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 March 31, 2024

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 March 31, 2024 was 20,399,758.
 
ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS

 
2
     
Part I.
Financial Information
  
     
Item 1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2.
19
     
Item 4.
24
     
Part II.
Other Information
  
     
Item 2.
26
     
Item 5.
26
     
Item 6.
26
     
 
27

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, 2023 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
March 31,
2024
    
December 31,
2023
  
ASSETS
  
Cash and cash equivalents
  
$
21,189
    
$
28,301
  
Investments:
                
Fixed maturities, available-for-sale, at fair value (amortized cost: $241,315 and $238,626; no allowance for credit losses)
    
218,420
      
218,219
  
Equity securities, at fair value (cost: $4,940 and $4,936)
    
9,303
      
9,413
  
Other invested assets (cost: $6,982 and $6,982)
    
6,278
      
6,381
  
Policy loans
    
1,810
      
1,778
  
Real estate
    
38
      
38
  
Investment in unconsolidated trusts
    
1,238
      
1,238
  
Total investments
    
237,087
      
237,067
  
Receivables:
                
Reinsurance (net of allowance for expected credit losses of $56 and $61)
    
20,935
      
21,103
  
Insurance premiums and other (net of allowance for expected credit losses of $216 and $217)
    
14,696
      
23,690
  
Deferred income taxes, net
    
16,712
      
15,682
  
Deferred acquisition costs
    
43,167
      
43,850
  
Other assets
    
9,421
      
9,028
  
Intangibles
    
2,544
      
2,544
  
Total assets
  
$
365,751
    
$
381,265
  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
  
Insurance reserves and policyholder funds:
                
Future policy benefits
  
$
93,680
    
$
92,495
  
Unearned premiums
    
20,723
      
31,317
  
Losses and claims
    
88,449
      
87,478
  
Other policy liabilities
    
970
      
1,132
  
Total insurance reserves and policyholder funds
    
203,822
      
212,422
  
Accounts payable and accrued expenses
    
21,364
      
24,811
  
Revolving credit facility
     4,024       3,019  
Junior subordinated debenture obligations, net
    
33,738
      
33,738
  
Total liabilities
    
262,948
      
273,990
  
                 
Commitments and contingencies (Note 12)            
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: 20,399,758 and 20,402,288
    
22,401
      
22,401
  
Additional paid-in capital
    
57,425
      
57,425
  
Retained earnings
    
48,425
      
50,929
  
Accumulated other comprehensive loss
    
(18,087
)
    
(16,121
)
Unearned stock grant compensation
    
(8
)
    
(13
)
Treasury stock, at cost: 2,001,136 and 1,998,606 shares
    
(7,408
)
    
(7,401
)
Total shareholders’ equity
    
102,803
      
107,275
  
Total liabilities and shareholders’ equity
  
$
365,751
    
$
381,265
  

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

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

   
Three Months Ended
March 31,
  
   
2024
    
2023
  
Revenue:
            
Insurance premiums, net
  
$
44,552
    
$
46,100
  
Net investment income
    
2,556
      
2,541
  
Unrealized losses on equity securities, net
    
(114
)
    
(2,375
)
Other income
    
3
      
3
  
Total revenue
    
46,997
      
46,269
  
Benefits and expenses:
                
Insurance benefits and losses incurred
    
31,925
      
30,460
  
Commissions and underwriting expenses
    
12,666
      
12,918
  
Interest expense
    
855
      
750
  
Other expense
    
4,057
      
3,959
  
Total benefits and expenses
    
49,503
      
48,087
  
Loss before income taxes
    
(2,506
)
    
(1,818
)
Income tax benefit
    
(508
)
    
(372
)
Net loss
    
(1,998
)
    
(1,446
)
Preferred stock dividends
    
(99
)
    
(99
)
Net loss applicable to common shareholders
  
$
(2,097
)
  
$
(1,545
)
Loss per common share (basic and diluted)
  
$
(0.10
)
   $ (0.08 )

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

   
Three Months Ended
March 31,
  
   
2024
    
2023
  
Net loss
  
$
(1,998
)
  
$
(1,446
)
Other comprehensive income (loss):
                
Available-for-sale fixed maturity securities:
                
Gross unrealized holding gains (losses) arising in the period
    
(2,488
)
    
4,733
  
Related income tax effect
    
522
      
(994
)
Subtotal
    
(1,966
)
    
3,739
  
Total other comprehensive income (loss), net of tax
    
(1,966
)
    
3,739
  
Total comprehensive income (loss)
  
$
(3,964
)
  
$
2,293
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited; In thousands except share and per share data)

   
Three Months Ended
March 31,
  
   
2024
    
2023
  
Preferred stock:
            
Balance, beginning of period
  
$
55
    
$
55
  
Balance, end of period
    
55
      
55
  
Common stock:
                
Balance, beginning of period
    
22,401
      
22,401
  
Balance, end of period
    
22,401
      
22,401
  
Additional paid-in capital:
                
Balance, beginning of period
    
57,425
      
57,425
  
Balance, end of period
    
57,425
      
57,425
  
Retained earnings:
                
Balance, beginning of period
    
50,929
      
51,982
  
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2023
    
—
      
(75
)
Net loss
     (1,998 )     (1,446 )
Dividends on common stock
    
(407
)
    
—
  
Dividends accrued on preferred stock
    
(99
)
    
(99
)
Balance, end of period
    
48,425
      
50,362
  
Accumulated other comprehensive loss:
                
Balance, beginning of period
    
(16,121
)
    
(22,149
)
Other comprehensive income (loss), net of tax
    
(1,966
)
    
3,739
  
Balance, end of period
    
(18,087
)
    
(18,410
)
Unearned stock grant compensation:
                
Balance, beginning of period
    
(13
)
    
(132
)
Amortization of unearned compensation
    
5
      
73
  
Balance, end of period
    
(8
)
    
(59
)
Treasury stock:
                
Balance, beginning of period
    
(7,401
)
    
(7,389
)
Net shares acquired related to employee share-based compensation plans
     (7 )     (6 )
Balance, end of period
    
(7,408
)
    
(7,395
)
Total shareholders’ equity
  
$
102,803
    
$
104,379
  
Dividends declared on common stock per share
  
$
0.02
    
$
0.02
  
                 
Common shares outstanding:
                
Balance, beginning of period
     20,402,288
       20,407,229
  
Net shares acquired under employee share-based compensation plans     (2,530 )     (2,530 )
Balance, end of period
     20,399,758
       20,404,699
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; In thousands)

   
Three Months Ended
March 31,
  
   
2024
    
2023
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss
  
$
(1,998
)
  
$
(1,446
)
Adjustments to reconcile net loss income to net cash used in operating activities:
                
Amortization of acquisition costs, net
    
683
      
22
  
Unrealized losses on equity securities, net
    
114
      
2,375
  
Losses from equity method investees
     103       15  
Compensation expense related to share awards
    
5
      
73
  
Provision for credit losses
     (6 )     —  
Depreciation and amortization
    
113
      
188
  
Deferred income tax benefit
    
(508
)
    
(552
)
Decrease in receivables, net
     9,168      
4,828
  
Decrease in insurance reserves and policyholder funds
    
(8,600
)
    
(11,408
)
Decrease in accounts payable and accrued expenses
    
(3,950
)
    
(5,338
)
Other, net
    
(443
)
    
(367
)
Net cash used in operating activities
    
(5,319
)
    
(11,610
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Proceeds from investments sold
    
—
      
9
  
Proceeds from investments matured, called or redeemed
    
2,857
      
1,769
  
Investments purchased
    
(5,604
)
    
(6,418
)
Additions to property and equipment
    
(39
)
    
(59
)
Net cash used in investing activities
    
(2,786
)
    
(4,699
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Treasury stock acquired — net employee share-based compensation
     (7 )     (6 )
Proceeds from revolving credit facility, net
     1,000       1,000  
Net cash provided by financing activities
    
993
      
994
  
                 
Net decrease in cash and cash equivalents
    
(7,112
)
    
(15,315
)
Cash and cash equivalents at beginning of period
    
28,301
      
28,863
  
Cash and cash equivalents at end of period
  
$
21,189
    
$
13,548
  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
                
Cash paid for interest
  
$
856
    
$
759
  

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, 2023 (the “2023 Annual Report”). For more information regarding Significant Accounting Policies, see the “Summary of Significant Accounting Policies” section of Note 1 of Notes to Consolidated Financial Statements in the 2023 Annual Report. The Company’s financial condition and results of operations and cash flows as of and for the three month  period ended March 31, 2024 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, 2024 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.  To the extent that the Company changes its accounting for, or presentation of, items in the financial statements, the presentation of such amounts in prior periods is changed to conform to the current period presentation, if appropriate, and disclosed, if material.

Note 2.
Recently Issued Accounting Standards


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 2023 Annual Report.

8
Note 3.
Investments
 

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses, allowance for credit losses and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of March 31, 2024 and December 31, 2023.
 

Fixed maturities were comprised of the following:
 
   
March 31, 2024
  
   
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
  
$
49,277
    
$
53
    
$
5,119
     $
—    
$
54,343
  
Obligations of states and political subdivisions
     8,133
       9
       1,388
       —       9,512
  
Corporate securities:
                                        
Utilities and telecom
     21,854
       80
       2,939
       —       24,713
  
Financial services
     60,733
       549
       5,175
       —       65,359
  
Other business – diversified
     34,105
       242
       3,541
       —       37,404
  
Other consumer – diversified
     44,091
       31
       5,731
       —       49,791
  
Total corporate securities
     160,783
       902
       17,386
       —       177,267
  
Redeemable preferred stocks:
                                        
Other consumer – diversified
     227
       34
       —
       —       193
  
Total redeemable preferred stocks
     227
       34
       —
       —       193
  
Total fixed maturities
   $ 218,420     $ 998     $ 23,893     $
—     $ 241,315  

    December 31, 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
  
$
50,059
    
$
63
    
$
4,944
    
$
—
     $
54,940  
Obligations of states and political subdivisions
     8,106       15
       1,424
       —       9,515  
Corporate securities:
                                        
Utilities and telecom
     21,309       143       2,582       —       23,748  
Financial services
     59,584       560       4,931       —       63,955  
Other business – diversified
     34,386       403       2,940       —       36,923  
Other consumer – diversified
     44,570       87       4,870       —       49,353  
Total corporate securities
     159,849       1,193       15,323       —       173,979  
Redeemable preferred stocks:
                                        
Other consumer – diversified
     205       13       —       —       192  
Total redeemable preferred stocks
     205       13       —       —       192  
Total fixed maturities
   $ 218,219     $ 1,284     $ 21,691     $ —     $
238,626  
 

Bonds having an amortized cost of $14,676 and $14,647 and included in the tables above were on deposit with insurance regulatory authorities as of March 31, 2024 and December 31, 2023, respectively, in accordance with statutory requirements. In addition, the Company maintains cash and cash equivalents on deposit with insurance regulatory authorities of $226 as of March 31, 2024 and December 31, 2023. Additionally, bonds having an amortized cost of $9,498 and $9,584 and included in the tables above were pledged as collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2024 and December 31, 2023, respectively.

Equity securities were comprised of the following:
   
   
March 31, 2024
  
   
Estimated
Fair Value
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Cost or
Amortized
Cost
  
Equity securities:
                        
Common and non-redeemable preferred stocks:
                        
Financial services
  
$
 1,054

$
 747

$
 —

$
 307
  
Communications
     8,249


3,616


—


4,633  
Total equity securities
  
$
 9,303

$
 4,363

$
 —

$
 4,940
  

   
December 31, 2023
  
   
Estimated
Fair Value
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Cost or
Amortized
Cost
  
Equity securities:
                        
Common and non-redeemable preferred stocks:
                        
Financial services
  
$
 924

$
 621

$
 —

$
 303  
Communications
     8,489


3,856


—


4,633  
Total equity securities
  
$
 9,413

$
 4,477

$
 —

$
 4,936  


The carrying value and amortized cost of the Company’s investments in fixed maturities at March 31, 2024 and December 31, 2023 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.
  
   
March 31, 2024
    
December 31, 2023
  
   
Carrying
Value
    
Amortized
Cost
    
Carrying
Value
    
Amortized
Cost
  
Due in one year or less
  
$
 6,795

$
 6,887

$
 1,715

$
 1,750
  
Due after one year through five years
     56,898


59,181


60,423


62,423
  
Due after five years through ten years
     32,680


35,968


33,596


36,752
  
Due after ten years
     87,772


100,890


86,857


97,984
  
Asset backed securities
     34,275


38,389


35,628


39,717
  
Totals
  
$
 218,420

$
 241,315

$
 218,219

$
 238,626
  
    

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 March 31, 2024 and December 31, 2023.
 
   
March 31, 2024
  
   
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
   $ 5,161     $ 44     $ 37,250     $ 5,075     $ 42,411     $ 5,119  
Obligations of states and political subdivisions
     1,130       16       5,985       1,372       7,115       1,388  
Corporate securities
     11,793
       161
       136,344
       17,225
       148,137
       17,386
  
Total temporarily impaired securities
   $ 18,084     $ 221     $ 179,579     $ 23,672     $ 197,663     $ 23,893  

10
   
December 31, 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
  
$
 5,194

$
 37

$
 39,476

$
 4,907

$
 44,670

$
 4,944
  
Obligations of states and political subdivisions
    1,145       3       5,936       1,421       7,081       1,424  
Corporate securities
     539


13


138,283


15,310


138,822


15,323
  
Total temporarily impaired securities
  
$
 6,878

$
 53

$
 183,695

$
 21,638

$
 190,573

$
 21,691
  
    

Analysis of Securities in Unrealized Loss Positions


As of March 31, 2024 and December 31, 2023, there were 224 and 222 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 rise in interest rates, or due to credit-related factors. Identifying the drivers of the declines in fair value helps to focus the Company’s attention on securities with 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 issuer’s 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 reasonably available 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, 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, and 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 allowance for expected credit losses on its available-for-sale fixed maturities as of March 31, 2024 and December 31, 2023.
 

There were no realized investment gains for the three month periods ended March 31, 2024 and 2023.
   

The following table presents the portion of unrealized losses related to equity securities still held for the three month period ended March 31, 2024 and 2023.

   
Three Months Ended    
March 31,
  
    2024
     2023   
Net realized and unrealized losses recognized during the period on equity securities
  
$
(114
)
  
$
(2,375
)
Less: Net realized gains recognized during the period on equity securities sold during the period
    
—
      
—
  
Unrealized losses recognized during the reporting period on equity securities, net
  
$
(114
)
  
$
(2,375
)
  

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 $6,278 and $6,381 as of March 31, 2024 and December 31, 2023, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238 as of March 31, 2024 and December 31, 2023.

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 $7,516 and $7,619, as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company had outstanding commitments totaling $4,518, respectively, 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 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. The Company’s financial instruments valued using Level 3 criteria consist of one equity security.  As of March 31, 2024 and December 31, 2023, the value of the equity security valued using Level 3 criteria was $189 and $185, respectively.


As of March 31, 2024, 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
  
$
—
    
$
218,420
    
$
—
    
$
218,420
  
Equity securities
    
9,114
      
—
      
189
      
9,303
  
Cash equivalents
    
13,309
      
—
      
—
      
13,309
  
Total
  
$
22,423
    
$
218,420
    
$
189
    
$
241,032
  


As of December 31, 2023, 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
  
$
—
    
$
218,219
    
$
—
    
$
218,219
  
Equity securities
    
9,228
      
—
      
185
      
9,413
  
Cash equivalents
    
14,834
      
—
      
—
      
14,834
  
Total
  
$
24,062
    
$
218,219
    
$
185
    
$
242,466
  

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 March 31, 2024 and December 31, 2023.

       
March 31, 2024
    
December 31, 2023
  
 
Level in Fair
Value
Hierarchy (1)
 
Carrying
Amount
    
Estimated
Fair Value
    
Carrying
Amount
    
Estimated
Fair Value
  
Assets:
                            
Cash and cash equivalents
Level 1
    
$
21,189
    
$
21,189
    
$
28,301
    
$
28,301
  
Fixed maturities
 Level 2
   
218,420
      
218,420
      
218,219
      
218,219
  
Equity securities
 (1)
   
9,303
      
9,303
      
9,413
      
9,413
  
Policy loans
Level 3
      
1,810
      
1,810
      
1,778
      
1,778
  
 
                                    
Liabilities:
                                    
Junior subordinated debentures, net
Level 2
      
33,738
      
34,508
      
33,738
      
33,670
  
Revolving credit facility
  Level 2       4,024       4,024       3,019       3,019  

(1)
See the aforementioned information for a description of the fair value hierarchy as well as a description of levels for classes of these financial assets.


Note 5.
Allowance for Expected Credit Losses



Reinsurance Recoverables



The following table presents the balances of reinsurance recoverables, net of the allowance for expected credit losses, at March 31, 2024 and 2023, and the changes in the allowance for expected credit losses for the three months ended March 31, 2024 and 2023.


   
At and for the three months ended March 31, 2024
  
   
Reinsurance Recoverables,
Net of Allowance for Expected
Credit Losses
    
Allowance for Expected
Credit Losses
  
Balance, beginning of period
  
$
21,103
    
$
61
  
Current period change for expected credit losses
    
—
      
(5
)
Write-offs of uncollectible reinsurance recoverables
    
—
      
—
  
Balance, end of period
  
$
20,935
    
$
56
  


   
At and for the three months ended March 31, 2023
  
   
Reinsurance Recoverables,
Net of Allowance for Expected
Credit Losses
    
Allowance for Expected
Credit Losses
  
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 expected credit losses
    
—
      
(6
)
Write-offs of uncollectible reinsurance recoverables
    
—
      
—
  
Balance, end of period
  
$
24,916
    
$
69
  


13

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 March 31, 2024 and 2023, and the changes in the allowance for expected credit losses for the three months ended March 31, 2024 and 2023.


   
At and for the three months ended March 31, 2024
  
   
Insurance Premiums and Other,
Net of Expected Credit Losses
    
Allowance for Expected
Credit Losses
  
Balance, beginning of period
  
$
23,690
    
$
217
  
Current period change for expected credit losses
            
(1
)
Write-offs of uncollectible insurance premiums and other receivables
            
—
  
Balance, end of period
  
$
14,696
    
$
216
  


   
At and for the three months ended March 31, 2023
  
   
Insurance Premiums and Other,
Net of Expected Credit Losses
    
Allowance for 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
    
—
      
20
  
Write-offs of uncollectible insurance premiums and other receivables
    
—
      
—
  
Balance, end of period
  
$
11,555
    
$
197
  

Note 6.
Internal-Use Software


On March 3, 2021, the Company entered into a hosting arrangement through a service contract with a third party software solutions vendor to provide a suite of policy, billing, claim, and customer management services. The software is managed, hosted, supported, and delivered as a cloud-based software service product offering (software-as-a-service). The initial term of the arrangement is five years from the effective date with a renewal term of an additional five years.


Service fees related to the hosting arrangement are recorded as an expense in the Company’s condensed consolidated statement of operations as incurred.  Implementation expenses incurred related to third party professional and consulting services have been capitalized.  The Company will begin amortizing, on a straight-line basis over the expected ten year term of the hosting arrangement, when the software is substantially ready for its intended use.  The Company incurred and capitalized implementation costs of $970 and $592 during the three months ended March 31, 2024 and 2023, respectively. As a result, the Company has capitalized $5,537 and $3,614 in implementation costs in other assets within its condensed consolidated balance sheet as of March 31, 2024 and 2023, respectively. The Company expects the software will be substantially ready for its intended use in the second half of 2024. Accordingly, the Company has not recorded any amortization expense related to software implementation costs for the three months ended March 31, 2024 and 2023.

Note 7.
Insurance Reserves for Losses and Claims


The roll-forward of insurance reserves for losses and claims for the three months ended March 31, 2024 and 2023 is as follows:

   
Three Months Ended
March 31,
  
   
2024
   
2023
 
Beginning insurance reserves for losses and claims, gross  
$
87,478
    
$
87,484
  
Less: Reinsurance recoverable on unpaid losses
    
(14,678
)
    
(17,647
)
Beginning insurance reserves for losses and claims, net
    
72,800
      
69,837
  
                 
Incurred related to:
                
Current accident year
    
30,748
      
30,836
  
Prior accident year development
     (591 )(1)    
(638
)(2)
Total incurred
    
30,157
      
30,198
  
                 
Paid related to:
                
Current accident year
    
6,806
      
9,174
  
Prior accident years
    
23,261
      
21,504
  
Total paid
    
30,067
      
30,678
  
Ending insurance reserves for losses and claims, net
    
72,890
      
69,357
  
Plus: Reinsurance recoverable on unpaid losses
    
15,559
      
16,893
  
Ending insurance reserves for losses and claims, gross
  
$
88,449
    
$
86,250
  

(1)
Prior years’ development was primarily the result of favorable development in the property and casualty operations, partially offset by unfavorable development in the Medicare supplement line of business in the life and health operations.

14
(2)
Prior years’ development was primarily the result of favorable development in the property and casualty operations, as well as favorable development in the Medicare supplement line of business in the life and health operations.


Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred:

   
Three Months Ended
March 31,
  
   
2024
    
2023
  
Total incurred losses
  
$
30,157
    
$
30,198
  
Cash surrender value and matured endowments
    
265
      
257
  
Benefit reserve changes
    
1,503
      
5
Total insurance benefits and losses incurred
  
$
31,925
    
$
30,460
  

Note 8.
Credit Arrangements


Bank Debt



On May 12, 2021, the Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $10,000 revolving credit facility that originally matured on April 12, 2024. On March 22, 2024, the Company entered into a First Amendment (the “Amendment”) to its Revolving Credit Agreement (as amended, the “Credit Agreement”) with the Lender. The Amendment, among other things, (a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term SOFR rate (as defined in the Credit Agreement), plus 2.00%, (b) extends the maturity date of the revolving credit facility to March 22, 2027, and (c) requires that the Company maintain a consolidated net worth of not less than $64.2 million. Except as modified by the Amendment, the existing terms of the original Credit Agreement remain in effect.



The Credit Agreement requires the Company to comply with certain covenants, including a debt-to-capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35% of the Company’s consolidated capitalization at any time and maintained a minimum consolidated net worth, as previously mentioned. The Credit Agreement also contains customary representations and warranties and events of default. Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of March 31, 2024 and December 31, 2023, the Company had outstanding borrowings including accrued interest of $4,024 and $3,019, respectively, under the Credit Agreement.



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 the Company; and (iii) engaging in those activities necessary or incidental thereto.


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.  Prior to July 1, 2023, the interest rate was based on 3-month LIBOR plus an applicable margin. Effective July 1, 2023, the interest rate is determined based on a reference rate of the 3-month SOFR plus applicable tenor spread of 0.26161 percent plus an applicable margin, ranging from 4.00% to 4.10%.

15

The financial structure of each of Atlantic American Statutory Trust I and II as of March 31, 2024 was as follows:

   
Atlantic American
Statutory Trust I
    
Atlantic American
Statutory Trust II
  
JUNIOR SUBORDINATED DEBENTURES (1) (2)
            
Principal amount owed March 31, 2024
  
$
18,042
    
$