UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June
30, 2020
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number
0-3722
ATLANTIC
AMERICAN CORPORATION
(Exact name of registrant as specified in its
charter)
Georgia
|
|
58-1027114
|
(State or
other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
4370 Peachtree
Road, N.E.,
Atlanta,
Georgia
|
|
30319
|
(Address of
principal executive offices)
|
|
(Zip
Code)
|
(404)
266-5500
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each
class
|
|
Trading
Symbol(s)
|
|
Name of each
exchange on which registered
|
Common Stock, par value $1.00 per
share
|
|
AAME
|
|
NASDAQ Global Market
|
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☑ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated
filer ☐ Non-accelerated filer ☐
Smaller reporting company ☑ Emerging growth
company ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The total number of shares of the registrant’s Common Stock,
$1 par value, outstanding on July 24, 2020 was
20,454,001.
ATLANTIC
AMERICAN CORPORATION
|
|
|
Part I.
|
Financial
Information
|
|
|
|
|
Item 1.
|
|
2
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
Item 2.
|
|
21
|
|
|
|
Item 4.
|
|
28
|
|
|
|
Part II.
|
Other
Information
|
|
|
|
|
Item 2.
|
|
29
|
|
|
|
Item 6.
|
|
29
|
|
|
|
|
|
30
|
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
ATLANTIC
AMERICAN CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
ASSETS |
|
|
|
Unaudited
June 30,
2020
|
|
|
December 31,
2019
|
|
Cash and cash
equivalents
|
|
$
|
16,354
|
|
|
$
|
12,893
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed
maturities, available-for-sale, at fair value (amortized cost:
$214,080 and $219,233)
|
|
|
236,187
|
|
|
|
232,472
|
|
Equity
securities, at fair value (cost: $7,311 and $7,168)
|
|
|
15,965
|
|
|
|
22,922
|
|
Other
invested assets (cost: $11,905 and $9,908)
|
|
|
11,454
|
|
|
|
9,960
|
|
Policy
loans
|
|
|
2,018
|
|
|
|
2,007
|
|
Real
estate
|
|
|
38
|
|
|
|
38
|
|
Investment
in unconsolidated trusts
|
|
|
1,238
|
|
|
|
1,238
|
|
Total
investments
|
|
|
266,900
|
|
|
|
268,637
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
27,562
|
|
|
|
32,135
|
|
Insurance
premiums and other (net of allowance for doubtful accounts: $197
and $183)
|
|
|
23,785
|
|
|
|
13,134
|
|
Deferred
income taxes, net
|
|
|
1,144
|
|
|
|
314
|
|
Deferred
acquisition costs
|
|
|
39,148
|
|
|
|
38,861
|
|
Other
assets
|
|
|
8,300
|
|
|
|
9,108
|
|
Intangibles
|
|
|
2,544
|
|
|
|
2,544
|
|
Total
assets
|
|
$
|
385,737
|
|
|
$
|
377,626
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
Insurance
reserves and policyholder funds:
|
|
|
|
|
|
|
|
|
Future
policy benefits
|
|
$
|
91,927
|
|
|
$
|
92,490
|
|
Unearned
premiums
|
|
|
35,091
|
|
|
|
26,035
|
|
Losses and
claims
|
|
|
76,498
|
|
|
|
81,448
|
|
Other policy
liabilities
|
|
|
1,195
|
|
|
|
1,933
|
|
Total
insurance reserves and policyholder funds
|
|
|
204,711
|
|
|
|
201,906
|
|
Accounts
payable and accrued expenses
|
|
|
23,394
|
|
|
|
23,588
|
|
Junior
subordinated debenture obligations, net
|
|
|
33,738
|
|
|
|
33,738
|
|
Total
liabilities
|
|
|
261,843
|
|
|
|
259,232
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1 par, 4,000,000 shares authorized; Series D preferred,
55,000 shares issued and outstanding; $5,500 redemption value
|
|
|
55
|
|
|
|
55
|
|
Common
stock, $1 par, 50,000,000 shares authorized; shares issued:
22,400,894; shares outstanding: 20,454,001 and 20,472,162
|
|
|
22,401
|
|
|
|
22,401
|
|
Additional
paid-in capital
|
|
|
57,435
|
|
|
|
57,820
|
|
Retained
earnings
|
|
|
34,266
|
|
|
|
36,020
|
|
Accumulated
other comprehensive income
|
|
|
17,464
|
|
|
|
10,459
|
|
Unearned
stock grant compensation
|
|
|
(466
|
)
|
|
|
(781
|
)
|
Treasury
stock, at cost: 1,946,893 and 1,928,732 shares
|
|
|
(7,261
|
)
|
|
|
(7,580
|
)
|
Total
shareholders’ equity
|
|
|
123,894
|
|
|
|
118,394
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
385,737
|
|
|
$
|
377,626
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
ATLANTIC
AMERICAN CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited;
Dollars in thousands, except per share data)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
premiums, net
|
|
$
|
46,499
|
|
|
$
|
45,469
|
|
|
$
|
92,049
|
|
|
$
|
90,251
|
|
Net
investment income
|
|
|
1,850
|
|
|
|
2,313
|
|
|
|
3,889
|
|
|
|
4,647
|
|
Realized
investment gains, net
|
|
|
-
|
|
|
|
610
|
|
|
|
249
|
|
|
|
1,995
|
|
Unrealized
gains (losses) on equity securities, net
|
|
|
1,355
|
|
|
|
(5,337
|
)
|
|
|
(7,100
|
)
|
|
|
1,152
|
|
Other
income
|
|
|
33
|
|
|
|
72
|
|
|
|
60
|
|
|
|
100
|
|
Total
revenue
|
|
|
49,737
|
|
|
|
43,127
|
|
|
|
89,147
|
|
|
|
98,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
benefits and losses incurred
|
|
|
27,076
|
|
|
|
34,151
|
|
|
|
60,659
|
|
|
|
69,458
|
|
Commissions
and underwriting expenses
|
|
|
10,854
|
|
|
|
11,509
|
|
|
|
23,480
|
|
|
|
22,524
|
|
Interest
expense
|
|
|
414
|
|
|
|
545
|
|
|
|
890
|
|
|
|
1,091
|
|
Other
expense
|
|
|
3,112
|
|
|
|
2,511
|
|
|
|
6,064
|
|
|
|
5,376
|
|
Total
benefits and expenses
|
|
|
41,456
|
|
|
|
48,716
|
|
|
|
91,093
|
|
|
|
98,449
|
|
Income (loss)
before income taxes
|
|
|
8,281
|
|
|
|
(5,589
|
)
|
|
|
(1,946
|
)
|
|
|
(304
|
)
|
Income tax
expense (benefit)
|
|
|
1,749
|
|
|
|
(1,163
|
)
|
|
|
(391
|
)
|
|
|
(40
|
)
|
Net income
(loss)
|
|
|
6,532
|
|
|
|
(4,426
|
)
|
|
|
(1,555
|
)
|
|
|
(264
|
)
|
Preferred
stock dividends
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
(199
|
)
|
|
|
(199
|
)
|
Net income
(loss) applicable to common shareholders
|
|
$
|
6,432
|
|
|
$
|
(4,526
|
)
|
|
$
|
(1,754
|
)
|
|
$
|
(463
|
)
|
Earnings
(loss) per common share (basic)
|
|
$
|
.31
|
|
|
$
|
(.22
|
)
|
|
$
|
(.09
|
)
|
|
$
|
(.02
|
)
|
Earnings
(loss) per common share (diluted)
|
|
$
|
.30
|
|
|
$
|
(.22
|
)
|
|
$
|
(.09
|
)
|
|
$
|
(.02
|
)
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
ATLANTIC
AMERICAN CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited;
Dollars in thousands)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income
(loss)
|
|
$
|
6,532
|
|
|
$
|
(4,426
|
)
|
|
$
|
(1,555
|
)
|
|
$
|
(264
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
unrealized holding gain arising in the period
|
|
|
19,997
|
|
|
|
7,964
|
|
|
|
9,117
|
|
|
|
16,404
|
|
Related
income tax effect
|
|
|
(4,200
|
)
|
|
|
(1,673
|
)
|
|
|
(1,915
|
)
|
|
|
(3,445
|
)
|
Subtotal
|
|
|
15,797
|
|
|
|
6,291
|
|
|
|
7,202
|
|
|
|
12,959
|
|
Less:
reclassification adjustment for net realized gains included in net
income (loss)
|
|
|
-
|
|
|
|
(610
|
)
|
|
|
(249
|
)
|
|
|
(882
|
)
|
Related
income tax effect
|
|
|
-
|
|
|
|
128
|
|
|
|
52
|
|
|
|
185
|
|
Subtotal
|
|
|
-
|
|
|
|
(482
|
)
|
|
|
(197
|
)
|
|
|
(697
|
)
|
Total other
comprehensive income, net of tax
|
|
|
15,797
|
|
|
|
5,809
|
|
|
|
7,005
|
|
|
|
12,262
|
|
Total
comprehensive income
|
|
$
|
22,329
|
|
|
$
|
1,383
|
|
|
$
|
5,450
|
|
|
$
|
11,998
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
ATLANTIC
AMERICAN CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited;
Dollars in thousands except share data)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
55
|
|
Balance, end
of period
|
|
|
55
|
|
|
|
55
|
|
|
|
55
|
|
|
|
55
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
22,401
|
|
|
|
22,401
|
|
|
|
22,401
|
|
|
|
22,401
|
|
Balance, end
of period
|
|
|
22,401
|
|
|
|
22,401
|
|
|
|
22,401
|
|
|
|
22,401
|
|
Additional paid-in capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
57,777
|
|
|
|
57,417
|
|
|
|
57,820
|
|
|
|
57,414
|
|
Restricted
stock grants, net of forfeitures
|
|
|
(333
|
)
|
|
|
24
|
|
|
|
(377
|
)
|
|
|
24
|
|
Issuance of
shares under stock plans
|
|
|
(9
|
)
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
6
|
|
Balance, end
of period
|
|
|
57,435
|
|
|
|
57,444
|
|
|
|
57,435
|
|
|
|
57,444
|
|
Retained earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
27,834
|
|
|
|
40,868
|
|
|
|
36,020
|
|
|
|
37,208
|
|
Net income
(loss)
|
|
|
6,532
|
|
|
|
(4,426
|
)
|
|
|
(1,555
|
)
|
|
|
(264
|
)
|
Dividends on
common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(403
|
)
|
Dividends
accrued on preferred stock
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
(199
|
)
|
|
|
(199
|
)
|
Balance, end
of period
|
|
|
34,266
|
|
|
|
36,342
|
|
|
|
34,266
|
|
|
|
36,342
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
1,667
|
|
|
|
(1,082
|
)
|
|
|
10,459
|
|
|
|
(7,535
|
)
|
Other
comprehensive income, net of tax
|
|
|
15,797
|
|
|
|
5,809
|
|
|
|
7,005
|
|
|
|
12,262
|
|
Balance, end
of period
|
|
|
17,464
|
|
|
|
4,727
|
|
|
|
17,464
|
|
|
|
4,727
|
|
Unearned Stock Grant Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
(584
|
)
|
|
|
(128
|
)
|
|
|
(781
|
)
|
|
|
(186
|
)
|
Restricted
stock grants, net of forfeitures
|
|
|
(37
|
)
|
|
|
(71
|
)
|
|
|
61
|
|
|
|
(71
|
)
|
Amortization
of unearned compensation
|
|
|
155
|
|
|
|
49
|
|
|
|
254
|
|
|
|
107
|
|
Balance, end
of period
|
|
|
(466
|
)
|
|
|
(150
|
)
|
|
|
(466
|
)
|
|
|
(150
|
)
|
Treasury Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
(7,632
|
)
|
|
|
(8,044
|
)
|
|
|
(7,580
|
)
|
|
|
(7,985
|
)
|
Restricted
stock grants, net of forfeitures
|
|
|
370
|
|
|
|
47
|
|
|
|
316
|
|
|
|
47
|
|
Purchase of 0
and 26,210 shares, as of 2020 and 2019, respectively, for
treasury
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
(71
|
)
|
Net shares
acquired related to employee share-based compensation plans
|
|
|
(10
|
)
|
|
|
(35
|
)
|
|
|
(10
|
)
|
|
|
(49
|
)
|
Issuance of
shares under stock plans
|
|
|
11
|
|
|
|
5
|
|
|
|
13
|
|
|
|
9
|
|
Balance, end
of period
|
|
|
(7,261
|
)
|
|
|
(8,049
|
)
|
|
|
(7,261
|
)
|
|
|
(8,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
$
|
123,894
|
|
|
$
|
112,770
|
|
|
$
|
123,894
|
|
|
$
|
112,770
|
|
Dividends declared on common stock per share
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(.02
|
)
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
ATLANTIC
AMERICAN CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited;
Dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,555
|
)
|
|
$
|
(264
|
)
|
Adjustments
to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Additions to
acquisition costs, net
|
|
|
(287
|
)
|
|
|
(1,050
|
)
|
Realized
investment gains, net
|
|
|
(249
|
)
|
|
|
(1,995
|
)
|
Unrealized
losses (gains) on equity securities, net
|
|
|
7,100
|
|
|
|
(1,152
|
)
|
Distributions received from equity method investees
|
|
|
-
|
|
|
|
106
|
|
Compensation
expense related to share awards
|
|
|
254
|
|
|
|
107
|
|
Depreciation
and amortization
|
|
|
503
|
|
|
|
337
|
|
Deferred
income tax benefit
|
|
|
(2,693
|
)
|
|
|
(612
|
)
|
Increase in
receivables, net
|
|
|
(6,078
|
)
|
|
|
(13,393
|
)
|
Increase in
insurance reserves and policyholder funds
|
|
|
2,805
|
|
|
|
13,493
|
|
(Decrease)
increase in accounts payable and accrued expenses
|
|
|
(393
|
)
|
|
|
2,366
|
|
Other,
net
|
|
|
1,151
|
|
|
|
(5,162
|
)
|
Net cash
provided by (used in) operating activities
|
|
|
558
|
|
|
|
(7,219
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from investments sold
|
|
|
7,448
|
|
|
|
70,171
|
|
Proceeds
from investments matured, called or redeemed
|
|
|
3,031
|
|
|
|
3,628
|
|
Investments
purchased
|
|
|
(7,411
|
)
|
|
|
(67,220
|
)
|
Additions to
property and equipment
|
|
|
(160
|
)
|
|
|
(32
|
)
|
Net cash
provided by investing activities
|
|
|
2,908
|
|
|
|
6,547
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment of
dividends on common stock
|
|
|
-
|
|
|
|
(403
|
)
|
Proceeds
from shares issued under stock plans
|
|
|
5
|
|
|
|
15
|
|
Treasury
stock acquired — share repurchase authorization
|
|
|
-
|
|
|
|
(71
|
)
|
Treasury
stock acquired — net employee share-based compensation
|
|
|
(10
|
)
|
|
|
(49
|
)
|
Net cash
used in financing activities
|
|
|
(5
|
)
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
3,461
|
|
|
|
(1,180
|
)
|
Cash and cash
equivalents at beginning of period
|
|
|
12,893
|
|
|
|
12,630
|
|
Cash and cash
equivalents at end of period
|
|
$
|
16,354
|
|
|
$
|
11,450
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
944
|
|
|
$
|
1,100
|
|
Cash paid for
income taxes
|
|
$
|
-
|
|
|
$
|
850
|
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
ATLANTIC
AMERICAN CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited;
Dollars in thousands, except per share amounts)
Note 1. |
Basis of Presentation
|
The accompanying unaudited
condensed consolidated financial statements include the accounts of
Atlantic American Corporation (the “Parent”) and its subsidiaries
(collectively with the Parent, the “Company”). The Parent’s primary
operating 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”),
operate in two principal business units. American Southern operates
in the property and casualty insurance market, while Bankers
Fidelity operates in the life and health insurance market. All
significant intercompany accounts and transactions have been
eliminated in consolidation. The accompanying financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for
interim financial information and with the instructions to Form
10-Q and Article 8 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by GAAP for
audited annual financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included.
The unaudited condensed consolidated financial statements included
herein and these related notes should be read in conjunction with
the Company’s consolidated financial statements, and the notes
thereto, included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019 (the “2019 Annual Report”). The
Company’s financial condition and results of operations and cash
flows as of and for the three month and six month periods ended
June 30, 2020 are not necessarily indicative of the financial
condition or results of operations and cash flows that may be
expected for the year ending December 31, 2020 or for any other
future period.
The Company’s significant
accounting policies have not changed materially from those set out
in the 2019 Annual Report, except as noted below for the adoption
of new accounting standards.
The preparation of financial
statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities, disclosures of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ materially from those estimates.
On March 11, 2020, the World Health
Organization declared the Novel Coronavirus (“COVID-19”) outbreak a
global pandemic. The impact of COVID-19 and related actions to
attempt to control its spread began to impact the Company’s
business operations in March 2020, and we expect that the pandemic,
actions that have been or will be taken in response to it and its
overall impact on the economy, will continue to have an effect on
our business operations and our operating results. The Company’s
insurance subsidiaries may experience difficulties collecting
premiums from some policyholders, and policyholders with financial
difficulties may decide not to renew insurance policies with the
Company. Although it cannot be predicted with certainty at
this time, the Company’s insurance subsidiaries do not expect a
direct material impact from the outbreak of COVID-19 in terms of
increased claims and losses, but that may change as more
information becomes available. In addition, economic
uncertainty related to COVID-19 has led to a decline in the
investment markets, and may continue to create increased
volatility. The impact of COVID-19 on the economy and on the
Company is evolving and its future effects are uncertain. The
Company is closely monitoring the effects and risks of COVID-19 to
assess its impact on the Company’s business, financial condition,
results of operations, liquidity and capital position.
On March 27, 2020, Congress passed
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”), which is intended to provide fast and direct economic
assistance for American workers and families, small businesses, and
to preserve jobs in American industries. The CARES Act includes,
among other things, provisions relating to payroll tax credits and
deferrals, net operating loss carryback periods, alternative
minimum tax credits and technical corrections to tax depreciation
methods for qualified improvement property. The Company does not
qualify as a small business under the CARES Act and therefore did
not apply for any of the government loan programs; however, the
Company intends to monitor and assess the availability of resources
and other benefits that might be available to the Company under the
CARES Act and through other programs.
Note 2. |
Recently Issued Accounting Standards
|
Adoption of New Accounting Standards
Fair Value Measurement – Changes to the
Disclosure Requirements for Fair Value Measurement. In
August 2018, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).
This guidance removes the following disclosure requirements from
Topic 820: (1) the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, (2) the policy for
timing of transfers between levels, and (3) the valuation processes
for Level 3 fair value measurements. This disclosure also
includes the changes in unrealized gains and losses for the period
included in other comprehensive income for recurring Level 3 fair
value measurements held at the end of the reporting period and the
range and weighted average of significant unobservable inputs used
to develop Level 3 fair value measurements. The Company
adopted ASU 2018-13 as of January 1, 2020. The adoption of this ASU
did not have an impact on the Company’s consolidated financial
statements.
Goodwill. In January 2017, the
FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment (“ASU
2017-04”). ASU 2017-04 is intended to simplify the evaluation
of goodwill. The updated guidance requires recognition and
measurement of goodwill impairment based on the excess of the
carrying value of the reporting unit compared to its estimated fair
value, with the amount of the impairment not to exceed the carrying
value of the reporting unit’s goodwill. Under the prior accounting
guidance, if the reporting unit’s carrying value exceeds its
estimated fair value, the Company allocates the fair value of the
reporting unit to all of the assets and liabilities of the
reporting unit to determine an implied goodwill value. An
impairment loss is then recognized for the excess, if any, of the
carrying value of the reporting unit’s goodwill compared to the
implied goodwill value. The Company adopted ASU 2017-04
as of January 1, 2020. The adoption of this ASU did not have an
impact on the Company’s consolidated financial statements.
Future
Adoption of New Accounting Standards
Reference Rate Reform. In March 2020,
the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”). This guidance provides optional
expedients and exceptions for applying GAAP to investments,
derivatives, or other transactions that reference the London
Interbank Offered Rate (LIBOR) or another reference rate expected
to be discontinued because of reference rate reform. Along with the
optional expedients, the amendments include a general principle
that permits an entity to consider contract modifications due to
reference reform to be an event that does not require contract
re-measurement at the modification date or reassessment of a
previous accounting determination. Additionally, a company may make
a one-time election to sell, transfer, or both sell and transfer
debt securities classified as held to maturity that reference a
rate affected by reference rate reform and that were classified as
held to maturity before January 1, 2020. This standard may be
elected over time through December 31, 2022 as reference rate
reform activities occur. The Company is currently assessing the
effect of adopting this guidance on its financial condition and
results of operations.
Investments – Equity Securities. In
January 2020, the FASB issued ASU No. 2020-01 (“ASU 2020-01”)
Investments-Equity Securities (Topic 321), Investments-Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging
(Topic 815) Clarifying the Interactions between Topic 321, Topic
323, and Topic 815. This update, among others, clarifies the
interaction of the accounting for equity securities under Topic 321
and investments under the equity method of accounting in Topic 323
when there is a change in level of ownership or degree of
influence. ASU 2020-01 is effective for the Company beginning with
the first quarter of 2021 and will be applied prospectively. Early
adoption is permitted. This guidance is not expected to have a
material impact on the Company’s consolidated financial
statements.
For more information regarding
other accounting standards that the Company has not yet adopted,
see the “Recently Issued Accounting Standards - Future Adoption of
New Accounting Standards” section of Note 1 of Notes to
Consolidated Financial Statements in the 2019 Annual Report.
The following tables set forth the
estimated fair value, gross unrealized gains, gross unrealized
losses and cost or amortized cost of the Company’s investments in
fixed maturities and equity securities, aggregated by type and
industry, as of June 30, 2020 and December 31, 2019.
Fixed maturities were comprised of
the following:
|
|
June 30, 2020
|
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Cost or
Amortized
Cost
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and obligations of U.S. Government agencies and
authorities
|
|
$
|
20,461
|
|
|
$
|
1,739
|
|
|
$
|
25
|
|
|
$
|
18,747
|
|
Obligations
of states and political subdivisions
|
|
|
11,520
|
|
|
|
910
|
|
|
|
-
|
|
|
|
10,610
|
|
Corporate
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
and telecom
|
|
|
28,886
|
|
|
|
4,118
|
|
|
|
-
|
|
|
|
24,768
|
|
Financial
services
|
|
|
73,151
|
|
|
|
6,050
|
|
|
|
132
|
|
|
|
67,233
|
|
Other
business – diversified
|
|
|
41,739
|
|
|
|
3,331
|
|
|
|
945
|
|
|
|
39,353
|
|
Other
consumer – diversified
|
|
|
60,180
|
|
|
|
7,407
|
|
|
|
404
|
|
|
|
53,177
|
|
Total
corporate securities
|
|
|
203,956
|
|
|
|
20,906
|
|
|
|
1,481
|
|
|
|
184,531
|
|
Redeemable
preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
consumer – diversified
|
|
|
250
|
|
|
|
58
|
|
|
|
—
|
|
|
|
192
|
|
Total
redeemable preferred stocks
|
|
|
250
|
|
|
|
58
|
|
|
|
—
|
|
|
|
192
|
|
Total fixed
maturities
|
|
$
|
236,187
|
|
|
$
|
23,613
|
|
|
$
|
1,506
|
|
|
$
|
214,080
|
|
|
|
December 31, 2019
|
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Cost or
Amortized
Cost
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and obligations of U.S. Government agencies and
authorities
|
|
$
|
20,259
|
|
|
$
|
467
|
|
|
$
|
53
|
|
|
$
|
19,845
|
|
Obligations
of states and political subdivisions
|
|
|
11,940
|
|
|
|
371
|
|
|
|
53
|
|
|
|
11,622
|
|
Corporate
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
and telecom
|
|
|
26,648
|
|
|
|
2,404
|
|
|
|
32
|
|
|
|
24,276
|
|
Financial
services
|
|
|
73,917
|
|
|
|
4,249
|
|
|
|
57
|
|
|
|
69,725
|
|
Other
business – diversified
|
|
|
41,706
|
|
|
|
2,335
|
|
|
|
98
|
|
|
|
39,469
|
|
Other
consumer – diversified
|
|
|
57,752
|
|
|
|
3,702
|
|
|
|
54
|
|
|
|
54,104
|
|
Total
corporate securities
|
|
|
200,023
|
|
|
|
12,690
|
|
|
|
241
|
|
|
|
187,574
|
|
Redeemable
preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
consumer – diversified
|
|
|
250
|
|
|
|
58
|
|
|
|
-
|
|
|
|
192
|
|
Total
redeemable preferred stocks
|
|
|
250
|
|
|
|
58
|
|
|
|
-
|
|
|
|
192
|
|
Total fixed
maturities
|
|
$
|
232,472
|
|
|
$
|
13,586
|
|
|
$
|
347
|
|
|
$
|
219,233
|
|
Bonds having an amortized cost of
$10,444 and $10,669 and included in the tables above were on
deposit with insurance regulatory authorities as of June 30, 2020
and December 31, 2019, respectively, in accordance with statutory
requirements.
Equity securities were comprised of
the following:
|
|
June 30, 2020
|
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Cost or
Amortized
Cost
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and
non-redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
services
|
|
$
|
3,061
|
|
|
$
|
384
|
|
|
$
|
1
|
|
|
$
|
2,678
|
|
Other
business – diversified
|
|
|
12,904
|
|
|
|
8,271
|
|
|
|
-
|
|
|
|
4,633
|
|
Total equity
securities
|
|
$
|
15,965
|
|
|
$
|
8,655
|
|
|
$
|
1
|
|
|
$
|
7,311
|
|
|
|
December 31, 2019
|
|
|
|
Estimated
Fair Value
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Cost or
Amortized
Cost
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and
non-redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
services
|
|
$
|
3,159
|
|
|
|
624
|
|
|
|
-
|
|
|
|
2,535
|
|
Other
business – diversified
|
|
|
19,763
|
|
|
|
15,130
|
|
|
|
-
|
|
|
|
4,633
|
|
Total equity
securities
|
|
$
|
22,922
|
|
|
$
|
15,754
|
|
|
$
|
-
|
|
|
$
|
7,168
|
|
The carrying value and amortized
cost of the Company’s investments in fixed maturities at June 30,
2020 and December 31, 2019 by contractual maturity were as follows.
Actual maturities may differ from contractual maturities because
issuers may call or prepay obligations with or without call or
prepayment penalties.
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
Due in one
year or less
|
|
$
|
509
|
|
|
$
|
500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one
year through five years
|
|
|
19,923
|
|
|
|
19,012
|
|
|
|
14,664
|
|
|
|
14,280
|
|
Due after
five years through ten years
|
|
|
85,121
|
|
|
|
78,583
|
|
|
|
77,934
|
|
|
|
73,521
|
|
Due after ten
years
|
|
|
122,141
|
|
|
|
107,964
|
|
|
|
130,680
|
|
|
|
122,321
|
|
Asset backed
securities
|
|
|
8,493
|
|
|
|
8,021
|
|
|
|
9,194
|
|
|
|
9,111
|
|
Totals
|
|
$
|
236,187
|
|
|
$
|
214,080
|
|
|
$
|
232,472
|
|
|
$
|
219,233
|
|
The following tables present the
Company’s unrealized loss aging for securities by type and length
of time the security was in a continuous unrealized loss position
as of June 30, 2020 and December 31, 2019.
|
|
June 30, 2020
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
U.S. Treasury
securities and obligations of U.S. Government agencies and
authorities
|
|
$
|
887
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
887
|
|
|
$
|
25
|
|
Corporate
securities
|
|
|
22,512
|
|
|
|
1,481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,512
|
|
|
|
1,481
|
|
Total
temporarily impaired securities
|
|
$
|
23,399
|
|
|
$
|
1,506
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23,399
|
|
|
$
|
1,506
|
|
|
|
December 31, 2019
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
U.S. Treasury
securities and obligations of U.S. Government agencies and
authorities
|
|
$
|
3,432
|
|
|
$
|
22
|
|
|
$
|
3,533
|
|
|
$
|
31
|
|
|
$
|
6,965
|
|
|
$
|
53
|
|
Obligations
of states and political subdivisions
|
|
|
3,106
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,106
|
|
|
|
53
|
|
Corporate
securities
|
|
|
23,245
|
|
|
|
145
|
|
|
|
2,504
|
|
|
|
96
|
|
|
|
25,749
|
|
|
|
241
|
|
Total
temporarily impaired securities
|
|
$
|
29,783
|
|
|
$
|
220
|
|
|
$
|
6,037
|
|
|
$
|
127
|
|
|
$
|
35,820
|
|
|
$
|
347
|
|
The evaluation for an other than
temporary impairment (“OTTI”) is a quantitative and qualitative
process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments
are other than temporary. Potential risks and uncertainties
include, among other things, changes in general economic
conditions, an issuer’s financial condition or near term recovery
prospects and the effects of changes in interest rates. In
evaluating a potential impairment, the Company considers, among
other factors, management’s intent and ability to hold the
securities until price recovery, the nature of the investment and
the expectation of prospects for the issuer and its industry, the
status of an issuer’s continued satisfaction of its obligations in
accordance with their contractual terms, and management’s
expectation as to the issuer’s ability and intent to continue to do
so, as well as ratings actions that may affect the issuer’s credit
status.
There were no OTTI charges recorded
during the three month and six month periods ended June 30, 2020
and 2019.
As of June 30, 2020 and December
31, 2019, there were seventeen and thirty securities, respectively,
in an unrealized loss position which primarily included certain of
the Company’s investments in fixed maturities within the financial
services, other diversified business and other diversified consumer
sectors. The decrease in the number of securities in an unrealized
loss position during the six month period ended June 30, 2020, was
primarily attributable to improvement in market values in certain
of the Company’s fixed maturity securities as a result of a
declining interest rate environment. The Company does not
currently intend to sell nor does it expect to be required to sell
any of the securities in an unrealized loss position. Based upon
the Company’s expected continuation of receipt of contractually
required principal and interest payments and its intent and ability
to retain the securities until price recovery, as well as the
Company’s evaluation of other relevant factors, including those
described above, the Company has deemed these securities to be
temporarily impaired as of June 30, 2020.
There were no realized investments
gains (losses) in the three month period ended June 30, 2020.
The following tables summarize realized investment gains (losses)
for the three month period ended June 30, 2019 and the six month
periods ended June 30, 2020 and June 30, 2019.
|
|
Three Months Ended
June 30, 2019
|
|
|
|
Fixed
Maturities
|
|
|
Equity
Securities
|
|
|
Other
Invested
Assets
|
|
|
Total
|
|
Gains
|
|
$
|
610
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
610
|
|
Losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Realized
investment gains, net
|
|
$
|
610
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
610
|
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Fixed
Maturities
|
|
|
Equity
Securities
|
|
|
Other
Invested
Assets
|
|
|
Total
|
|
Gains
|
|
$
|
249
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249
|
|
Losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Realized
investment gains, net
|
|
$
|
249
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
Fixed
Maturities
|
|
|
Equity
Securities
|
|
|
Other
Invested
Assets
|
|
|
Total
|
|
Gains
|
|
$
|
882
|
|
|
$
|
1,113
|
|
|
$
|
—
|
|
|
$
|
1,995
|
|
Losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Realized
investment gains, net
|
|
$
|
882
|
|
|
$
|
1,113
|
|
|
$
|
—
|
|
|
$
|
1,995
|
|
The following table presents the
portion of unrealized gains (losses) related to equity securities
still held for the three month and six month periods ended June 30,
2020 and 2019.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net realized
and unrealized gains (losses) recognized during the period on
equity securities
|
|
$
|
1,355
|
|
|
$
|
(5,337
|
)
|
|
$
|
(7,100
|
)
|
|
$
|
2,265
|
|
Less: Net
realized gains (losses) recognized during the period on equity
securities sold during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,113
|
|
Unrealized
gains (losses) recognized during the reporting period on equity
securities, net
|
|
$
|
1,355
|
|
|
$
|
(5,337
|
)
|
|
$
|
(7,100
|
)
|
|
$
|
1,152
|
|
Variable Interest Entities
The Company holds passive interests
in a number of entities that are considered to be variable interest
entities (“VIEs”) under GAAP guidance. The Company’s VIE interests
principally consist of interests in limited partnerships and
limited liability companies formed for the purpose of achieving
diversified equity returns. The Company’s VIE interests, carried as
a part of other invested assets, totaled $11,454 and $9,960 as of
June 30, 2020 and December 31, 2019, respectively. The Company’s
VIE interests, carried as a part of investment in unconsolidated
trusts, totaled $1,238 as of June 30, 2020 and December 31,
2019.
The Company does not have power
over the activities that most significantly impact the economic
performance of these VIEs and thus is not the primary beneficiary.
Therefore, the Company has not consolidated these VIEs. The
Company’s involvement with each VIE is limited to its direct
ownership interest in the VIE. The Company has no arrangements with
any of the VIEs to provide other financial support to or on behalf
of the VIE. The Company’s maximum loss exposure relative to these
investments was limited to the carrying value of the Company’s
investment in the VIEs, which amount to $12,692 and $11,198, as of
June 30, 2020 and December 31, 2019, respectively. As of June 30,
2020, the Company had no outstanding commitments and as of December
31, 2019, the Company had outstanding commitments totaling $1,997,
whereby the Company is committed to fund these investments and may
be called by the partnership during the commitment period to fund
the purchase of new investments and partnership expenses.
Note 4. |
Fair Values of Financial Instruments
|
The estimated fair values have been
determined by the Company using available market information from
various market sources and appropriate valuation methodologies as
of the respective dates. However, considerable judgment is
necessary to interpret market data and to develop the estimates of
fair value. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts,
the estimates presented herein are not necessarily indicative of
the amounts which the Company could realize in a current market
exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
The following describes the fair
value hierarchy and provides information as to the extent to which
the Company uses fair value to measure the value of its financial
instruments and information about the inputs used to value those
financial instruments. The fair value hierarchy prioritizes the
inputs in the valuation techniques used to measure fair value into
three broad levels.
Level
1 |
Observable inputs that reflect quoted prices for identical
assets or liabilities in active markets that the Company has the
ability to access at the measurement date. The Company’s financial
instruments valued using Level 1 criteria include cash equivalents
and exchange traded common stocks.
|
Level
2 |
Observable inputs, other than quoted prices included in Level
1, for an asset or liability or prices for similar assets or
liabilities. The Company’s financial instruments valued using Level
2 criteria include significantly most of its fixed maturities,
which consist of U.S. Treasury securities, U.S. Government
securities, obligations of states and political subdivisions, and
certain corporate fixed maturities, as well as its non-redeemable
preferred stocks. In determining fair value measurements of its
fixed maturities and non-redeemable preferred stocks using Level 2
criteria, the Company utilizes data from outside sources, including
nationally recognized pricing services and broker/dealers.
Prices for the majority of the Company’s Level 2 fixed maturities
and non-redeemable preferred stocks were determined using
unadjusted prices received from pricing services that utilize
models where the significant inputs are observable (e.g. interest
rates, yield curves, prepayment speeds, default rates, loss
severities) or can be corroborated by observable market data.
|
Level
3 |
Valuations that are derived from techniques in which one or
more of the significant inputs are unobservable (including
assumptions about risk). Fair value is based on criteria that
use assumptions or other data that are not readily observable from
objective sources. With little or no observable market, the
determination of fair values uses considerable judgment and
represents the Company’s best estimate of an amount that could be
realized in a market exchange for the asset or liability.
|
As of June 30, 2020, financial
instruments carried at fair value were measured on a recurring
basis as summarized below:
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities
|
|
$
|
250
|
|
|
$
|
235,937
|
|
|
$
|
—
|
|
|
$
|
236,187
|
|
Equity
securities
|
|
|
15,822
|
|
|
|
—
|
|
|
|
143
|
|
|
|
15,965
|
|
Cash
equivalents
|
|
|
8,429
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,429
|
|
Total
|
|
$
|
24,501
|
|
|
$
|
235,937
|
|
|
$
|
143
|
|
|
$
|
260,581
|
|
As of December 31, 2019, financial
instruments carried at fair value were measured on a recurring
basis as summarized below:
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities
|
|
$
|
—
|
|
|
$
|
232,472
|
|
|
$
|
—
|
|
|
$
|
232,472
|
|
Equity
securities
|
|
|
22,922
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,922
|
|
Cash
equivalents
|
|
|
7,173
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,173
|
|
Total
|
|
$
|
30,095
|
|
|
$
|
232,472
|
|
|
$
|
—
|
|
|
$
|
262,567
|
|
The Company does not have any fixed
maturities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) as of June 30, 2020 and
December 31, 2019.
The following table sets forth the
carrying amount, estimated fair value and level within the fair
value hierarchy of the Company’s financial instruments as of June
30, 2020 and December 31, 2019.
|
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Level in Fair
Value
Hierarchy (1)
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
Level 1
|
|
|
$
|
16,354
|
|
|
$
|
16,354
|
|
|
$
|
12,893
|
|
|
$
|
12,893
|
|
Fixed
maturities
|
|
|
|
(1)
|
|
|
236,187
|
|
|
|
236,187
|
|
|
|
232,472
|
|
|
|
232,472
|
|
Equity
securities
|
|
|
|
(1)
|
|
|
15,965
|
|
|
|
15,965
|
|
|
|
22,922
|
|
|
|
22,922
|
|
Other
invested assets
|
|
Level 3
|
|
|
|
11,454
|
|
|
|
11,454
|
|
|
|
9,960
|
|
|
|
9,960
|
|
Policy
loans
|
|
Level 2
|
|
|
|
2,018
|
|
|
|
2,018
|
|
|
|
2,007
|
|
|
|
2,007
|
|
Real
estate
|
|
Level 2
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Investment in
unconsolidated trusts
|
|
Level 2
|
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debentures, net
|
|
Level 2
|
|
|
|
33,738
|
|
|
|
30,321
|
|
|
|
33,738
|
|
|
|
35,977
|
|
|
(1) |
See the aforementioned information for a description of the
fair value hierarchy as well as a disclosure of levels for classes
of these financial assets.
|
Note 5. |
Liabilities for Unpaid Losses, Claims and Loss Adjustment
Expenses
|
The roll-forward of liabilities for
unpaid losses, claims and loss adjustment expenses for the six
months ended June 30, 2020 and 2019 is as follows:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning
liabilities for unpaid losses, claims and loss adjustment expenses,
gross
|
|
$
|
81,448
|
|
|
$
|
72,612
|
|
Less:
Reinsurance recoverable on unpaid losses
|
|
|
(18,339
|
)
|
|
|
(14,354
|
)
|
Beginning
liabilities for unpaid losses, claims and loss adjustment expenses,
net
|
|
|
63,109
|
|
|
|
58,258
|
|
|
|
|
|
|
|
|
|
|
Incurred
related to:
|
|
|
|
|
|
|
|
|
Current
accident year
|
|
|
62,262
|
|
|
|
68,157
|
|
|
|
|
|
|
|
|
|
|
Prior
accident year development (1)
|
|
|
(2,302
|
)(2)
|
|
|
103
|
|
Total
incurred
|
|
|
59,960
|
|
|
|
68,260
|
|
|
|
|
|
|
|
|
|
|
Paid related
to:
|
|
|
|
|
|
|
|
|
Current
accident year
|
|
|
33,911
|
|
|
|
38,875
|
|
Prior
accident years
|
|
|
29,587
|
|
|
|
28,576
|
|
Total
paid
|
|
|
63,498
|
|
|
|
67,451
|
|
Ending
liabilities for unpaid losses, claims and loss adjustment expenses,
net
|
|
|
59,571
|
|
|
|
59,067
|
|
Plus:
Reinsurance recoverable on unpaid losses
|
|
|
16,927
|
|
|
|
16,088
|
|
Ending
liabilities for unpaid losses, claims and loss adjustment expenses,
gross
|
|
$
|
76,498
|
|
|
$
|
75,155
|
|
|
(1) |
In establishing property and casualty reserves, the Company
initially reserves for losses at the higher end of the reasonable
range if no other value within the range is determined to be more
probable. Selection of such an initial loss estimate is an attempt
by management to give recognition that initial claims information
received generally is not conclusive with respect to legal
liability, is generally not comprehensive with respect to magnitude
of loss and generally, based on historical experience, will develop
more adversely as time passes and more information becomes
available. Accordingly, the Company generally experiences reserve
redundancies when analyzing the development of prior year losses in
a current period.
|
|
(2) |
Prior years’ development was primarily the result of favorable
development in the loss and claim reserves for the Medicare
supplement line of business in Bankers Fidelity.
|
Following is a reconciliation of
total incurred losses to total insurance benefits and losses
incurred:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Total
incurred losses
|
|
$
|
59,960
|
|
|
$
|
68,260
|
|
Cash
surrender value and matured endowments
|
|
|
697
|
|
|
|
588
|
|
Benefit
reserve changes
|
|
|
2
|
|
|
|
610
|
|
Total
insurance benefits and losses incurred
|
|
$
|
60,659
|
|
|
$
|
69,458
|
|
Note 6. |
Junior Subordinated Debentures
|
The Company has two unconsolidated
Connecticut statutory business trusts, which exist for the
exclusive purposes of: (i) issuing trust preferred securities
(“Trust Preferred Securities”) representing undivided beneficial
interests in the assets of the trusts; (ii) investing the gross
proceeds of the Trust Preferred Securities in junior subordinated
deferrable interest debentures (“Junior Subordinated Debentures”)
of Atlantic American; and (iii) engaging in those activities
necessary or incidental thereto.
The financial structure of each of
Atlantic American Statutory Trust I and II as of June 30, 2020 was
as follows:
|
|
Atlantic American
Statutory Trust I
|
|
|
Atlantic American
Statutory Trust II
|
|
JUNIOR
SUBORDINATED DEBENTURES (1)
(2)
|
|
|
|
|
|
|
Principal
amount owed June 30, 2020
|
|
$
|
18,042
|
|
|
$
|
23,196
|
|
Less:
Treasury debt (3)
|
|
|
—
|
|
|
|
(7,500
|
)
|
Net balance
June 30, 2020
|
|
$
|
18,042
|
|
|
$
|
15,696
|
|
Net balance
December 31, 2019
|
|
$
|
18,042
|
|
|
$
|
15,696
|
|
Coupon
rate
|
|
LIBOR + 4.00
|
% |
|
LIBOR + 4.10
|
% |
Interest
payable
|
|
Quarterly
|
|
|
Quarterly
|
|
Maturity
date
|
|
December 4, 2032
|
|
|
May 15, 2033
|
|
Redeemable by
issuer
|
|
Yes
|
|
|
Yes
|
|
TRUST
PREFERRED SECURITIES
|
|
|
|
|
|
|
|
|
Issuance
date
|
|
December 4, 2002
|
|
|
May 15, 2003
|
|
Securities
issued
|
|
|
17,500
|
|
|
|
22,500
|
|
Liquidation
preference per security
|
|
$
|
1
|
|
|
$
|
1
|
|
Liquidation
value
|
|
$
|
17,500
|
|
|
$
|
22,500
|
|
Coupon
rate
|
|
LIBOR + 4.00
|
% |
|
LIBOR + 4.10
|
% |
Distribution
payable
|
|
Quarterly
|
|
|
Quarterly
|
|
Distribution
guaranteed by (4)
|
|
Atlantic American
Corporation
|
|
|
Atlantic American
Corporation
|
|
(1) |
For each of the respective debentures, the Company has the
right at any time, and from time to time, to defer payments of
interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters up to the debentures’ respective
maturity dates. During any such period, interest will continue to
accrue and the Company may not declare or pay any cash dividends or
distributions on, or purchase, the Company’s common stock nor make
any principal, interest or premium payments on or repurchase any
debt securities that rank equally with or junior to the Junior
Subordinated Debentures. The Company has the right at any time to
dissolve each of the trusts and cause the Junior Subordinated
Debentures to be distributed to the holders of the Trust Preferred
Securities.
|
(2) |
The Junior Subordinated Debentures are unsecured and rank
junior and subordinate in right of payment to all senior debt of
the Parent and are effectively subordinated to all existing and
future liabilities of its subsidiaries.
|
(3) |
On August 4, 2014, the Company acquired $7,500 of the Junior
Subordinated Debentures.
|
(4) |
The Parent has guaranteed, on a subordinated basis, all of the
obligations under the Trust Preferred Securities, including payment
of the redemption price and any accumulated and unpaid
distributions to the extent of available funds and upon
dissolution, winding up or liquidation.
|
Note 7. |
Earnings (Loss) Per Common Share
|
A reconciliation of the numerator
and denominator used in the earnings (loss) per common share
calculations is as follows:
|
|
Three Months Ended
June 30, 2020
|
|
|
|
Income
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
|
Per Share
Amount
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,532
|
|
|
|
20,440
|
|
|
|
|
Less
preferred stock dividends
|
|
|
(100
|
)
|
|
—
|
|
|
|
|
Net income
applicable to common shareholders
|
|
|
6,432
|
|
|
|
20,440
|
|
|
$
|
.31
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
Series D preferred stock
|
|
|
100
|
|
|
|
1,378
|
|
|
|
|
|
Net income
applicable to common shareholders
|
|
$
|
6,532
|
|
|
|
21,818
|
|
|
$
|
.30
|
|
|
|
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 |
) |
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Loss
|
|
|
Weighted
Average
Shares
(In thousands)
|
|
|
Per Share Amount |
|
Basic and Diluted Loss Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,555
|
)
|
|
|
20,455
|
|
|
|
|
|
Less
preferred stock dividends
|
|
|
(199
|
)
|
|
|
—
|
|
|
|
|
|
Net loss
applicable to common shareholders
|
|
$
|
(1,754
|
)
|
|
|
20,455
|
|
|
$
|
(.09 |
) |
|
|
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
|
)
|
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, 2020, 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 expense (benefit) is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Federal
income tax provision at statutory rate of 21%
|
|
$
|
1,739
|
|
|
$
|
(1,174
|
)
|
|
$
|
(409
|
)
|
|
$
|
(64
|
)
|
Dividends-received deduction
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(14
|
)
|
Other
permanent differences
|
|
|
13
|
|
|
|
16
|
|
|
|
24
|
|
|
|
38
|
|
Income tax
expense (benefit)
|
|
$
|
1,749
|
|
|
$
|
(1,163
|
)
|
|
$
|
(391
|
)
|
|
$
|
(40
|
)
|
The components of income tax
benefit were:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Current –
Federal
|
|
$
|
2,173
|
|
|
$
|
572
|
|
|
$
|
2,302
|
|
|
$
|
572
|
|
Deferred –
Federal
|
|
|
(424
|
)
|
|
|
(1,735
|
)
|
|
|
(2,693
|
)
|
|
|
(612
|
)
|
Total
|
|
$
|
1,749
|
|
|
$
|
(1,163
|
)
|
|
$
|
(391
|
)
|
|
$
|
(40
|
)
|
In addition, the Company determined
there were no significant tax implications as a result of the CARES
Act.
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, 2020 and June 30, 2019
was $507.
Additional information regarding
the Company’s real estate operating leases is as follows:
|
|
Six Months Ended
June 30,
|
|
Other
information on operating leases:
|
|
|
|
|
|
|
Cash
payments included in the measurement of lease liabilities reported
in operating cash flows
|
|
|
|
|
|
|
|
|
Right-of-use
assets included in other assets on the condensed consolidated
balance sheet
|
|
|
|
|
|
|
|
|
Weighted
average discount rate
|
|
|
|
|
|
|
|
|
Weighted
average remaining lease term in years
|
|
|
|
|
|
|
The following table presents maturities and present value of
the Company’s lease liabilities:
|
|
Lease Liability
|
|
Remainder of
2020
|
|
$
|
503
|
|
2021
|
|
|
1,015
|
|
2022
|
|
|
1,031
|
|
2023
|
|
|
1,048
|
|
2024
|
|
|
1,065
|
|
Thereafter
|
|
|
2,025
|
|
Total
undiscounted lease payments
|
|
|
6,687
|
|
Less: present
value adjustment
|
|
|
1,297
|
|
Operating
lease liability included in accounts payable and accrued expenses
on the condensed consolidated balance sheet
|
|
$
|
5,390
|
|
As of June 30, 2020, 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 2020 and
2019.
Assets
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
American
Southern
|
|
$
|
153,632
|
|
|
$
|
141,524
|
|
Bankers
Fidelity
|
|
|
220,111
|
|
|
|
224,122
|
|
Corporate and
Other
|
|
|
11,994
|
|
|
|
11,980
|
|
Total
assets
|
|
$
|
385,737
|
|
|
$
|
377,626
|
|
Revenues
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
American
Southern
|
|
$
|
16,896
|
|
|
$
|
15,740
|
|
|
$
|
32,123
|
|
|
$
|
30,975
|
|
Bankers
Fidelity
|
|
|
32,871
|
|
|
|
31,244
|
|
|
|
57,744
|
|
|
|
65,620
|
|
Corporate and
Other
|
|
|
(30
|
)
|
|
|
(3,857
|
)
|
|
|
(720
|
)
|
|
|
1,550
|
|
Total
revenue
|
|
$
|
49,737
|
|
|
$
|
43,127
|
|
|
$
|
89,147
|
|
|
$
|
98,145
|
|
Income (Loss) Before Income Taxes
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
American
Southern
|
|
$
|
2,087
|
|
|
$
|
1,396
|
|
|
$
|
2,965
|
|
|
$
|
3,378
|
|
Bankers
Fidelity
|
|
|
8,039
|
|
|
|
(1,998
|
)
|
|
|
(742
|
)
|
|
|
(2,494
|
)
|
Corporate and
Other
|
|
|
(1,845
|
)
|
|
|
(4,987
|
)
|
|
|
(4,169
|
)
|
|
|
(1,188
|
)
|
Income
(loss) before income taxes
|
|
$
|
8,281
|
|
|
$
|
(5,589
|
)
|
|
$
|
(1,946
|
)
|
|
$
|
(304
|
)
|
Note 12. |
Related Party Transactions
|
During the six 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.
Note 13. |
Subsequent Events
|
Since June 30, 2020, the COVID-19
pandemic continues to cause material disruption to financial
markets and the economy. As a result of the pandemic, the
Company could experience future losses in its investment portfolio
as a result of the weakened and volatile markets.
Additionally, the Company can experience increased risk of loss any
time unforeseen infectious diseases impact large portions of a
population. Specifically, the Company’s life and health business
could experience significant loss due to increased claims volume
arising from COVID-19. The duration and impact of the COVID-19
pandemic is unknown at this time and it is not possible to reliably
estimate the impact on the financial condition, operating results
or liquidity of the Company and its operating subsidiaries in
future periods.
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF
OPERATIONS
Overview
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, 2020. This discussion should be read in conjunction
with the unaudited condensed 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, 2019 (the “2019 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.
Recent Events and Outlook
On March 11, 2020, the World Health
Organization designated COVID-19 as a global pandemic. In
March 2020, the impact of COVID-19 and related actions to attempt
to control its spread began to impact our business operations, and
we expect that the pandemic, actions that have been or will be
taken in response to it and its overall impact on the economy, will
continue to have an effect on our business operations and our
operating results. See “Expected Impact of COVID-19 on the
Company’s Financial Condition and Results of Operations.”
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 2019 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 2019
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, 2020 and the comparable
period in 2019:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Insurance
premiums, net
|
|
$
|
46,499
|
|
|
$
|
45,469
|
|
|
$
|
92,049
|
|
|
$
|
90,251
|
|
Net
investment income
|
|
|
1,850
|
|
|
|
2,313
|
|
|
|
3,889
|
|
|
|
4,647
|
|
Realized
investment gains, net
|
|
|
-
|
|
|
|
610
|
|
|
|
249
|
|
|
|
1,995
|
|
Unrealized
gains (losses) on equity securities, net
|
|
|
1,355
|
|
|
|
(5,337
|
)
|
|
|
(7,100
|
)
|
|
|
1,152
|
|
Other
income
|
|
|
33
|
|
|
|
72
|
|
|
|
60
|
|
|
|
100
|
|
Total
revenue
|
|
|
49,737
|
|
|
|
43,127
|
|
|
|
89,147
|
|
|
|
98,145
|
|
Insurance
benefits and losses incurred
|
|
|
27,076
|
|
|
|
34,151
|
|
|
|
60,659
|
|
|
|
69,458
|
|
Commissions
and underwriting expenses
|
|
|
10,854
|
|
|
|
11,509
|
|
|
|
23,480
|
|
|
|
22,524
|
|
Interest
expense
|
|
|
414
|
|
|
|
545
|
|
|
|
890
|
|
|
|
1,091
|
|
Other
expense
|
|
|
3,112
|
|
|
|
2,511
|
|
|
|
6,064
|
|
|
|
5,376
|
|
Total
benefits and expenses
|
|
|
41,456
|
|
|
|
48,716
|
|
|
|
91,093
|
|
|
|
98,449
|
|
Income (loss)
before income taxes
|
|
$
|
8,281
|
|
|
$
|
(5,589
|
)
|
|
$
|
(1,946
|
)
|
|
$
|
(304
|
)
|
Net income
(loss)
|
|
$
|
6,532
|
|
|
$
|
(4,426
|
)
|
|
$
|
(1,555
|
)
|
|
$
|
(264
|
)
|
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 income (loss) for the three month and six month
periods ended June 30, 2020 and the comparable period in 2019 is as
follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
Reconciliation of Non-GAAP Financial Measure
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Net income
(loss)
|
|
$
|
6,532
|
|
|
$
|
(4,426
|
)
|
|
$
|
(1,555
|
)
|
|
$
|
(264
|
)
|
Income tax
expense (benefit)
|
|
|
1,749
|
|
|
|
(1,163
|
)
|
|
|
(391
|
)
|
|
|
(40
|
)
|
Realized
investment gains, net
|
|
|
-
|
|
|
|
(610
|
)
|
|
|
(249
|
)
|
|
|
(1,995
|
)
|
Unrealized
(gains) losses on equity securities, net
|
|
|
(1,355
|
)
|
|
|
5,337
|
|
|
|
7,100
|
|
|
|
(1,152
|
)
|
Non-GAAP
operating income (loss)
|
|
$
|
6,926
|
|
|
$
|
(862
|
)
|
|
$
|
4,905
|
|
|
$
|
(3,451
|
)
|
On a consolidated basis, the
Company had net income of $6.5 million, or $0.30 per diluted share,
for the three month period ended June 30, 2020, compared to net
loss of $4.4 million, or $0.22 per diluted share, for the three
month period ended June 30, 2019. The Company had net loss of
$1.6 million, or $0.09 per diluted share, for the six month period
ended June 30, 2020, compared to net loss of $0.3 million, or $0.02
per diluted share, for the six month period ended June 30,
2019. Premium revenue for the three month period ended June
30, 2020 increased $1.0 million, or 2.3%, to $46.5 million from
$45.5 million in the three month period ended June 30, 2019.
For the six month period ended June 30, 2020, premium revenue
increased $1.8 million, or 2.0%, to $92.0 million from $90.3
million in the comparable period in 2019. The increase in premium
revenue was primarily attributable to an increase in the automobile
physical damage line of business in the property and casualty
operations.
Operating income increased $7.8
million in the three month period ended June 30, 2020 from the
three month period ended June 30, 2019. For the six month
period ended June 30, 2020, operating income increased $8.4 million
over the comparable period in 2019. The increase in operating
income was primarily due to favorable loss experience in the life
and health operations, resulting from a significant decrease in the
number of incurred claims within the Medicare supplement line of
business. This decrease in the number of incurred claims was
primarily attributable to the Company’s individual policy holders
being subject to varying degrees of shelter in place orders
instituted throughout the United States during the second quarter
of 2020 as a result of COVID-19.
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, 2020 and the
comparable periods in 2019:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Gross written
premiums
|
|
$
|
33,320
|
|
|
$
|
32,581
|
|
|
$
|
42,938
|
|
|
$
|
40,275
|
|
Ceded
premiums
|
|
|
(1,451
|
)
|
|
|
(1,313
|
)
|
|
|
(2,845
|
)
|
|
|
(2,688
|
)
|
Net written
premiums
|
|
$
|
31,869
|
|
|
$
|
31,268
|
|
|
$
|
40,093
|
|
|
$
|
37,587
|
|
Net earned
premiums
|
|
$
|
15,824
|
|
|
$
|
14,754
|
|
|
$
|
30,746
|
|
|
$
|
28,560
|
|
Net loss and
loss adjustment expenses
|
|
|
10,021
|
|
|
|
9,863
|
|
|
|
19,555
|
|
|
|
18,906
|
|
Commissions
and underwriting expenses
|
|
|
4,788
|
|
|
|
4,480
|
|
|
|
9,602
|
|
|
|
8,690
|
|
Underwriting
income
|
|
$
|
1,015
|
|
|
$
|
411
|
|
|
$
|
1,589
|
|
|
$
|
964
|
|
Loss
ratio
|
|
|
63.3
|
%
|
|
|
66.8
|
%
|
|
|
63.6
|
%
|
|
|
66.2
|
%
|
Expense
ratio
|
|
|
30.3
|
|
|
|
30.4
|
|
|
|
31.2
|
|
|
|
30.4
|
|
Combined
ratio
|
|
|
93.6
|
%
|
|
|
97.2
|
%
|
|
|
94.8
|
%
|
|
|
96.6
|
%
|
Gross written premiums at American Southern increased $0.7
million, or 2.3%, during the three month period ended June 30, 2020
and $2.7 million, or 6.6%, during the six month period ended June
30, 2020, from the comparable periods in 2019. 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 a new agency that started in the second half of 2019, as
well as increased writings from certain existing agencies.
Ceded premiums increased $0.1
million, or 10.5%, during the three month period ended June 30,
2020 and $0.2 million, or 5.8%, during the six month period ended
June 30, 2020, from the comparable periods in 2019. 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. Also contributing to the
increase in ceded premiums in 2020 was 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, 2020 and the comparable
periods in 2019:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Automobile
liability
|
|
$
|
8,223
|
|
|
$
|
7,813
|
|
|
$
|
15,363
|
|
|
$
|
14,837
|
|
Automobile
physical damage
|
|
|
4,472
|
|
|
|
3,799
|
|
|
|
9,020
|
|
|
|
7,401
|
|
General
liability
|
|
|
888
|
|
|
|
819
|
|
|
|
1,739
|
|
|
|
1,603
|
|
Surety
|
|
|
1,441
|
|
|
|
1,608
|
|
|
|
3,046
|
|
|
|
3,295
|
|
Other
lines
|
|
|
800
|
|
|
|
715
|
|
|
|
1,578
|
|
|
|
1,424
|
|
Total
|
|
$
|
15,824
|
|
|
$
|
14,754
|
|
|
$
|
30,746
|
|
|
$
|
28,560
|
|
Net earned premiums increased $1.1
million, or 7.3%, during the three month period ended June 30,
2020, and increased $2.2 million, or 7.7%, during the six month
period ended June 30, 2020, over the comparable periods in 2019.
The increase in net earned premiums was primarily attributable to
an increase in automobile physical damage coverage resulting from
the new agency as previously mentioned, as well as a rate increase
on a large automobile liability account. 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 $0.2 million, or 1.6%,
during the three month period ended June 30, 2020, and $0.6
million, or 3.4%, during the six month period ended June 30, 2020,
over the comparable periods in 2019. As a percentage of earned
premiums, net loss and loss adjustment expenses were 63.3% in the
three month period ended June 30, 2020, compared to 66.8% in the
three month period ended June 30, 2019. For the six month
period ended June 30, 2020, this ratio decreased to 63.6% from
66.2% in the comparable period in 2019. The decrease in the loss
ratio during the three month and six month periods ended June 30,
2020 was primarily due to a decrease in the severity of claims in
the automobile liability line of business. Partially
offsetting the decrease in the loss ratio during the three month
and six month periods ended June 30, 2020 was less favorable loss
experience in the automobile physical damage line of business due
to an increase in frequency of claims from the new agency.
Commissions and underwriting
expenses increased $0.3 million, or 6.9%, during the three month
period ended June 30, 2020, and $0.9 million, or 10.5%, during the
six month period ended June 30, 2020, over the comparable periods
in 2019. As a percentage of earned premiums, underwriting expenses
were 30.3% in the three month period ended June 30, 2020, compared
to 30.4% in the three month period ended June 30, 2019. For the six
month period ended June 30, 2020, this ratio increased to 31.2%
from 30.4% in the comparable period in 2019. The increase in
the expense ratio during the six month period ended June 30, 2020
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, 2020, variable commissions at American Southern remained
relatively consistent and increased by $0.2 million, respectively,
from the comparable periods in 2019 due to favorable loss
experience from accounts subject to variable commissions.
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,
2020 and the comparable periods in 2019:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Medicare
supplement
|
|
$
|
43,787
|
|
|
$
|
44,541
|
|
|
$
|
88,102
|
|
|
$
|
88,870
|
|
Other health
products
|
|
|
2,311
|
|
|
|
1,896
|
|
|
|
4,495
|
|
|
|
3,886
|
|
Life
insurance
|
|
|
2,557
|
|
|
|
2,154
|
|
|
|
4,814
|
|
|
|
4,296
|
|
Gross earned
premiums
|
|
|
48,655
|
|
|
|
48,591
|
|
|
|
97,411
|
|
|
|
97,052
|
|
Ceded
premiums
|
|
|
(17,980
|
)
|
|
|
(17,876
|
)
|
|
|
(36,108
|
)
|
|
|
(35,361
|
)
|
Net earned
premiums
|
|
|
30,675
|
|
|
|
30,715
|
|
|
|
61,303
|
|
|
|
61,691
|
|
Insurance
benefits and losses
|
|
|
17,055
|
|
|
|
24,288
|
|
|
|
41,104
|
|
|
|
50,552
|
|
Commissions
and underwriting expenses
|
|
|
7,778
|
|
|
|
8,954
|
|
|
|
17,382
|
|
|
|
17,562
|
|
Total
expenses
|
|
|
24,833
|
|
|
|
33,242
|
|
|
|
58,486
|
|
|
|
68,114
|
|
Underwriting
income (loss)
|
|
$
|
5,842
|
|
|
$
|
(2,527
|
)
|
|
$
|
2,817
|
|
|
$
|
(6,423
|
)
|
Loss
ratio
|
|
|
55.6
|
%
|
|
|
79.1
|
%
|
|
|
67.1
|
%
|
|
|
81.9
|
%
|
Expense
ratio
|
|
|
25.4
|
|
|
|
29.2
|
|
|
|
28.4
|
|
|
|
28.5
|
|
Combined
ratio
|
|
|
81.0
|
%
|
|
|
108.3
|
%
|
|
|
95.5
|
%
|
|
|
110.4
|
%
|
Net earned premium revenue at
Bankers Fidelity remained relatively consistent during the three
month period ended June 30, 2020, and $0.4 million, or 0.6%, during
the six month period ended June 30, 2020, from the comparable
periods in 2019. Gross earned premiums from the Medicare supplement
line of business decreased $0.8 million, or 1.7%, during the three
month period ended June 30, 2020, and $0.8 million, or 0.9%, during
the six month period ended June 30, 2020, due primarily to
non-renewals exceeding the level of new business writings. Other
health product premiums increased $0.4 million, or 21.9%, during
the three month period ended June 30, 2020, and $0.6 million, or
15.7%, during the six month period ended June 30, 2020, over the
comparable periods in 2019, primarily as a result of new sales of
the company’s group health products. Gross earned premiums from the
life insurance line of business increased $0.4 million, or 18.7%,
during the three month period ended June 30, 2020, and $0.5
million, or 12.1%, during the six month period ended June 30, 2020
over the comparable periods in 2019 due to an increase in the group
life products premium. Partially offsetting the increase in gross
earned premiums from the life insurance line was a decrease in
individual life products premium, resulting from the redemption and
settlement of existing individual life policy obligations exceeding
the level of new individual life sales. Premiums ceded
increased $0.1 million, or 0.6%, during the three month period
ended June 30, 2020 and $0.7 million, or 2.1%, during the six month
period ended June 30, 2020, over the comparable periods in
2019. The increase in ceded premiums for the three month and
six month periods ended June 30, 2020 was due to an increase in
Medicare supplement premiums subject to reinsurance.
Benefits and losses decreased $7.2
million, or 29.8%, during the three month period ended June 30,
2020, and $9.4 million, or 18.7%, during the six month period ended
June 30, 2020, from the comparable periods in 2019. As a
percentage of earned premiums, benefits and losses were 55.6% in
the three month period ended June 30, 2020, compared to 79.1% in
the three month period ended June 30, 2019. For the six month
period ended June 30, 2020, this ratio decreased to 67.1% from
81.9% in the comparable period in 2019. The decrease in the
loss ratio for the three month and six month periods ended June 30,
2020 was primarily due to a significantly lower number of claims
incurred in the Medicare supplement line of business due to the
Company’s individual policy holders being subject to varying
degrees of shelter in place orders instituted throughout the United
States during the second quarter of 2020 as a result of
COVID-19.
Commissions and underwriting
expenses decreased $1.2 million, or 13.1%, during the three month
period ended June 30, 2020, and $0.2 million, or 1.0%, during the
six month period ended June 30, 2020, over the comparable periods
in 2019. As a percentage of earned premiums, underwriting
expenses were 25.4% in the three month period ended June 30, 2020,
compared to 29.2% in the three month period ended June 30,
2019. For the six month period ended June 30, 2020, this
ratio decreased to 28.4% from 28.5% in the comparable period in
2019. The decrease in the expense ratio for the three month and six
month periods ended June 30, 2020 was primarily due to a decrease
in agent incentive costs and realization of costs saving
initiatives related to postage and printing.
Net Investment Income and Realized
Gains
Investment income decreased $0.5
million, or 20.0%, during the three month period ended June 30,
2020, and $0.8 million, or 16.3%, during the six month period ended
June 30, 2020, over the comparable periods in 2019. The decrease in
investment income was primarily attributable to net losses in the
Company’s other invested assets coupled with slightly lower
investment yields on fixed maturity securities.
The Company had no net realized
investment gains during the three month period ended June 30, 2020,
compared to net realized investment gains of $0.6 million during
the three month period ended June 30, 2019. The Company had
net realized investment gains of $0.2 million during the six month
period ended June 30, 2020, compared to net realized investment
gains of $2.0 million during the six month period ended June 30,
2019. The net realized investment gains during the six month
period ended June 30, 2020 resulted primarily from the disposition
of several of the Company’s investments in 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
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,
with certain exceptions. The Company recognized net unrealized
gains on equity securities of $1.4 million during the three month
period ended June 30, 2020 and unrealized losses on equity
securities of $5.3 million during the three month period ended June
30, 2019. The Company recognized net unrealized losses on
equity securities of $7.1 million during the six month period ended
June 30, 2020 and unrealized gains on equity securities of $1.2
million during the six month period ended June 30, 2019.
Changes in unrealized gains 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 decreased $0.1
million, or 24.0%, during the three month period ended June 30,
2020, and $0.2 million, or 18.4%, during the six month period ended
June 30, 2020, from the comparable periods in 2019. Changes in
interest expense were primarily due to changes 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.
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, 2020, the Parent had approximately
$5.2 million of unrestricted cash and investments.
The Parent’s insurance subsidiaries
reported statutory net income of $4.7 million for the six month
period ended June 30, 2020, compared to statutory net loss of $1.7
million for the six month period ended June 30, 2019. 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, 2020, American
Southern had $42.9 million of statutory surplus and Bankers
Fidelity had $32.2 million of statutory surplus. In 2020, dividend
payments by the Parent’s insurance subsidiaries in excess of $4.6
million would require prior approval. Through June 30, 2020, the
Parent received dividends of $1.8 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, 2020, the effective interest rate was 4.42%. 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, 2020, 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, 2020, 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, 2020, the Company had accrued but unpaid dividends on
the Series D Preferred Stock totaling $0.2 million.
Cash and cash equivalents increased
from $12.9 million at December 31, 2019 to $16.4 million at June
30, 2020. The increase in cash and cash equivalents during the six
month period ended June 30, 2020 was primarily attributable to a
$3.1 million increase resulting from investment sales and maturity
of securities exceeding purchases of securities in addition to net
cash provided by operating activities of $0.6 million.
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.
Expected Impact of COVID-19 on the
Company’s Financial Condition and Results of Operations
The duration and impact of the
COVID-19 pandemic is unknown at this time and it is not possible
for us to reliably estimate the impact on the financial condition,
operating results or liquidity of the Company and its operating
subsidiaries in future periods. However, we do not currently
expect a significant decline in liquidity or operating results as a
result of the disruption caused by the ongoing COVID-19
pandemic. To date, the most significant impact of COVID-19 on
the Company’s financial position has been volatility in the fair
value of the Company’s fixed maturity and equity investments due to
disruption in the financial markets.
We expect that earned premiums
could be adversely impacted by a weakened economy leading to a
slowdown in new sales and reduced retention of insureds.
Additionally, a number of states have issued bulletins that either
encourage or require premium leniency such as extension of grace
periods or moratoriums on cancellation of policies for
non-payment. The Company does not expect a significant
reduction or delay in payments and continues to monitor state
required actions as they develop.
For the Company’s property and
casualty operations, the majority of premium revenue is derived
from automobile liability and automobile physical damage lines of
business written on a multi-year contract basis with state and
local governments. Although we cannot predict with certainty
at this time, we do not expect a significant level of cancellations
or non-renewals of our property and casualty contracts in the short
term but recognize that a prolonged economic slowdown could
adversely affect future results.
Benefits and losses in our property
and casualty operations could be adversely impacted as a result of
disruption caused by the COVID-19 pandemic. However, due to
the nature of our primary product lines, the impact is not
currently expected to be material. Additionally, we expect to
see a reduction in frequency and severity of claims in the
automobile lines of business as fewer miles are driven and less
people are on the roads. As a result, we do not currently
expect a material adverse effect on operating results or liquidity
in the property and casualty operations.
The majority of premium revenue in
our life and health operations are derived from the senior market
segment of the population, or those individuals age sixty-five and
up, who maintain Medicare supplement and to a lesser extent, whole
life insurance policies with the Company. We expect that
earned premiums could be adversely impacted by the rise in
unemployment and economic slowdown related to the COVID-19 pandemic
and individual, business and government responses thereto, which
could lead to a decline in new sales and reduced retention of
insureds. As a result, we currently anticipate that the life
and health operations may experience a marginal decline in earned
premiums although the actual impact cannot be predicted with
certainty at this time.
Unforeseen infectious diseases that
impact large portions of a population can have an adverse impact on
mortality and morbidity, and resultant benefits and losses incurred
by the Company’s life and health operations. Accordingly, the
Company does anticipate incurring higher costs, potentially similar
to prior influenza seasons, as it relates to life insurance
claims. However, with much of the country sheltering in place
over an extended period, the Company expects a decrease in
non-medically necessary services being performed with many of the
services deferred until a later date when these procedures are
allowed to take place. Additionally, the Company expects
there will be some routine medical services that are deferred
indefinitely. As a result, and although the actual impact
cannot be predicted with certainty at this time, the Company does
not expect significant adverse development in total benefits and
losses incurred in its life and health operations.
In addition to the information set
forth in this report, you should carefully consider the discussions
of the COVID-19 pandemic and related economic developments
presented in our Annual Report on Form 10-K for the year ended
December 31, 2019, our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020 and in other reports we file with the
SEC from time to time, all of which could materially affect our
business, financial condition or future results.
Item 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 can be made from time to time in
accordance with applicable securities laws and other
requirements.
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, 2020.
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, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
325,129
|
|
May 1 – May
31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
325,129
|
|
June 1 – June
30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
325,129
|
|
Total
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
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 11, 2020
|
By:
|
/s/ J. Ross Franklin
|
|
|
|
J. Ross Franklin
|
|
|
Vice President and Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer)
|
-30-
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