenue was

primarily attributable to an increase in earned premiums in the automobile liability line of business due to a rate increase upon renewal of a program within the property and casualty operations.

Also contributing to the increase in premium revenue

was an increase in the net earned premiums in the Medicare Supplement line of business due to new sales within the life and health operations.

Partially offsetting the increase in premium revenue was a decrease in net earned premiums in the group

life and group accident and health lines of business within the life and health operations, as previously mentioned.

Operating income was $3.7 million in 2025 as compared to operating loss of $1.3 million in 2024.

The increase in operating income was primarily due to an increase in net earned premiums in the

property and casualty operations, as well as increases in earned premiums in the inland marine cargo and automobile physical damage lines of business, as discussed above.

Also contributing to the increase in operating income was an increase in the

net earned premiums in the Medicare Supplement line of business due to new sales within the life and health operations, as previously mentioned.

A more detailed analysis of the operating companies and other corporate activities follows.

13 unchanged sentences

Combined ratio

Gross written premiums at American Southern decreased $3.9 million, or 5.0%, during 2024 as compared to 2023.

The decrease in gross written premiums was primarily

attributable to the decrease in premiums written in the automobile liability line of business due to the non-renewal of a program, as well as a decrease in premiums written in the automobile physical damage line of business due to a decline in

demand within the trucking industry.

Also contributing to the decrease in gross written premiums was a decrease in premiums written in the surety line of business due to construction slowdowns in certain regions.

Gross written premiums at American Southern increased $22.9 million, or 31.1%, during 2025 as compared to 2024.

The increase in gross written premiums was primarily attributable to an increase in

premiums written in the automobile liability line of business due to the renewal of a program that received a substantial rate increase.

Also contributing to the increase in gross written premiums were increases in inland marine cargo due to a new

program written by an existing agent, as well as an increase in premiums written in the automobile physical damage line of business resulting from an increase in writings from existing agents.

Ceded premiums increased $0.2 million, or 3.1%, during 2025 as compared to 2024.

American Southern’s ceded premiums are typically determined as a percentage of earned

premiums and generally increase or decrease as earned premiums increase or decrease or retentions levels change.

The increase in ceded premiums was primarily attributable to an increase in lines of business with higher ceding rates.

American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally increase

or decrease as earned premiums increase or decrease or retentions levels change.

The increase in ceded premiums was primarily attributable to an increase in catastrophic exposures from increased writings of automobile physical damage and inland

marine cargo.

The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:

4 unchanged sentences

General liability

Net earned premiums decreased $0.8 million, or 1.1%, during 2024 as compared to 2023.

The decrease in net earned premiums was primarily attributable to a decrease in earned

premiums in the automobile physical damage line of business due to a decline in demand within the trucking industry as previously mentioned.

Partially offsetting the decrease in net earned premiums was an increase in earned premiums in the

automobile liability line of business due mainly to a new government program which began in the fourth quarter of 2023.

Premiums are earned ratably over their respective policy terms and therefore premiums earned in the current year are related to

policies written during both the current year and immediately preceding year.

Inland marine

Net earned premiums increased $16.8 million, or 24.8% , during 2025 as compared to 2024.

The increase in net earned premiums was primarily attributable to a rate increase upon renewal of a program

within the automobile liability line of business, as well as increases in earned premiums in the inland marine cargo and automobile physical damage lines of business that were due to increased premium writings, as previously mentioned.

earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written both in the current year and the immediately preceding year.

The performance of a property and casualty insurance company is often measured by its combined ratio.

The combined ratio represents the percentage of losses, loss adjustment

expenses and other expenses that are incurred for each dollar of premium earned by the company.

The combined ratio represents the percentage of losses, loss adjustment expenses and other

expenses that are incurred for each dollar of premium earned by the company.

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

The combined ratio

is divided into two components, the loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

The combined ratio is divided into two

components, the loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

Insurance benefits incurred at American Southern increased $9.5 million, or 17.0%, during 2025 as compared to 2024.

As a percentage of premiums, insurance benefits and losses

incurred were 82.4% in 2024 as compared to 74.5% in 2023.

The increase in the loss ratio was mainly due to an increase in the frequency and severity of claims in the automobile liability line of business.

Also contributing to the increase in the

loss ratio was an increase in the automobile physical damage line of business due to an increase in claims costs.

Partially offsetting the increase in the loss ratio was a decrease in the general liability line of business due to favorable claim

reserve development.

Commissions and underwriting expenses decreased $1.2 million, or 7.1%, during 2024 as compared to 2023.

As a percentage of premiums, these expenses were 23.0% in 2024 as

compared to 24.5% in 2023.

The decrease in the expense ratio was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the

business they write.

During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will

generally decrease.

In 2024, variable commissions at American Southern decreased $1.1 million as compared to 2023 due to an unfavorable loss experience from accounts subject to variable commissions.

As a percentage of premiums, insurance benefits and losses incurred were 77.2% in

2025 as compared to 82.4% in 2024.

The decrease in the loss ratio was mainly due to premium growth in automobile liability and physical damage, as well as inland marine cargo that exceeded the increase in insurance benefits and losses incurred.

Commissions and underwriting expenses increased $2.9 million, or 18.9%, during 2025 as compared to 2024.

As a percentage of premiums, these expenses were 21.9% in 2025 as compared to 23.0% in 2024.

periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease.

variable commissions at American Southern increased $1.2 million as compared to 2024 due to a favorable loss experience from accounts subject to variable commissions.

Also contributing to the decrease in the expense ratio were rate increases in

various lines of business.

Bankers Fidelity

1 unchanged sentence

Year Ended December 31,

(Dollars in thousands)

(In thousands)

Gross earned premiums

2 unchanged sentences

Insurance benefits and losses incurred

Future policy benefit remeasurement gain

Commissions and underwriting expenses

Total expenses

Underwriting income

Underwriting income (loss)

Expense ratio

Combined ratio

Gross earned premiums at Bankers Fidelity decreased $2.1 million, or 1.3%, during 2024 as compared to 2023.

The decrease in gross earned premiums was primarily attributable

to the decrease in gross earned premiums from the Medicare supplement line of business due primarily to non-renewals exceeding the level of new business writings as the existing block of business has incurred rate increases.

Also contributing to

the decrease in gross earned premiums was a decrease in gross earned premiums in the individual life line of business, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual

Partially offsetting the decrease were increases in the group accident and health, group life and other individual health lines of business due to new sales.

Ceded premiums decreased $2.7 million, or 4.9%, during 2024 as compared to 2023.

The decrease in ceded premiums was due to a decrease in Medicare supplement premiums subject

to reinsurance.

Gross earned premiums at Bankers Fidelity increased $15.7 million, or 9.6%, during 2025 as compared to 2024.

The increase in gross earned premiums was primarily attributable to the increase in gross

earned premiums from the Medicare Supplement line of business due primarily to the level of new business writings exceeding non-renewals.

This increase was partially offset by a decline in the group life and group accident and health lines of

business, primarily due to lower policy sales.

Ceded premiums increased $15.0 million, or 28.2%, during 2025 as compared to 2024.

The increase in ceded premiums was due to an increase in Medicare Supplement premiums subject to reinsurance.

The following table summarizes, for the periods indicated, Bankers Fidelity’s net earned premiums by line of business:

6 unchanged sentences

Net earned premium revenue at Bankers Fidelity increased $0.7 million, or 0.7%, during 2025 as compared to 2024.

The increase in net earned premiums was primarily

attributable to increases in the group accident and health, group life and other individual health lines of business due to new sales as previously mentioned.

Partially offsetting the increase in net earned premiums was a decrease in the Medicare

supplement line of business primarily to non-renewals exceeding the level of new business writings as the existing block of business has incurred rate increases.

Insurance benefits incurred decreased $1.4 million, or 2.0%, during 2024 as compared to 2023.

As a percentage of premiums, benefits and losses were 63.1% in 2024 as compared

to 64.8% in 2023.

The decrease in the loss ratio was primarily due to improved loss experience within the group life line of business as well as the other individual health line of business.

These decreases were partially offset by higher incurred

claims in the other health line of business.

Commissions and underwriting expenses increased $3.9 million, or 10.2%, during 2024 as compared to 2023.

As a percentage of earned premiums, these expenses were 37.7% in

2024 as compared to 34.4% in 2023.

The increase in the expense ratio was primarily due to an increase in administrative costs related to the growth in the group lines of business.

Partially offsetting the increase in the expense ratio was a

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

Net Investment Income and Realized Gains

Investment income decreased $0.3 million, or 2.7%, in 2024 as compared to 2023.

The decrease in investment income was primarily attributable to a net loss in a certain

investment within the Company's limited liability companies of $0.4 million.

The Company had net realized investment gains of $1.2 million in 2024 as compared to net realized investment gains of $0.1 million in 2023.

The net realized investment gains

in 2024 were mainly due to gains of $1.2 million from the sale of the Company's interest in a certain limited liability company as well as gains from the sale of a number of the Company's investments in fixed maturities.

The net realized investment

gains in 2023 were primarily attributable to gains from the sale of fixed maturities.

Management continually evaluates the Company’s investment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will

divest investments.

The increase in net earned premiums was primarily due to net earned premiums in the Medicare Supplement line of business, primarily attributable to new

sales, as previously discussed, and an increase in net earned premiums in the other individual health line of business due to new business growth.

Partially offsetting these increase was a decline

in earned premiums in the group life and group accident and health lines of

business, as previously mentioned.

Insurance benefits incurred increased $4.0 million, or 5.8%, during 2025 as compared to 2024.

Future policy benefit remeasurement gain arises as a result of updating assumptions in the net premium

ratio (sometimes referred to as unlocking) and updating expected cash flow with actual cash flow, as of the beginning of the current reporting period.

The future policy benefit remeasurement gain was $4.8 million in 2025 and $2.3 million in 2024.

a percentage of premiums, benefits and losses, which included insurance benefits and future policy benefits remeasurement gain, were 61.4% in 2025 as compared to 59.3% in 2024.

The increase in the loss ratio was primarily attributable to higher

insurance benefits incurred in the group life line of business in conjunction with lower earned premiums, partially offset by lower short-term care benefits incurred and improved loss experience in the Medicare Supplement line of business.

Commissions and underwriting expenses decreased $0.8 million, or 1.8%, during 2025 as compared to 2024.

As a percentage of earned premiums, these expenses were 37.7% in 2025 as compared to 37.9% in

The decrease in the expense ratio was primarily attributable to lower underwriting expenses during the year.

This decrease was partially offset by higher commission expenses associated with growth in the Medicare Supplement line business, as a

result of the level of new business writings exceeding non-renewals, as previously mentioned.

Net Investment Income and Realized Gains (Losses)

Investment income increased $0.5 million, or 4.9%, in 2025 as compared to 2024.

The increase in investment income was primarily attributable to an increase in income from equity securities in our

investment portfolio.

The Company had net realized investment losses of $0.5 million in 2025 as compared to net realized investment gains of $1.2 million in 2024.

The net realized investment losses in 2025 were mainly due

to losses of $0.7 million, resulting primarily from an impairment of a security in the Company’s investments in fixed maturity securities.

The net realized investment gains in 2024 were mainly due to gains of $1.2 million from the sale of the

Company’s interest in a certain limited liability company as well as gains from the sale of a number of the Company’s investments in fixed maturity securities.

Management continually evaluates the Company’s investment portfolio and, as may be

determined to be appropriate, makes adjustments for impairments and/or will divest investments.

See Note 2 of Notes to Consolidated Financial Statements.

Unrealized Losses on Equity Securities, Net

Unrealized Gains (Losses) on Equity Securities, Net

Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period.

Company recognized net unrealized losses on equity securities of $1.5 million and net unrealized losses of $2.2 million during the years ended December 2024 and 2023, respectively.

Changes in unrealized losses on equity securities for the

applicable periods are primarily the result of fluctuations in the market value of certain of the Company’s equity securities.

The Company recognized net

unrealized gains on equity securities of $4.5 million and net unrealized losses of $1.5 million during the years ended December 2025 and 2024, respectively.

Changes in unrealized losses on equity securities for the applicable periods are primarily

the result of fluctuations in the market value of certain of the Company’s equity securities.

Interest Expense

Interest expense increased $0.2 million, or 4.6%, in 2024 as compared to 2023.

Changes in interest expense were primarily due to changes in the Secured Overnight Financing

Rate (“SOFR”) published by CME Group Benchmark Administration Limited, as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility

utilize SOFR as the reference rate.

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 thousand 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

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

$0.3 million 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.

Interest expense decreased $0.3 million, or 9.9%, in 2025 as compared to 2024.

Changes in interest expense were primarily due to changes in the Secured Overnight Financing Rate (“SOFR”) published by

CME Group Benchmark Administration Limited, as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility utilize SOFR as the reference rate.

The Company has adopted ASU 2023-09 – Improvements to Income Tax Disclosures which requires the Company to disaggregate state income tax expense, net of the federal income tax effect.

The primary difference between the effective tax rate and the federal statutory income tax rate for 2025 resulted from a permanent difference related to meals and entertainment.

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 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 the DRD.

Liquidity and Capital Resources

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt

service requirements.

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements.

Current and expected patterns of claim frequency and severity may change from period to period, but generally are expected to continue within historical ranges.

The Company’s primary sources of cash are written premiums,

investment income and proceeds from the sale and maturity of its invested assets, as well as borrowings from time to time under our revolving credit facility.

The Company believes that, within each operating company, total invested assets will be

sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries.

The principal cash needs of the

Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of

directors from time to time.

At December 31, 2024, the Parent had approximately $5.6 million of unrestricted cash and investments.

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

statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries.

The Company’s primary sources of cash are written premiums, investment income and proceeds from the sale and maturity of its invested assets, as well as borrowings from time to time under our revolving credit facility.

The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments from the subsidiaries, as described below.

The principal cash needs of the Parent are for the payment of

operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time.

December 31, 2025, the Parent had approximately $4.1 million of unrestricted cash and investments.

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

recognizing realized investment gains of the individual insurance subsidiaries.

At December 31, 2025, the Parent’s insurance subsidiaries had an aggregate statutory surplus of $83.1 million.

Dividends were paid to Atlantic

American by its subsidiaries totaling $9.0 million and $8.4 million in 2024 and 2023, respectively.

Dividends were paid to Atlantic American by its

subsidiaries totaling $8.4 million and $9.0 million in 2025 and 2024, respectively.

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

The amount charged to and paid by the subsidiaries for these services

was $9.4 million and $8.7 million in 2024 and 2023, respectively.

The amount charged to and paid by the subsidiaries for these services was $8.7 million and $9.4

million in 2025 and 2024, respectively.

In addition, the Parent has a formal tax-sharing agreement with each of its insurance subsidiaries.

A net total of $4.4 million and $4.0 million were paid to the Parent under the tax

sharing agreement in 2024 and 2023, respectively.

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of

the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures.

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

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

A net total of $1.3 million and $4.4 million were paid to the Parent under the tax sharing agreement in 2025

and 2024, respectively.

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing

the gross proceeds of the trust preferred securities in Junior Subordinated Debentures.

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

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

The margin ranges from 4.00% to 4.10%.

At December 31, 2024, the effective interest rate was 8.82%.

The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s

obligations with respect to the trust preferred securities.

Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of

distribution payments on the related trust preferred securities.

At December 31, 2025, the

effective interest rate was 8.13%.

The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust

preferred securities.

Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust

preferred securities.

The Company has not made such an election.

The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating

subsidiaries, or from existing or potential future financing arrangements.

The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from existing

or potential future financing arrangements.

At December 31, 2025, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.

All of the shares of Series D Preferred Stock are

held by an affiliate of the Company’s controlling shareholder.

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 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.

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.

Series D Preferred Stock is not currently convertible.

The Company had accrued, but unpaid, dividends on the Series D Preferred Stock of $17.7 thousand at December 31, 2025 and 2024.

During each of 2024 and 2023,

the Company paid Series D Preferred Stock dividends of $0.4 million.

During each of 2025 and 2024, the Company paid Series D Preferred

Stock dividends of $0.4 million.

Bankers Fidelity Life Insurance Company (‘‘BFLIC”) is a member of the Federal Home Loan Bank of Atlanta (“FHLB”), for the primary purpose of enhancing financial flexibility.

As a member, BFLIC can obtain access to low-cost funding and also receive dividends on FHLB stock.

The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.2 million, as of

December 31, 2024.

As a member, BFLIC can

obtain access to low-cost funding and also receive dividends on FHLB stock.

The membership arrangement provides for credit availability of fifteen percent of statutory admitted assets, or approximately $27.3 million, as of December 31, 2025.

Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB.

As of December 31, 2025, BFLIC has pledged bonds having an amortized cost of $8.9 million to the FHLB.

BFLIC may be required

to post additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB.

BFLIC may be required to post additional

acceptable forms of collateral for any borrowings that it makes in the future from the FHLB.

As of December 31, 2025, BFLIC does not have any outstanding borrowings from the FHLB.

On May 12, 2021, the Company entered into a revolving credit agreement (“Revolving Credit Agreement”) with Truist Bank as the lender (the “Lender”).

The Revolving Credit

Agreement provides for an unsecured $10.0 million 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.

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 $64.2 million.

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

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

As of December 31, 2024 and 2023, the Company had outstanding borrowings of $4.0 million and $3.0 million under the Credit Agreement.

The Revolving Credit Agreement provides for an unsecured $10.0 million 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 $64.2 million.

On May 27, 2026, July 31, 2026, October 9, 2026 and October 15, 2026, the Company and the Lender entered into amendments to the Credit Agreement, each of which had the effect of extending the then-applicable deadlines by which the Company must deliver to the Lender (i) the Company’s audited consolidated financial statements for the year ended December 31, 2025, (ii) the Company’s interim consolidated financial statements for the quarters ended March 31, 2026, June 30, 2026 and September 30, 2026, and (iii) related certificates of the Company’s compliance with financial covenants under the Credit Agreement and certain other matters.

The Fifth Amendment to the Revolving Credit Agreement, dated October 15, 2026, also amended the minimum AM Best financial strength rating that must be maintained by American Southern Insurance Company to be no lower than “A-” and waived related defaults under the Credit Agreement occurring prior to such amendment.

Except as modified by these amendments, 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, 2025 and 2024,

the Company had outstanding borrowings of $5.0 million and $4.0 million under the Credit Agreement.

Cash and cash equivalents increased from $35.6 million at December 31, 2024 to $43.6 million at December 31, 2025.

The increase in cash and cash equivalents during 2024 was

primarily attributable to net cash provided by operating activities of $4.8 million.

Also contributing to the increase in cash and cash equivalents was net cash provided by investing activities of $2.3 million primarily as a result of investment

sales and maturity of securities exceeding investment purchases.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed,

additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the next 12 months and thereafter for the foreseeable future.

Management is not aware of any current recommendations by regulatory

authorities, which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

The increase in cash and cash equivalents during 2025 was primarily attributable to

net cash provided by operating activities of $32.9 million.

Partially offsetting the increase in cash and cash equivalents was net cash used in investing activities of $25.0 million primarily as a result of investment purchases exceeding investment

sales and maturity of securities.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, additional borrowings from

financial institutions, will enable the Company to meet its liquidity requirements for the next 12 months and thereafter for the foreseeable future.

Management is not aware of any current recommendations by regulatory authorities, which, if

implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

Internal Control Over Financial Reporting

Management’s conclusion that the errors were not material to the previously issued 2024 consolidated financial statements is separate from management’s evaluation of the severity of the related deficiencies in internal control over financial reporting.

A control deficiency may constitute a material weakness even when the financial-statement errors identified were not material.

As discussed in Item 9A, Controls and Procedures, management concluded that deficiencies in controls over enrollment information, policy-status maintenance, due-premium accounting, account reconciliations and related management review created a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis.

Management therefore concluded that these deficiencies, considered collectively, constituted a material weakness as of December 31, 2025.

Correcting the identified errors addressed the financial-statement effects but did not remediate the material weakness.

Management has implemented and continues to implement the remediation measures described in Item 9A.

New Accounting Pronouncements

2 unchanged sentences

Insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may affect such losses and expenses, are known.

Consequently, in establishing its premiums, the Company attempts to anticipate the potential impact of inflation.

Consequently, in

establishing its premiums, the Company attempts to anticipate the potential impact of inflation.

If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by the Company.

Inflation also affects the rate of investment return on the Company’s investment portfolio with a corresponding effect on investment income.

During 2024, inflation was a factor in increased loss experience within the Company’s automobile liability

line of business.

Inflation also affects the

rate of investment return on the Company’s investment portfolio with a corresponding effect on investment income.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and therefore are not providing the information required by

As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and therefore are not providing the information required by this Item.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis