Note 7. |
Earnings (Loss) Per Common Share
|
A reconciliation of the numerator
and denominator used in the loss per common share calculations is
as follows:
|
|
Three Months Ended
June 30, 2019
|
|
|
|
Loss
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
Per Share
Amount
|
|
Basic
and Diluted Loss Per Common Share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,426
|
)
|
|
|
20,146
|
|
|
|
|
Less preferred
stock dividends
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
|
Net loss
applicable to common shareholders
|
|
$
|
(4,526
|
)
|
|
|
20,146
|
|
$
|
(.22 |
)
|
|
|
Three Months Ended
June 30, 2018
|
|
|
|
Income
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
|
Per Share
Amount
|
|
Basic
Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,185
|
|
|
|
20,286
|
|
|
|
|
Less preferred
stock dividends
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
Net income
applicable to common shareholders
|
|
|
3,085
|
|
|
|
20,286
|
|
|
$
|
.15
|
|
Diluted
Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Series
D preferred stock
|
|
|
100
|
|
|
|
1,378
|
|
|
|
|
|
Net income
applicable to common shareholders
|
|
$
|
3,185
|
|
|
|
21,664
|
|
|
$
|
.15
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
Loss
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
Per Share
Amount
|
|
Basic
and Diluted Loss Per Common Share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(264
|
)
|
|
|
20,152
|
|
|
|
|
Less preferred
stock dividends
|
|
|
(199
|
)
|
|
|
—
|
|
|
|
|
Net loss
applicable to common shareholders
|
|
$
|
(463
|
)
|
|
|
20,152
|
|
$
|
(.02 |
)
|
|
|
Six Months Ended
June 30, 2018
|
|
|
|
Loss
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
Per Share
Amount
|
|
Basic
and Diluted Loss Per Common Share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,839
|
)
|
|
|
20,352
|
|
|
|
|
Less preferred
stock dividends
|
|
|
(199
|
)
|
|
|
—
|
|
|
|
|
Net loss
applicable to common shareholders
|
|
$
|
(2,038
|
)
|
|
|
20,352
|
|
$
|
(.10
|
)
|
The assumed conversion of the
Company’s Series D preferred stock was excluded from the earnings
(loss) per common share calculation for all periods presented,
except for the three month period ended June 30, 2018, since its
impact would have been antidilutive.
A reconciliation of the differences
between income taxes computed at the federal statutory income tax
rate and income tax benefit is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Federal income
tax provision at statutory rate of 21%
|
|
$
|
(1,174
|
)
|
|
$
|
847
|
|
|
$
|
(64
|
)
|
|
$
|
(487
|
)
|
Dividends-received deduction
|
|
|
(5
|
)
|
|
|
(10
|
)
|
|
|
(14
|
)
|
|
|
(20
|
)
|
Other permanent
differences
|
|
|
16
|
|
|
|
11
|
|
|
|
38
|
|
|
|
28
|
|
Income tax
expense (benefit)
|
|
$
|
(1,163
|
)
|
|
$
|
848
|
|
|
$
|
(40
|
)
|
|
$
|
(479
|
)
|
The components of income tax
benefit were:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Current -
Federal
|
|
$
|
572
|
|
|
$
|
703
|
|
|
$
|
572
|
|
|
$
|
739
|
|
Deferred -
Federal
|
|
|
(1,735
|
)
|
|
|
145
|
|
|
|
(612
|
)
|
|
|
(1,218
|
)
|
Total
|
|
$
|
(1,163
|
)
|
|
$
|
848
|
|
|
$
|
(40
|
)
|
|
$
|
(479
|
)
|
The Company has identified two
operating lease agreements, each for the use of office space in the
ordinary course of business.
The first lease renews annually on an automatic basis and
based on original assumptions, management is reasonably certain to
exercise the renewal option for an additional eight years from the
January 1, 2019 effective date of the new lease guidance. The
original term of the second lease was ten years and amended in
January 2017 to provide for an additional seven years, with a
termination date on September 30, 2026. The rate used in
determining the present value of lease payments is based upon an
estimate of the Company’s incremental secured borrowing rate
commensurate with the term of the underlying lease.
These leases are accounted for as
operating leases, whereby lease expense is recognized on a
straight-line basis over the term of the lease. Lease expense
reported for the six months ended June 30, 2019 was $507. See the
“Adoption of New Accounting Standards – Leases ” section of Note 2 of Notes to
Condensed Consolidated Financial Statements for additional
information regarding the accounting for leases.
Additional information regarding
the Company’s real estate operating leases is as follows:
|
|
Six Months
Ended
June 30,
|
|
|
|
2019
|
|
Other
information on operating leases:
|
|
|
|
Cash payments
included in the measurement of lease liabilities reported in
operating cash flows
|
|
$
|
450
|
|
Right-of-use
assets included in other assets on the condensed consolidated
balance sheet
|
|
|
5,785
|
|
Weighted average
discount rate
|
|
|
6.8
|
%
|
Weighted average
remaining lease term in years
|
|
7.4 years
|
|
The following table presents maturities and present value of
the Company’s lease liabilities:
|
|
Lease Liability
|
|
Remainder of
2019
|
|
$
|
365
|
|
2020
|
|
|
978
|
|
2021
|
|
|
1,015
|
|
2022
|
|
|
1,031
|
|
2023
|
|
|
1,048
|
|
Thereafter
|
|
|
3,091
|
|
Total
undiscounted lease payments
|
|
|
7,528
|
|
Less: present
value adjustment
|
|
|
1,685
|
|
Operating lease
liability included in other liabilities on the condensed
consolidated balance sheet
|
|
$
|
5,843
|
|
As of June 30, 2019, the Company has no operating leases that
have not yet commenced.
Note 10. |
Commitments and Contingencies
|
From time to time, the Company is,
and expects to continue to be, involved in various claims and
lawsuits incidental to and in the ordinary course of its
businesses. 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.
Note 11. |
Segment Information
|
The Parent’s primary insurance
subsidiaries, American Southern and Bankers Fidelity, operate in
two principal business units, each focusing on specific products.
American Southern operates in the property and casualty insurance
market, while Bankers Fidelity operates in the life and health
insurance market. Each business unit is managed independently and
is evaluated on its individual performance. The following sets
forth the assets, revenue and income (loss) before income taxes for
each business unit as of and for the periods ended 2019 and
2018.
Assets
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
American
Southern
|
|
$
|
142,059
|
|
|
$
|
122,724
|
|
Bankers
Fidelity
|
|
|
206,513
|
|
|
|
195,663
|
|
Corporate and
Other
|
|
|
148,424
|
|
|
|
134,643
|
|
Adjustments &
Eliminations
|
|
|
(125,266
|
)
|
|
|
(108,756
|
)
|
Total
assets
|
|
$
|
371,730
|
|
|
$
|
344,274
|
|
Revenues
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
American
Southern
|
|
$
|
15,740
|
|
|
$
|
14,643
|
|
|
$
|
30,975
|
|
|
$
|
28,176
|
|
Bankers
Fidelity
|
|
|
31,244
|
|
|
|
31,641
|
|
|
|
65,620
|
|
|
|
61,754
|
|
Corporate and
Other
|
|
|
(1,261
|
)
|
|
|
5,939
|
|
|
|
6,617
|
|
|
|
5,419
|
|
Adjustments &
Eliminations
|
|
|
(2,596
|
)
|
|
|
(2,780
|
)
|
|
|
(5,067
|
)
|
|
|
(5,366
|
)
|
Total
revenue
|
|
$
|
43,127
|
|
|
$
|
49,443
|
|
|
$
|
98,145
|
|
|
$
|
89,983
|
|
Income (Loss) Before Income Taxes
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
American
Southern
|
|
$
|
1,396
|
|
|
$
|
1,929
|
|
|
$
|
3,378
|
|
|
$
|
2,897
|
|
Bankers
Fidelity
|
|
|
(1,998
|
)
|
|
|
261
|
|
|
|
(2,494
|
)
|
|
|
(2,274
|
)
|
Corporate and
Other
|
|
|
(4,987
|
)
|
|
|
1,843
|
|
|
|
(1,188
|
)
|
|
|
(2,941
|
)
|
Income (loss)
before income taxes
|
|
$
|
(5,589
|
)
|
|
$
|
4,033
|
|
|
$
|
(304
|
)
|
|
$
|
(2,318
|
)
|
Note 12. |
Related Party Transactions
|
During the three month period ended June 30, 2019, the Company
transferred its remaining fractional interest in an aircraft
arrangement to Gray Television, Inc., a related party, for
$151.
Item 2.
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”) as of and for the three month and six month periods
ended June 30, 2019. This discussion should be read in conjunction
with the unaudited consolidated financial statements and notes
thereto included elsewhere herein, as well as with the audited
consolidated financial statements and notes included in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2018 (the “2018 Annual Report”).
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”) and Bankers Fidelity Life Insurance Company and Bankers
Fidelity Assurance Company (together known as “Bankers Fidelity”).
Each operating company is managed separately, offers different
products and is evaluated on its individual performance.
Critical Accounting Policies
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results could differ
significantly from those estimates. The Company has identified
certain estimates that involve a higher degree of judgment and are
subject to a significant degree of variability. The Company’s
critical accounting policies and the resultant estimates considered
most significant by management are disclosed in the 2018 Annual
Report. Except as disclosed in Note 2 of Notes to Condensed
Consolidated Financial Statements, the Company’s critical
accounting policies are consistent with those disclosed in the 2018
Annual Report.
Overall Corporate Results
The following presents the
Company’s revenue, expenses and net income (loss) for the three
month and six month periods ended June 30, 2019 and the comparable
period in 2018:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Insurance
premiums, net
|
|
$
|
45,469
|
|
|
$
|
42,845
|
|
|
$
|
90,251
|
|
|
$
|
85,047
|
|
Net investment
income
|
|
|
2,313
|
|
|
|
2,537
|
|
|
|
4,647
|
|
|
|
4,896
|
|
Realized
investment gains (losses), net
|
|
|
610
|
|
|
|
(57
|
)
|
|
|
1,995
|
|
|
|
313
|
|
Unrealized gains
(losses) on equity securities, net
|
|
|
(5,337
|
)
|
|
|
4,089
|
|
|
|
1,152
|
|
|
|
(330
|
)
|
Other
income
|
|
|
72
|
|
|
|
29
|
|
|
|
100
|
|
|
|
57
|
|
Total
revenue
|
|
|
43,127
|
|
|
|
49,443
|
|
|
|
98,145
|
|
|
|
89,983
|
|
Insurance
benefits and losses incurred
|
|
|
34,151
|
|
|
|
32,219
|
|
|
|
69,458
|
|
|
|
65,391
|
|
Commissions and
underwriting expenses
|
|
|
11,509
|
|
|
|
9,715
|
|
|
|
22,524
|
|
|
|
19,734
|
|
Interest
expense
|
|
|
545
|
|
|
|
506
|
|
|
|
1,091
|
|
|
|
968
|
|
Other
expense
|
|
|
2,511
|
|
|
|
2,970
|
|
|
|
5,376
|
|
|
|
6,208
|
|
Total benefits
and expenses
|
|
|
48,716
|
|
|
|
45,410
|
|
|
|
98,449
|
|
|
|
92,301
|
|
Income (loss)
before income taxes
|
|
$
|
(5,589
|
)
|
|
$
|
4,033
|
|
|
$
|
(304
|
)
|
|
$
|
(2,318
|
)
|
Net income
(loss)
|
|
$
|
(4,426
|
)
|
|
$
|
3,185
|
|
|
$
|
(264
|
)
|
|
$
|
(1,839
|
)
|
Management also considers and
evaluates performance by analyzing the non-GAAP measure operating
income (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 taxes, which are 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 and unrealized investment
gains, 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) to operating loss for the three month and six month periods
ended June 30, 2019 and the comparable period in 2018 is as
follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
Reconciliation
of Non-GAAP Financial Measure
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In
thousands)
|
|
Net income
(loss)
|
|
$
|
(4,426
|
)
|
|
$
|
3,185
|
|
|
$
|
(264
|
)
|
|
$
|
(1,839
|
)
|
Income tax
expense (benefit)
|
|
|
(1,163
|
)
|
|
|
848
|
|
|
|
(40
|
)
|
|
|
(479
|
)
|
Realized
investment (gains) losses, net
|
|
|
(610
|
)
|
|
|
57
|
|
|
|
(1,995
|
)
|
|
|
(313
|
)
|
Unrealized
(gains) losses on equity securities, net
|
|
|
5,337
|
|
|
|
(4,089
|
)
|
|
|
(1,152
|
)
|
|
|
330
|
|
Non-GAAP
operating income (loss)
|
|
$
|
(862
|
)
|
|
$
|
1
|
|
|
$
|
(3,451
|
)
|
|
$
|
(2,301
|
)
|
On a consolidated basis, the
Company had net loss of $4.4 million, or $0.22 per diluted share,
for the three month period ended June 30, 2019, compared to net
income of $3.2 million, or $0.15 per diluted share, for the three
month period ended June 30, 2018. The Company had net loss of
$0.3 million, or $0.02 per diluted share, for the six month period
ended June 30, 2019, compared to net loss of $1.8 million, or $0.10
per diluted share, for the six month period ended June 30,
2018. Premium revenue for the three month period ended June
30, 2019 increased $2.6 million, or 6.1%, to $45.5 million from
$42.8 million in the three month period ended June 30, 2018.
For the six month period ended June 30, 2019, premium revenue
increased $5.2 million, or 6.1%, to $90.3 million from $85.0
million in the comparable period in 2018. The increase in
premium revenue was primarily attributable to an increase in
Medicare supplement business in the life and health operations,
coupled with an increase in the automobile physical damage line of
business in the property and casualty operations. Operating loss
increased $0.9 million in the three month period ended June 30,
2019 from the three month period ended June 30, 2018. For the
six month period ended June 30, 2019, the operating loss increased
$1.2 million over the comparable period in 2018. The increase
in operating loss was primarily due to unfavorable loss experience
in the life and health operations.
A more detailed analysis of the
individual operating segments and other corporate activities
follows.
American Southern
The following summarizes American
Southern’s premiums, losses, expenses and underwriting ratios for
the three month and six month periods ended June 30, 2019 and the
comparable periods in 2018:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Gross written
premiums
|
|
$
|
32,581
|
|
|
$
|
28,501
|
|
|
$
|
40,275
|
|
|
$
|
35,342
|
|
Ceded
premiums
|
|
|
(1,313
|
)
|
|
|
(1,228
|
)
|
|
|
(2,688
|
)
|
|
|
(2,431
|
)
|
Net written
premiums
|
|
$
|
31,268
|
|
|
$
|
27,273
|
|
|
$
|
37,587
|
|
|
$
|
32,911
|
|
Net earned
premiums
|
|
$
|
14,754
|
|
|
$
|
13,542
|
|
|
$
|
28,560
|
|
|
$
|
26,249
|
|
Net loss and loss
adjustment expenses
|
|
|
9,863
|
|
|
|
8,695
|
|
|
|
18,906
|
|
|
|
17,872
|
|
Underwriting
expenses
|
|
|
4,480
|
|
|
|
4,019
|
|
|
|
8,690
|
|
|
|
7,406
|
|
Underwriting
income
|
|
$
|
411
|
|
|
$
|
828
|
|
|
$
|
964
|
|
|
$
|
971
|
|
Loss ratio
|
|
|
66.8
|
%
|
|
|
64.2
|
%
|
|
|
66.2
|
%
|
|
|
68.1
|
%
|
Expense
ratio
|
|
|
30.4
|
|
|
|
29.7
|
|
|
|
30.4
|
|
|
|
28.2
|
|
Combined
ratio
|
|
|
97.2
|
%
|
|
|
93.9
|
%
|
|
|
96.6
|
%
|
|
|
96.3
|
%
|
Gross written premiums at American
Southern increased $4.1 million, or 14.3%, during the three month
period ended June 30, 2019 and $4.9 million, or 14.0%, during the
six month period ended June 30, 2019, from the comparable periods
in 2018. The increase in gross written premiums was primarily
attributable to an increase in premiums written in the automobile
physical damage line of business due to increased writings from
certain agencies and a new agency that started in the second half
of 2018. Partially offsetting the increase in gross written
premiums was a decline in premiums written in the surety line of
business as a result of increased competition.
Ceded premiums increased $0.1
million, or 6.9%, during the three month period ended June 30, 2019
and $0.3 million, or 10.6%, during the six month period ended June
30, 2019, from the comparable periods in 2018. The increase in
ceded premiums in 2019 was due primarily to an increase in earned
premiums in certain accounts within the automobile physical damage
and general liability lines of business, which are subject to
reinsurance.
The following presents American
Southern’s net earned premiums by line of business for the three
month and six month periods ended June 30, 2019 and the comparable
periods in 2018:
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In
thousands)
|
|
Automobile
liability
|
|
$
|
7,813
|
|
|
$
|
7,380
|
|
|
$
|
14,837
|
|
|
$
|
14,245
|
|
Automobile
physical damage
|
|
|
3,799
|
|
|
|
2,897
|
|
|
|
7,401
|
|
|
|
5,352
|
|
General
liability
|
|
|
819
|
|
|
|
715
|
|
|
|
1,603
|
|
|
|
1,453
|
|
Surety
|
|
|
1,608
|
|
|
|
1,778
|
|
|
|
3,295
|
|
|
|
3,712
|
|
Other
lines
|
|
|
715
|
|
|
|
772
|
|
|
|
1,424
|
|
|
|
1,487
|
|
Total
|
|
$
|
14,754
|
|
|
$
|
13,542
|
|
|
$
|
28,560
|
|
|
$
|
26,249
|
|
Net earned premiums increased $1.2
million, or 8.9%, during the three month period ended June 30,
2019, and increased $2.3 million, or 8.8%, during the six month
period ended June 30, 2019, over the comparable periods in 2018.
The increase in net earned premiums was primarily attributable to
an increase in automobile physical damage coverage resulting from
additional writings from a new agency as previously mentioned.
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.
The performance of an 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. 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).
Net loss and loss adjustment
expenses at American Southern increased $1.2 million, or 13.4%,
during the three month period ended June 30, 2019, and $1.0
million, or 5.8%, during the six month period ended June 30, 2019,
over the comparable periods in 2018. As a percentage of earned
premiums, net loss and loss adjustment expenses were 66.8% in the
three month period ended June 30, 2019, compared to 64.2% in the
three month period ended June 30, 2018. For the six month
period ended June 30, 2019, this ratio decreased to 66.2% from
68.1% in the comparable period in 2018. The increase in the loss
ratio during the three month period ended June 30, 2019 was
primarily due to less favorable loss experience in the auto
liability, auto physical damage and general liability lines of
business. The decrease in the loss ratio during the six month
period ended June 30, 2019 was primarily attributable to a decrease
in the severity of losses in the surety line of business.
Underwriting expenses increased
$0.5 million, or 11.5%, during the three month period ended June
30, 2019, and $1.3 million, or 17.3%, during the six month period
ended June 30, 2019, over the comparable periods in 2018. As a
percentage of earned premiums, underwriting expenses were 30.4% in
the three month period ended June 30, 2019, compared to 29.7% in
the three month period ended June 30, 2018. For the six month
period ended June 30, 2019, this ratio increased to 30.4% from
28.2% in the comparable period in 2018. The increase in the
expense ratio during the six month period ended June 30, 2019 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. During the
three month and six month periods ended June 30, 2019, variable
commissions at American Southern increased $0.1 million and $0.6
million, respectively, from the comparable periods in 2018 due to
more favorable loss experience in the surety line of
business.
Bankers Fidelity
The following summarizes Bankers
Fidelity’s earned premiums, losses, expenses and underwriting
ratios for the three month and six month periods ended June 30,
2019 and the comparable periods in 2018:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Medicare
supplement
|
|
$
|
44,541
|
|
|
$
|
40,264
|
|
|
$
|
88,870
|
|
|
$
|
79,427
|
|
Other health
products
|
|
|
1,896
|
|
|
|
1,745
|
|
|
|
3,886
|
|
|
|
3,590
|
|
Life
insurance
|
|
|
2,154
|
|
|
|
2,271
|
|
|
|
4,296
|
|
|
|
4,573
|
|
Gross earned
premiums
|
|
|
48,591
|
|
|
|
44,280
|
|
|
|
97,052
|
|
|
|
87,590
|
|
Ceded
premiums
|
|
|
(17,876
|
)
|
|
|
(14,977
|
)
|
|
|
(35,361
|
)
|
|
|
(28,792
|
)
|
Net earned
premiums
|
|
|
30,715
|
|
|
|
29,303
|
|
|
|
61,691
|
|
|
|
58,798
|
|
Insurance
benefits and losses
|
|
|
24,288
|
|
|
|
23,524
|
|
|
|
50,552
|
|
|
|
47,519
|
|
Underwriting
expenses
|
|
|
8,954
|
|
|
|
7,857
|
|
|
|
17,562
|
|
|
|
16,509
|
|
Total
expenses
|
|
|
33,242
|
|
|
|
31,381
|
|
|
|
68,114
|
|
|
|
64,028
|
|
Underwriting
loss
|
|
$
|
(2,527
|
)
|
|
$
|
(2,078
|
)
|
|
$
|
(6,423
|
)
|
|
$
|
(5,230
|
)
|
Loss ratio
|
|
|
79.1
|
%
|
|
|
80.3
|
%
|
|
|
81.9
|
%
|
|
|
80.8
|
%
|
Expense
ratio
|
|
|
29.2
|
|
|
|
26.8
|
|
|
|
28.5
|
|
|
|
28.1
|
|
Combined
ratio
|
|
|
108.3
|
%
|
|
|
107.1
|
%
|
|
|
110.4
|
%
|
|
|
108.9
|
%
|
Net earned premium revenue at
Bankers Fidelity increased $1.4 million, or 4.8%, during the three
month period ended June 30, 2019, and $2.9 million, or 4.9%, during
the six month period ended June 30, 2019, over the comparable
periods in 2018. Gross earned premiums from the Medicare supplement
line of business increased $4.3 million, or 10.6%, during the three
month period ended June 30, 2019, and $9.4 million, or 11.9%,
during the six month period ended June 30, 2019, due primarily to
successful execution of new business generating strategies with
both new and existing agents. Other health product premiums
increased $0.2 million, or 8.7%, during the three month period
ended June 30, 2019, and $0.3 million, or 8.2%, during the six
month period ended June 30, 2019, from the comparable periods in
2018, primarily as a result of new sales of the company’s hospital
indemnity and group health products. Gross earned premiums from the
life insurance line of business decreased $0.1 million, or 5.2%,
during the three month period ended June 30, 2019, and $0.3
million, or 6.1%, during the six month period ended June 30, 2019
from the comparable periods in 2018 due to the redemption and
settlement of existing policy obligations exceeding the level of
new sales activity. Premiums ceded increased $2.9 million, or
19.4%, during the three month period ended June 30, 2019 and $6.6
million, or 22.8%, during the six month period ended June 30, 2019,
over the comparable periods in 2018. The increase in ceded
premiums for the three month and six month periods ended June 30,
2019 was due to a significant increase in Medicare supplement
premiums subject to reinsurance.
Benefits and losses increased $0.8
million, or 3.2%, during the three month period ended June 30,
2019, and $3.0 million, or 6.4%, during the six month period ended
June 30, 2019, over the comparable periods in 2018. As a
percentage of earned premiums, benefits and losses were 79.1% in
the three month period ended June 30, 2019, compared to 80.3% in
the three month period ended June 30, 2018. For the six month
period ended June 30, 2019, this ratio increased to 81.9% from
80.8% in the comparable period in 2018. The decrease in the
loss ratio for the three month period ended June 30, 2019 was
primarily due to more favorable loss experience in the life
insurance and certain products in the other health lines of
business. The increase in the loss ratio for the six month
period ended June 30, 2019 was primarily attributable to
unfavorable loss experience in the Medicare supplement line of
business. Throughout 2018 and continuing into the six month
period ended June 30, 2019, Bankers Fidelity experienced a higher
than expected level of claims in the Medicare supplement line of
business which had an unfavorable effect on the Company’s loss
patterns and increased the resultant loss ratio.
Underwriting expenses increased
$1.1 million, or 14.0%, during the three month period ended June
30, 2019, and $1.1 million, or 6.4%, during the six month period
ended June 30, 2019, over the comparable periods in 2018. As
a percentage of earned premiums, underwriting expenses were 29.2%
in the three month period ended June 30, 2019, compared to 26.8% in
the three month period ended June 30, 2018. For the six month
period ended June 30, 2019, this ratio increased to 28.5% from
28.1% in the comparable period in 2018. The increase in the expense
ratio for the three month and six month periods ended June 30, 2019
was primarily due to an increase in expenses related to servicing
the Medicare supplement line of business.
NET INVESTMENT INCOME AND REALIZED
GAINS (LOSSES)
Investment income decreased $0.2
million, or 8.8%, during the three month period ended June 30,
2019, and $0.2 million, or 5.1%, during the six month period ended
June 30, 2019, over the comparable periods in 2018. The decrease in
investment income was primarily attributable to a decrease in the
equity in earnings from investments in real estate partnerships
during the three month and six month periods ended June 30, 2019 of
$0.2 million and $0.3 million, respectively, over the comparable
periods in 2018.
The Company had net realized
investment gains of $0.6 million during the three month period
ended June 30, 2019, compared to net realized investment losses of
$0.1 million during the three month period ended June 30,
2018. The Company had net realized investment gains of $2.0
million during the six month period ended June 30, 2019, compared
to net realized investment gains of $0.3 million during the six
month period ended June 30, 2018. The net realized investment
gains during the three month period ended June 30, 2019 resulted
from the disposition of certain of the Company’s investments in
fixed maturities. The net realized investment gains during
the six month period ended June 30, 2019 resulted from the
disposition of several of the Company’s investments in fixed
maturities and equity securities. Management continually evaluates
the Company’s investment portfolio and makes adjustments for
impairments and/or divests investments as may be determined to be
appropriate.
UNREALIZED GAINS (LOSSES) ON EQUITY
SECURITIES
On January 1, 2018 the Company
adopted ASU No. 2016-01, which requires, among other things,
investments in equity securities to be measured at fair value at
the end of the reporting period, with any changes in fair value
reported in net income. As a result of the adoption of ASU No.
2016-01, the Company recognized net unrealized losses on equity
securities still held of $5.3 million during the three month period
ended June 30, 2019 and unrealized gains on equity securities still
held of $4.1 million during the three month period ended June 30,
2018. The Company recognized net unrealized gains on equity
securities still held of $1.2 million during the six month period
ended June 30, 2019 and unrealized losses on equity securities
still held of $0.3 million during the three month period ended June
30, 2018. Changes in unrealized gains and losses on equity
securities for the applicable periods are primarily the result of
fluctuations in the market values of the Company’s equity
investments.
INTEREST EXPENSE
Interest expense remained
relatively consistent during the three month period ended June 30,
2019, and increased $0.1 million, or 12.7%, during the six month
period ended June 30, 2019, over the comparable periods in 2018.
The increase in interest expense was due to an increase in the
London Interbank Offered Rate (“LIBOR”), as the interest rates on
the Company’s outstanding junior subordinated deferrable interest
debentures (“Junior Subordinated Debentures”) are directly related
to LIBOR.
OTHER EXPENSES
Other expenses (commissions,
underwriting expenses, and other expenses) increased $1.3 million,
or 10.5%, during the three month period ended June 30, 2019, and
$2.0 million, or 7.5%, during the six month period ended June 30,
2019, from the comparable periods in 2018. The increase in other
expenses was primarily attributable to increased costs associated
with the growth of the Medicare supplement line of business. Also
contributing to the increase in other expenses was a $0.1 million
and $0.6 million increase in the three month and six month periods
ended June 30, 2019, respectively, in the variable commission
accrual in the property and casualty operations. On a consolidated
basis, as a percentage of earned premiums, other expenses increased
to 30.8% in the three month period ended June 30, 2019 from 29.6%
in the three month period ended June 30, 2018. For the six
month period ended June 30, 2019, this ratio increased to 30.9%
from 30.5% in the comparable period in 2018. The increase in the
expense ratio during the three month and six month periods ended
June 30, 2019 was primarily attributable to the increase costs
associated with the growth in Medicare supplement line of business
and variable commissions, as discussed previously.
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. 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. 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 June 30, 2019, the Parent had approximately
$15.0 million of unrestricted cash and investments.
The Parent’s insurance subsidiaries
reported a statutory net loss of $1.7 million for the six month
period ended June 30, 2019, compared to statutory net loss of $1.0
million for the six month period ended June 30, 2018. Statutory
results are impacted by the recognition of all costs of acquiring
business. In periods in which the Company’s first year premiums
increase, statutory results are generally lower than results
determined under GAAP. Statutory results for the Company’s property
and casualty operations may differ from the Company’s results of
operations under GAAP due to the deferral of acquisition costs for
financial reporting purposes. The Company’s life and health
operations’ statutory results may differ from GAAP results
primarily due to the deferral of acquisition costs for financial
reporting purposes, as well as the use of different reserving
methods.
Over 90% of the invested assets of
the Parent’s insurance subsidiaries are invested in marketable
securities that can be converted into cash, if required; however,
the use of such assets by the Company is limited by state insurance
regulations. 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 June 30, 2019, American
Southern had $42.0 million of statutory surplus and Bankers
Fidelity had $28.0 million of statutory surplus. In 2019, dividend
payments by the Parent’s insurance subsidiaries in excess of $4.3
million would require prior approval. Through June 30, 2019, the
Parent received dividends of $2.4 million from its
subsidiaries.
The Parent provides certain
administrative and other services to each of its insurance
subsidiaries. The amounts charged to and paid by the subsidiaries
include reimbursements for various shared services and other
expenses incurred directly on behalf of the subsidiaries by the
Parent. In addition, there is in place a formal tax-sharing
agreement between the Parent and its insurance subsidiaries. As a
result of the Parent’s tax loss, it is anticipated that the
tax-sharing agreement will continue to provide the Parent with
additional funds from profitable subsidiaries to assist in meeting
its cash flow obligations.
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 three-month
LIBOR plus an applicable margin. The margin ranges from 4.00% to
4.10%. At June 30, 2019, the effective interest rate was 6.57%. 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. As of June 30, 2019, 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 potential future financing
arrangements.
At June 30, 2019, 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.
The outstanding shares of Series D Preferred Stock have a stated
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.
At June 30, 2019, the Company had accrued but unpaid dividends on
the Series D Preferred Stock totaling $0.2 million.
Cash and cash equivalents decreased
from $12.6 million at December 31, 2018 to $11.5 million at June
30, 2019. The decrease in cash and cash equivalents during the six
month period ended June 30, 2019 was primarily attributable to net
cash used in operating activities of $7.2 million, partially offset
by a $6.6 million increase resulting from investment sales and
maturity of securities exceeding purchases 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
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.
OFF-BALANCE SHEET
ARRANGEMENTS
The Company disclosed its
off-balance sheet arrangements in the 2018 Annual Report. As
of June 30, 2019, there have been no material changes to these
off-balance sheet arrangements outside the ordinary course of
business.
CONTRACTUAL OBLIGATIONS
As a smaller reporting company, the
Company has elected to comply with certain scaled disclosure
reporting obligations, and therefore is not providing the table of
contractual obligations required by Item 303 of Regulation
S-K.
It em 4. Controls and
Procedures
We maintain disclosure controls and
procedures that are designed to ensure that information required to
be disclosed in our Securities Exchange Act of 1934 (the “Exchange
Act”) reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is
accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Management
necessarily applies its judgment in assessing the costs and
benefits of such controls and procedures, which, by their nature,
can provide only reasonable assurance regarding management’s
control objectives. The Company’s management, including the Chief
Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures can prevent all possible
errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. There are inherent
limitations in all control systems, including the realities that
judgments in decision-making can be faulty, and that breakdowns can
occur because of simple errors or mistakes. Additionally, controls
can be circumvented by the intentional acts of one or more persons.
The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and, while our
disclosure controls and procedures are designed to be effective
under circumstances where they should reasonably be expected to
operate effectively, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Because of the inherent limitations in any control
system, misstatements due to possible errors or fraud may occur and
may not be detected. An evaluation was performed under the
supervision and with the participation of our management, including
the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of the end of the period covered
by this report. Based on that evaluation, our management, including
the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were effective as of
the end of the period covered by this report.
There have been no changes in our
internal control over financial reporting that occurred during the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This report
contains and references certain information that constitutes
forward-looking statements as that term is defined in the federal
securities laws. Statements, to the extent they are not statements
of historical facts, should be considered forward-looking
statements, and are subject to various risks and uncertainties.
Such forward-looking statements are made based upon management’s
current assessments of various risks and uncertainties, as well as
assumptions made in accordance with the “safe harbor” provisions of
the federal securities laws. The Company’s actual results could
differ materially from the results anticipated in these
forward-looking statements as a result of such risks and
uncertainties, including those identified in filings made by the
Company from time to time with the Securities and Exchange
Commission. In addition, other risks and uncertainties not known by
us, or that we currently determine to not be material, may
materially adversely affect our financial condition, results of
operations or cash flows. The Company undertakes no obligation to
update any forward-looking statement as a result of subsequent
developments, changes in underlying assumptions or facts, or
otherwise.
PART II. OTHER
INFORMATION
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
On October 31, 2016, the Board of
Directors of the Company approved a plan that allows for the
repurchase of up to 750,000 shares of the Company’s common stock
(the “Repurchase Plan”) on the open market or in privately
negotiated transactions, as determined by an authorized officer of
the Company. Any such repurchases could be made from time to time
in accordance with applicable securities laws and other
requirements. The Company suspended the Repurchase Plan in May 2019
in connection with ending the relationship with the registered
broker under the Repurchase Plan. The Company expects to evaluate
implementation of a replacement plan in the future.
Other than pursuant to the
Repurchase Plan, no purchases of common stock of the Company were
made by or on behalf of the Company during the periods described
below.
The table below sets forth
information regarding repurchases by the Company of shares of its
common stock on a monthly basis during the three month period ended
June 30, 2019.
Period
|
|
Total Number
of Shares
Purchased
|
|
|
Average
Price Paid
per Share
|
|
|
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
|
|
|
Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans or
Programs
|
|
April 1 –
April 30, 2019
|
|
|
6,400
|
|
|
$
|
2.56
|
|
|
|
6,400
|
|
|
|
327,074
|
|
May 1 – May
31, 2019
|
|
|
1,945
|
|
|
|
2.55
|
|
|
|
1,945
|
|
|
|
325,129
|
|
June 1 – June
30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
325,129
|
|
Total
|
|
|
8,345
|
|
|
$
|
2.56
|
|
|
|
8,345
|
|
|
|
|
|
|
Certification of the Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification of the Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
101.INS
|
XBRL Instance Document.
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema.
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase.
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase.
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase.
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase.
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ATLANTIC AMERICAN CORPORATION
|
|
(Registrant)
|
|
|
Date: August 13, 2019
|
By:
|
/s/ J. Ross Franklin
|
|
|
J. Ross Franklin
|
|
|
Vice President and Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer)
|