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 September 30, 2023

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 October 31, 2023 was 20,402,288.
 
ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS

 
2
     
Part I.
Financial Information
  
     
Item 1.
 3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2.
21
     
Item 4.
27
     
Part II.
Other Information
  
     
Item 2.
28
     
Item 5.
28
     
Item 6.
28
     
 
29

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. Forward-looking statements are all statements other than those of historical fact. 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. Forward-looking statements are inherently subject to various risks and uncertainties and the Company’s actual results could differ materially from the results expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and other subsequent 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, except as may be required by law.

2
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

   
Unaudited
September 30,
2023
    
December 31,
2022
  
ASSETS
  
Cash and cash equivalents
  
$
23,921
    
$
28,863
  
Investments:
                
Fixed maturities, available-for-sale, at fair value (amortized cost: $237,213 and $236,766; no allowance for credit losses)
    
203,068
      
208,729
  
Equity securities, at fair value (cost: $4,936 and $4,907)
    
8,224
      
11,562
  
Other invested assets (cost: $6,982 and $5,628)
    
6,398
      
5,386
  
Policy loans
    
1,822
      
1,759
  
Real estate
    
38
      
38
  
Investment in unconsolidated trusts
    
1,238
      
1,238
  
Total investments
    
220,788
      
228,712
  
Receivables:
                
Reinsurance (net of allowance for uncollectible reinsurance of $64 and $0)
    
21,839
      
25,913
  
Insurance premiums and other (net of allowance for expected credit losses $191 and net of allowance for doubtful accounts $177)
    
24,687
      
15,386
  
Deferred income taxes, net
    
17,156
      
14,163
  
Deferred acquisition costs
    
41,926
      
42,281
  
Other assets
    
8,759
      
9,202
  
Intangibles
    
2,544
      
2,544
  
Total assets
  
$
361,620
    
$
367,064
  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
  
Insurance reserves and policyholder funds:
                
Future policy benefits
  
$
84,851
    
$
85,564
  
Unearned premiums
    
30,642
      
28,348
  
Losses and claims
    
85,679
      
87,484
  
Other policy liabilities
    
816
      
1,255
  
Total insurance reserves and policyholder funds
    
201,988
      
202,651
  
Accounts payable and accrued expenses
    
24,129
      
26,473
  
Revolving credit facility
     3,019       2,009  
Junior subordinated debenture obligations, net
    
33,738
      
33,738
  
Total liabilities
    
262,874
      
264,871
  
                 
Commitments and contingencies (Note 11)            
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: 20,402,288 and 20,407,229
    
22,401
      
22,401
  
Additional paid-in capital
    
57,425
      
57,425
  
Retained earnings
    
53,257
      
51,982
  
Accumulated other comprehensive income
    
(26,975
)
    
(22,149
)
Unearned stock grant compensation
    
(16
)
    
(132
)
Treasury stock, at cost: 1,998,606 and 1,993,665 shares
    
(7,401
)
    
(7,389
)
Total shareholders’ equity
    
98,746
      
102,193
  
Total liabilities and shareholders’ equity
  
$
361,620
    
$
367,064
  

The accompanying notes are an integral part of these condensed consolidated financial statements.


3
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except per share data)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2023
    
2022
     2023     2022  
Revenue:
                        
Insurance premiums, net
  
$
43,746
    
$
46,380
     $ 135,906     $ 140,526  
Net investment income
    
2,325
      
2,641
       7,425       7,510  
Realized investment gains, net
    
—
      
101
       70       29  
Unrealized losses on equity securities, net
    
(1,486
)
    
(2,783
)
     (3,367 )     (5,456 )
Other income
    
6
      
4
       14       11  
Total revenue
    
44,591
      
46,343
       140,048       142,620  
                                 
Benefits and expenses:
                                
Insurance benefits and losses incurred
    
26,818
      
30,630
       86,643       94,552  
Commissions and underwriting expenses
    
11,064
      
12,843
       36,830       35,894  
Interest expense
    
850
      
523
       2,407       1,291  
Other expense
    
3,721
      
3,296
       11,631       10,151  
Total benefits and expenses
    
42,453
      
47,292
       137,511       141,888  
Income (loss) before income taxes
    
2,138
      
(949
)
     2,537       732  
Income tax expense (benefit)
    
379
      
(265
)
     480       253  
Net income (loss)
    
1,759
      
(684
)
     2,057       479  
Preferred stock dividends
    
(100
)
    
(100
)
     (299 )     (299 )
Net income (loss) applicable to common shareholders
  
$
1,659
    
$
(784
)
   $ 1,758     $ 180  
Earnings (loss) per common share (basic)
  $ 0.08     $ (0.04 )   $ 0.09     $ 0.01  
Earnings (loss) per common share (diluted)
   $ 0.08     $ (0.04 )   $ 0.09     $ 0.01  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited; Dollars in thousands)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2023
    
2022
     2023     2022  
Net income (loss)
  
$
1,759
    
$
(684
)
   $ 2,057     $ 479  
Other comprehensive loss:
                                
Available-for-sale fixed maturity securities:
                                
Gross unrealized holding losses arising in the period
    
(7,604
)
    
(12,987
)
     (6,038 )     (54,548 )
Related income tax effect
    
1,596
      
2,727
       1,267       11,455  
Subtotal
    
(6,008
)
    
(10,260
)
     (4,771 )     (43,093 )
Less: reclassification adjustment for net realized gains included in net income (loss)
    
—
      
(101
)
     (70 )     (48 )
Related income tax effect
    
—
      
21
       15       10  
Subtotal
    
—
      
(80
)
     (55 )     (38 )
Total other comprehensive loss, net of tax
    
(6,008
)
    
(10,340
)
     (4,826 )     (43,131 )
Total comprehensive loss  
$
(4,249
)
  
$
(11,024
)
   $ (2,769 )   $ (42,652 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited; Dollars in thousands except share data)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2023
    
2022
     2023     2022  
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
    
57,425
      
57,443
       57,425       57,441  
Restricted stock grants, net of forfeitures
    
—
      
—
       —       2  
Balance, end of period
    
57,425
      
57,443
       57,425       57,443  
Retained earnings:
                                
Balance, beginning of period
    
52,006
      
51,820
       51,982       51,264  
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023
     —       —       (75 )     —  
Net income (loss)
    
1,759
      
(684
)
     2,057       479  
Dividends on common stock
    
(408
)
    
—
       (408 )     (408 )
Dividends accrued on preferred stock
    
(100
)
    
(100
)
     (299 )     (299 )
Balance, end of period
    
53,257
      
51,036
       53,257       51,036  
Accumulated other comprehensive loss:
                                
Balance, beginning of period
    
(20,967
)
    
(15,103
)
     (22,149 )     17,688  
Other comprehensive loss, net of tax
    
(6,008
)
    
(10,340
)
     (4,826 )     (43,131 )
Balance, end of period
    
(26,975
)
    
(25,443
)
     (26,975 )     (25,443 )
Unearned stock grant compensation:
                                
Balance, beginning of period
    
(33
)
    
(79
)
     (132 )     (73 )
Restricted stock grants, net of forfeitures
    
—
      
—
       —       (71 )
Amortization of unearned compensation
    
17
      
27
       116       92  
Balance, end of period
    
(16
)
    
(52
)
     (16 )     (52 )
Treasury stock:
                                
Balance, beginning of period
    
(7,401
)
    
(7,436
)
     (7,389 )     (7,490 )
Restricted stock grants, net of forfeitures
    
—
      
—
       —       69  
Net shares acquired related to employee share-based compensation plans
     —       (93 )     (12 )     (108 )
Balance, end of period
    
(7,401
)
    
(7,529
)
     (7,401 )     (7,529 )
                                 
Total shareholders’ equity
  
$
98,746
    
$
97,911
     $ 98,746     $ 97,911  
Dividends declared on common stock per share
  
$
0.02
    
$
—
     $ 0.02     $ 0.02  
                                 
Common shares outstanding:
                                
Balance, beginning of period
     20,402,288       20,398,497       20,407,229       20,378,576  
Net shares acquired under employee share-based compensation plans     —       (31,268 )     (4,941 )     (36,347 )
Restricted stock grants, net of forfeitures
     —       —       —       25,000  
Balance, end of period     20,402,288       20,367,229       20,402,288       20,367,229  

The accompanying notes are an integral part of these condensed consolidated financial statements.

6
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; In thousands)

   
Nine Months Ended
September 30,
  
   
2023
    
2022
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net income
  
$
2,057
    
$
479
  
Adjustments to reconcile net income to net cash used in operating activities:
                
Amortization of (additions to) acquisition costs, net
    
355
      
(2,718
)
Realized investment gains, net
    
(70
)
    
(29
)
Unrealized losses on equity securities, net
    
3,367
      
5,456
  
Losses (earnings) from equity method investees
     343       (275 )
Compensation expense related to share awards
    
116
      
92
  
Depreciation and amortization
    
521
      
683
  
Deferred income tax benefit
    
(1,711
)
    
(1,394
)
Increase in receivables, net
     (5,227 )    
(4,783
)
(Decrease) increase in insurance reserves and policyholder funds
    
(663
)
    
2,492
  
Decrease in accounts payable and accrued expenses
    
(2,644
)
    
(2,350
)
Other, net
    
13
      
101
  
Net cash used in operating activities
    
(3,543
)
    
(2,246
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Proceeds from investments sold
    
5,038
      
3,871
  
Proceeds from investments matured, called or redeemed
    
8,000
      
8,997
  
Investments purchased
    
(14,942
)
    
(13,871
)
Additions to property and equipment
    
(75
)
    
(112
)
Net cash used in investing activities
    
(1,979
)
    
(1,115
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Payment of dividends on common stock
     (408 )     (408 )
Treasury stock acquired — net employee share-based compensation
     (12 )     (108 )
Proceeds from revolving credit facility, net
     1,000       1,000  
Net cash provided by financing activities
    
580
      
484
  
                 
Net decrease in cash and cash equivalents
    
(4,942
)
    
(2,877
)
Cash and cash equivalents at beginning of period
    
28,863
      
24,753
  
Cash and cash equivalents at end of period
  
$
23,921
    
$
21,876
  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
                
Cash paid for interest
  
$
2,370
    
$
1,200
  
Cash paid for income taxes
   $ 2,026     $ 2,164  

The accompanying notes are an integral part of these condensed consolidated financial statements.

7
ATLANTIC AMERICAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in thousands, except per share amounts)
Note 1.
Basis of Presentation and Significant Accounting Policies


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, Bankers Fidelity Assurance Company and Atlantic Capital Life 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, 2022 (the “2022 Annual Report”). The Company’s financial condition and results of operations and cash flows as of and for the three month and nine month periods ended September 30, 2023 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, 2023 or for any other future period.



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.

Note 2.
Recently Issued Accounting Standards


Adoption of New Accounting Standards



Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. The Company adopted the guidance as of June 30, 2023. The adoption of the guidance had no significant impact on the Company’s financial condition and results of operations.



Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (including reinsurance recoverables, premium and other receivables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.



The updated guidance also amends the previous other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.



The Company adopted the updated guidance as of January 1, 2023. The updated guidance was applied by a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2023, the beginning of the period of adoption. The adoption of this guidance resulted in the recognition of an after-tax cumulative effect adjustment of $0.1 million to reflect the impact of recognizing expected credit losses, as compared to incurred credit losses recognized under the previous guidance. This adjustment is primarily associated with reinsurance recoverables, premium and other receivables. The cumulative effect adjustment decreased retained earnings as of January 1, 2023 and increased the allowance for estimated uncollectible reinsurance.


8

Impact of Adoption on Condensed Consolidated Balance Sheet



Reinsurance Recoverables



The following table presents the balances of reinsurance recoverables, net of the allowance for estimated uncollectible reinsurance, at January 1, 2023 and September 30, 2023, and the changes in the allowance for estimated uncollectible reinsurance for the nine months ended September 30, 2023.

   
At and for the nine months ended September 30, 2023
  
(in thousands)
  
Reinsurance Recoverables,
Net of Allowance for Estimated
Uncollectible Reinsurance
    
Allowance for Estimated
Uncollectible Reinsurance
  
Balance, beginning of period
  
$
25,913
    
$
—
  
Cumulative effect of adoption of updated accounting guidance for
 credit losses at January 1, 2023
     —      
75
  
Current period change for estimated uncollectible reinsurance
     —      
(11
)
Write-offs of uncollectible reinsurance recoverables
     —      
—
  
Balance, end of period
  
$
21,839
    
$
64
  



Insurance Premium and Other Receivables



The following table presents the balances of insurance premiums and other, net of the allowance for expected credit losses, at January 1, 2023 and September 30, 2023, and the changes in the allowance for doubtful accounts/expected credit losses for the nine months ended September 30, 2023.


   
At and for the nine months ended September 30, 2023
  
(in thousands)
  
Insurance Premiums and Other,
Net of Expected Credit Losses
    
Allowance for Doubtful
Accounts/Expected Credit
Losses
  
Balance, beginning of period
  
$
15,386
    
$
177
  
Cumulative effect of adoption of updated accounting guidance for
 credit losses at January 1, 2023
     —      
—
  
Current period change for expected credit losses
     —      
14
  
Write-offs of uncollectible insurance premiums and other receivables
     —       —  
Balance, end of period
  
$
24,687
    
$
191
  



Future Adoption of New Accounting Standards



For more information regarding 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 2022 Annual Report.



Accounting Policies



The following accounting policies have been updated to reflect the Company’s adoption of Financial Instruments - Credit Losses, as described above.



Credit Impairments of Fixed Maturities



The Company’s investments in fixed maturities, which include bonds and redeemable preferred stocks, are classified as “available-for-sale” and, accordingly, are carried at fair value with the after-tax difference from amortized cost, less allowance for credit losses (“ACL”), as adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss. The Company’s equity securities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reported in net income. The fair values of fixed maturities and equity securities are largely determined from publicly quoted market prices, when available, or independent broker quotations. Values that are not determined using quoted market prices inherently involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market prices.



Prior to January 1, 2023, the Company applied other than temporary impairment (“OTTI”) guidance for securities in an unrealized loss position. An OTTI was recognized in earnings within realized investment gains (losses) when it was anticipated that the amortized cost would not be recovered. When either: (i) the Company had the intent to sell the security, or (ii) it was more likely than not that the Company would be required to sell the security before recovery, the reduction of amortized cost and the OTTI recognized in earnings was the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions existed, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected was recognized as a reduction of amortized cost and an OTTI in earnings. If the estimated fair value was less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors was recorded in OCI.


9

On January 1, 2023, the Company adopted accounting standards update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using a modified retrospective approach. Under ASU 2016-13, for securities in an unrealized loss position, a credit loss is recognized in earnings within realized investment gains (losses) when it is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery, the reduction of amortized cost and the loss recognized in earnings is the entire difference between the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the security and the present value of projected future cash flows expected to be collected is recognized as a credit loss by establishing an ACL with a corresponding charge to earnings in realized investment gains (losses). However, the ACL is limited by the amount that the fair value is less than the amortized cost. This limitation is known as the “fair value floor.” If the estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of the decline in value related to other-than-credit factors (“noncredit loss”) is recorded in OCI.



Reinsurance Recoverables



The Company’s insurance subsidiaries from time to time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks and to protect against catastrophic losses. In a reinsurance transaction, an insurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer. The reinsurer assumes the exposure in return for a portion of the premiums. The ceding of insurance does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet its obligations under the reinsurance agreement.



Amounts currently recoverable under reinsurance agreements are included in reinsurance receivables and amounts currently payable are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible. In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance.



Insurance Premiums and Other Receivables



Receivables amounts due from insureds and agents are evaluated periodically for collectibility. Allowances for expected credit losses are established, as and when a loss has been determined probable, against the related receivable. An allowance for expected credit loss is recognized by the Company when determined on a specific account basis and a general provision for loss is made based on the Company’s historical and expected experience.

Note 3.
Investments
   

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, ACL and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of September 30, 2023 and December 31, 2022.
  

Fixed maturities were comprised of the following:
 
   
September 30, 2023
  
   
Estimated
Fair Value
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Allowance
for
Credit Losses
    
Cost or
Amortized
Cost
  
Fixed maturities:
                              
Bonds:
                              
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
  
$
47,576
    
$
1
    
$
6,595
     $ —    
$
54,170
  
Obligations of states and political subdivisions
     7,570
       —
       1,947
       —       9,517
  
Corporate securities:
                                        
Utilities and telecom
     19,693
       —
       4,064
       —       23,757
  
Financial services
     55,897
       369
       8,212
       —       63,740
  
Other business – diversified
     31,035
       87
       5,524
       —       36,472
  
Other consumer – diversified
     41,073
       3
       8,294
       —       49,364
  
Total corporate securities
     147,698
       459
       26,094
       —       173,333
  
Redeemable preferred stocks:
                                        
Other consumer – diversified
     224
       31
       —
       —       193
  
Total redeemable preferred stocks
     224
       31
       —
       —       193
  
Total fixed maturities
   $ 203,068     $ 491     $ 34,636     $ —     $ 237,213  
 
10
   
December 31, 2022
  
   
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
  
$
44,412
    
$
5
    
$
5,926
    
$
50,333
  
Obligations of states and political subdivisions
     9,187       4
       1,702
       10,885  
Corporate securities:
                                
Utilities and telecom
     22,090       120       3,299       25,269  
Financial services
     59,054       397       7,085       65,742  
Other business – diversified
     31,058       161       4,689       35,586  
Other consumer – diversified
     42,705       35       6,089       48,759  
Total corporate securities
     154,907       713       21,162       175,356  
Redeemable preferred stocks:
                                
Other consumer – diversified
     223       31       —       192  
Total redeemable preferred stocks
     223       31       —       192  
Total fixed maturities
   $ 208,729     $ 753     $ 28,790     $ 236,766  
  

Bonds having an amortized cost of $11,778 and $12,333 and included in the tables above were on deposit with insurance regulatory authorities as of September 30, 2023 and December 31, 2022, respectively, in accordance with statutory requirements. Additionally, bonds having an amortized cost of $6,883 and $7,221 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at September 30, 2023 and December 31, 2022, respectively.



Equity securities were comprised of the following:
   
   
September 30, 2023
  
   
Estimated
Fair Value
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Cost
  
Equity securities:
                        
Common and non-redeemable preferred stocks:
                        
Financial services
   $ 880     $ 577     $ —     $ 303  
Other business – diversified
     7,344
       2,711
       —
       4,633
  
Total equity securities
   $ 8,224     $ 3,288     $ —     $ 4,936  

   
December 31, 2022
  
   
Estimated
Fair Value
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Cost
  
Equity securities:
                        
Common and non-redeemable preferred stocks:
                        
Financial services
   $ 790     $ 516     $ —     $ 274  
Other business – diversified
     10,772
       6,139
       —
       4,633  
Total equity securities
   $ 11,562     $ 6,655     $ —     $ 4,907  
    

The carrying value and amortized cost of the Company’s investments in fixed maturities at September 30, 2023 and December 31, 2022 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.
  
   
September 30, 2023
    
December 31, 2022
  
   
Carrying
Value
    
Amortized
Cost
    
Carrying
Value
    
Amortized
Cost
  
Due in one year or less
   $ 367     $ 375     $ 3,776     $ 3,797  
Due after one year through five years
     57,498
       61,209
       40,150
       42,174
  
Due after five years through ten years
     33,444
       38,759
       44,044
       49,711
  
Due after ten years
     77,744
       97,530
       87,719
       103,095
  
Asset backed securities
     34,015
       39,340
       33,040
       37,989
  
Totals
   $ 203,068     $ 237,213     $ 208,729     $ 236,766  
    
11

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 September 30, 2023 and December 31, 2022.
 
   
September 30, 2023
  
   
Less than 12 months
    
12 months or longer
    
Total
  
   
Fair
Value
    
Unrealized
Losses
    
Fair
Value
    
Unrealized
Losses
    
Fair
Value
    
Unrealized
Losses
  
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
   $ 10,205     $ 264     $ 36,873     $ 6,331     $ 47,078     $ 6,595  
Obligations of states and political subdivisions
     2,121       39       5,449       1,908       7,570       1,947  
Corporate securities
     12,457
       748
       129,484
       25,346
       141,941
       26,094
  
Total temporarily impaired securities
   $ 24,783     $ 1,051     $ 171,806     $ 33,585     $ 196,589     $ 34,636  
  
   
December 31, 2022
  
   
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
   $ 23,763     $ 2,410     $ 19,259     $ 3,516     $ 43,022     $ 5,926  
Obligations of states and political subdivisions     8,183       1,702       —       —       8,183       1,702  
Corporate securities
     127,928
       16,214
       14,514
       4,948
       142,442
       21,162
  
Total temporarily impaired securities
   $ 159,874     $ 20,326     $ 33,773     $ 8,464     $ 193,647     $ 28,790  
    

Analysis of Securities in Unrealized Loss Positions
 

As of September 30, 2023 and December 31, 2022, there were 251 and 237 securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the utilities and telecom, financial services, other diversified business and other diversified consumer sectors. The unrealized losses on the Company’s fixed maturity securities investments have been primarily related to general market changes in interest rates and/or the levels of credit spreads rather than specific concerns with the issuer’s ability to pay interest and repay principal.



For any of its fixed maturity securities with significant declines in fair value, the Company performs detailed analyses to identify whether the drivers of the declines are due to general market drivers, such as the recent increases in interest rates, or due to credit-related factors. Identifying the drivers of the declines in fair value helps to align and allocate the Company’s resources to securities with real credit-related concerns that could impact the ultimate collection of principal and interest. For any significant declines in fair value determined to be non-interest rate or market related, the Company performs a more focused review of the related issuers’ specific credit profile.



For corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, the Company analyzes all sources of credit support, including issuer-specific factors. The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer’s capital structure, covenant protections, or other relevant features. From these reviews, the Company evaluates the issuers’ continued ability to service the Company’s investment through payment of interest and principal.



Assuming no credit-related factors develop, unrealized gains and losses on fixed maturity securities are expected to diminish as investments near maturity. Based on its credit analysis, the Company believes that the issuers of its fixed maturity investments in the sectors shown in the table above have the ability to service their obligations to the Company. In addition, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.



However, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit allowance will be estimated.  The Company had no ACL on its available-for-sale fixed maturities as of September 30, 2023.


12
    

The following tables summarize realized investment gains for the three month and nine month periods ended September 30, 2023 and 2022.
   
   
Three Months Ended
September 30, 2023
  
   
Fixed
Maturities
    
Equity
Securities
    
Other
Invested Assets
    
Total
  
Gains
  
$
—
    
$
—
    
$
—
    
$
—
  
Losses
     —       —       —       —  
Realized investment gains, net
  
$
—
    
$
—
    
$
—
    
$
—
  
 
   
Three Months Ended
September 30, 2022
  
   
Fixed
Maturities
    
Equity
Securities
    
Other
Invested Assets
    
Total
  
Gains
  
$
101
    
$
—
    
$
—
    
$
101
  
Losses
    
—
   
—
      
—
   
—
Realized investment gains, net
  
$
101
 
$
—
    
$
—
 
$
101

   
Nine Months Ended
September 30, 2023
  
   
Fixed
Maturities
    
Equity
Securities
    
Other
Invested Assets
    
Total
  
Gains
  
$
70
    
$
—
    
$
—
    
$
70
  
Losses
    
—
      
—
      
—
      
—
  
Realized investment gains, net
  
$
70
    
$
—
    
$
—
    
$
70
  

   
Nine Months Ended
September 30, 2022
  
   
Fixed
Maturities
    
Equity
Securities
    
Other
Invested Assets
    
Total
  
Gains   $ 101     $ —     $ —     $ 101  
Losses
    
(53
)