ATLANTIC AMERICAN CORP

Atlantic American Corporation (AAME) operates as a holding company with subsidiaries focused on well-defined specialty markets within the life and health and property and casualty insurance industries ¹. The company's strategy is to target specific geographic, demographic, and/or product niches, allowing its operating subsidiaries, American Southern and Bankers Fidelity, to function with relative autonomy and react quickly to market opportunities ¹. The Parent company itself has no significant business operations and relies on fees, dividends, and other distributions from its operating subsidiaries for cash flow ¹.

American Southern Insurance Company and American Safety Insurance Company, collectively "American Southern," comprise the property and casualty operations ¹. Their primary product lines include Commercial Automobile Insurance, General Liability Insurance, and Surety Bonds ¹. American Southern provides tailored commercial automobile insurance to state governments, local municipalities, and large motor pools/fleets, often on a multi-year contract basis ¹. They are licensed in 32 states and the District of Columbia ¹. Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company, and Atlantic Capital Life Assurance Company, collectively "Bankers Fidelity," constitute the life and health operations ¹. They offer ordinary life insurance, Medicare supplement, and other accident and health insurance products ¹. Bankers Fidelity operates across 46 states through three distribution channels: traditional independent agents, brokers specializing in specific Bankers Fidelity products, and brokers focused on the group/employer benefits division, Atlantic American Employee Benefits ¹.

For the fiscal year ended December 31, 2024, Atlantic American Corporation reported total revenue of $188.227 million ², a slight increase from $186.793 million in 2023 ². The company experienced a net loss of $4.268 million ³, or $(0.23) per diluted share ⁴, compared to a net loss of $0.171 million ³, or $(0.03) per diluted share ⁴, in 2023. Operating loss for 2024 was $4.958 million ⁵, a decrease from an operating income of $1.542 million in 2023 ⁵. Cash and cash equivalents increased to $35.570 million at December 31, 2024, from $28.301 million at December 31, 2023 ⁶. Total debt, including the revolving credit facility and junior subordinated debenture obligations, net, stood at $37.761 million at December 31, 2024 ⁷. Shareholders' equity was $99.613 million at December 31, 2024 ⁸.

American Southern's net earned premiums decreased by $0.8 million, or 1.1%, to $67.689 million in 2024 from $68.443 million in 2023 ⁹. This was primarily due to a decline in earned premiums in the automobile physical damage line, partially offset by an increase in automobile liability due to a new government program ⁹. The loss ratio for American Southern increased to 82.4% in 2024 from 74.5% in 2023, driven by increased frequency and severity of claims in automobile liability and higher claims costs in automobile physical damage ⁹. The expense ratio decreased to 23.0% in 2024 from 24.5% in 2023, mainly due to a variable commission structure tied to loss ratios ⁹. The combined ratio for American Southern was 105.4% in 2024, indicating an underwriting loss, compared to 99.0% in 2023 ⁹.

Bankers Fidelity's net earned premiums increased by $0.7 million, or 0.6%, to $111.042 million in 2024 from $110.382 million in 2023 ¹⁰. This increase was primarily driven by new sales in group accident and health, group life, and other individual health lines of business ¹⁰. The Medicare supplement line experienced a decrease in earned premiums due to non-renewals exceeding new business writings ¹⁰. The loss ratio for Bankers Fidelity decreased to 63.1% in 2024 from 64.8% in 2023, attributed to improved loss experience in group life and other individual health ¹⁰. The expense ratio increased to 37.7% in 2024 from 34.4% in 2023, mainly due to higher administrative costs related to group lines growth ¹⁰. The combined ratio for Bankers Fidelity was 100.8% in 2024, compared to 99.2% in 2023 ¹⁰.

During 2024, the company recognized net realized investment gains of $1.210 million, primarily from the sale of its interest in a limited liability company and fixed maturities ¹¹. This compares to net realized investment gains of $0.070 million in 2023 ¹¹. Net investment income decreased by $0.3 million, or 2.7%, to $9.791 million in 2024, mainly due to a $0.4 million net loss in a certain limited liability company investment ¹². The company also recognized net unrealized losses on equity securities of $1.516 million in 2024, an improvement from $2.177 million in 2023 ¹³.

Operationally, the company renewed its cloud-based software service hosting arrangement for an additional five years in March 2024, with a subsequent renewal term of five years ¹⁴. Implementation expenses related to this software, totaling $0.108 million in 2024 and $1.545 million in 2023, have been capitalized ¹⁵. The company expects the software to be substantially ready for its intended use during 2025 ¹⁶.

The company has not provided formal quantitative guidance for revenue, margin, or EPS for the upcoming period.

A key growth area for Bankers Fidelity is the diversification of its product offerings and geographical footprint ¹. The company aims to achieve a healthy mix of all its product lines nationwide through unique offerings such as Vantage Flex Plus®, a hospital indemnity plan, Vantage Recovery®, a short-term care product, and a group whole life product with a chronic illness rider ¹. This strategy is designed to differentiate Bankers Fidelity from competitors and expand its client base ¹.

Another growth vector for Bankers Fidelity is its focus on attracting and retaining independent agents through competitive commission and sales incentive arrangements, accessibility, marketing assistance, lead programs, reputation, and market expertise ¹. The company also actively promotes Atlantic American Employee Benefits, its group benefits division, and selective association partnerships ¹.

The company's operational outlook includes a continued focus on managing its cost structure. American Southern utilizes a variable commission structure with certain agents, which adjusts commissions in relation to the loss ratios of the business they write ⁹. This mechanism helps to align agent incentives with profitability, leading to a decrease in commissions and underwriting expenses during periods of increasing loss ratios ⁹.

Regarding technology infrastructure, the company is continuing the development of a system to perform independent calculations of actuarial values for its life products, separate from the actuarial models ¹⁷. This system is intended to verify that product parameters and actuarial assumptions are properly reflected in reported values ¹⁷. The group whole life product has already been implemented on this system and used for validation as of December 31, 2024 ¹⁷. The company anticipates extending this system to accommodate other product lines by September 30, 2025 ¹⁷.

In terms of capital allocation, the company declared an annual cash dividend of $0.02 per share of common stock payable on April 26, 2024, to shareholders of record as of April 12, 2024 ¹⁸. A similar dividend of $0.02 per share has been declared on March 25, 2025, payable to shareholders of record on April 9, 2025 ¹⁹. The company's board of directors has discretion over future dividend declarations and payments, which will depend on financial condition, capital requirements, earnings, and any binding agreements ¹⁸. The company's primary recurring source of cash for dividends is from its subsidiaries, with dividend payments from insurance subsidiaries subject to annual limitations and requiring prior approval if exceeding specified amounts, such as $8.8 million in 2024 ¹⁸. The company also has a share repurchase plan, approved on October 31, 2016, allowing for the repurchase of up to 750,000 shares of common stock ²⁰. As of December 31, 2024, 325,129 shares remained available for repurchase under this plan ²⁰.

The company explicitly flagged that full development and implementation of its new actuarial valuation system has required more time than previously anticipated due to unforeseen complexities inherent in the actuarial software systems used to calculate and report actuarial values ¹⁷. These complexities have necessitated additional effort to understand and replicate in the new system ¹⁷.

The company faces several material risks. Macroeconomic conditions and general economic uncertainty, including disruption to financial markets, can affect the company's operations ²¹. Unexpected developments in the health care or insurance industries, such as changes in service costs, availability, or tax consequences, pose a risk ²¹. Operationally, unanticipated increases in the rate, number, and amounts of claims outstanding, as well as the company's ability to remediate the identified material weakness in its internal control over financial reporting, are significant concerns ²¹. The performance of reinsurance companies and the availability, pricing, and adequacy of reinsurance to protect against losses are also critical ²¹. Changes in stock markets, interest rates, or other financial markets could affect statutory capital levels ²¹. Regulatory and market-driven changes in incentive compensation practices for brokers and agents, public health emergencies, natural and man-made catastrophes, and terrorist attacks are further risks ²¹. Stronger than anticipated competitive activity, unfavorable judicial or legislative developments, and regulatory changes that could increase business costs and required capital levels are also material ²¹. The company's ability to distribute products through current and future channels, emerging claim and coverage issues, and assessments for guaranty funds and pooling arrangements are additional risks ²¹. Information technology system failures, network disruptions, and cybersecurity matters, such as breaches or unauthorized data access, are also explicitly identified ²¹. The company's property and casualty operations incur losses that may take extended periods to evaluate and settle, with issues like legal liability, loss quantification, legal discovery, and subrogation influencing initial and subsequent estimates ¹. For long-tail lines of business, the emergence of paid losses and case reserves is less credible in early periods, making ultimate loss estimation largely influenced by statistical analyses and prior accident years' loss ratios, after considering changes to earned pricing, loss costs, mix of business, and ceded reinsurance ¹. The range of estimates developed in connection with the December 31, 2024 actuarial review indicated that reserves could be as much as 5.2% lower or as much as 25.0% higher than recorded amounts ¹.

Management's message to shareholders emphasizes a focus on navigating challenging market conditions while pursuing strategic growth and operational efficiency. The company reported a net loss of $4.268 million ³ and an operating loss of $4.958 million ⁵ for 2024, primarily attributed to unfavorable loss experience in property and casualty operations and increased administrative costs in life and health ². Despite these challenges, management highlighted an increase in net realized investment gains of $1.210 million ¹¹ in 2024. The company's strategic priorities include focusing on well-defined geographic, demographic, and product niches within the insurance marketplace, allowing its operating subsidiaries, American Southern and Bankers Fidelity, to operate with relative autonomy and react quickly to market opportunities ¹. Management also stressed the importance of diversification, differentiation, quality, retention, and profitability within Bankers Fidelity's marketing and distribution strategy ¹. Furthermore, management is actively addressing an identified material weakness in internal control over financial reporting related to reviewing insurance reserves and deferred acquisition costs within the life and health segment, with a new system for independent actuarial value calculations expected to be operational for other product lines by September 30, 2025 ¹⁷. The board of directors declared an annual cash dividend of $0.02 per share of common stock, payable on April 26, 2024, and again on March 25, 2025, for the upcoming period ¹⁸, ¹⁹.