Atlantic American Corporation — 2019 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2019, with 2018 as the comparable period. Atlantic American is an insurance holding company operating through property-and-casualty insurer American Southern and life-and-health insurer Bankers Fidelity. Its largest life-and-health product is Medicare supplement insurance.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $198.2 million | $185.6 million |
| Net premiums earned | $181.9 million | $172.9 million |
| Net investment income | $9.0 million | $9.5 million |
| Net realized investment gains | $1.6 million | $5.2 million |
| Unrealized equity-security gains (losses) recognized in earnings | $5.5 million | ($2.2 million) |
| Loss before income taxes | ($0.4 million) | ($1.0 million) |
| Net loss | ($0.4 million); ($0.04) per diluted share | ($0.7 million); ($0.05) per diluted share |
| Cash from (used in) operating activities | ($1.8 million) | $4.5 million |
| Total assets / total liabilities / shareholders’ equity at year-end | $377.6 million / $259.2 million / $118.4 million | $344.3 million / $242.9 million / $101.4 million |
Management’s non-GAAP operating loss was $7.5 million, compared with $3.9 million in 2018. This measure excludes specified income-tax and investment items; the reported GAAP net loss was smaller, partly reflecting equity-security fair-value gains.
Segment performance and margins
- American Southern: Net earned premiums rose 9.1% to $58.7 million. Underwriting income increased to $2.0 million from $0.2 million; the combined ratio improved to 96.6% from 99.6% (below 100% indicates underwriting profit). The loss ratio improved to 67.4%, while the expense ratio rose to 29.2%.
- Bankers Fidelity: Net earned premiums rose 3.5% to $123.2 million, but underwriting loss widened to $12.0 million from $7.0 million. The combined ratio deteriorated to 109.8% from 105.9%. Management cited higher-than-expected Medicare supplement claims and higher expenses.
Material changes and financial position
- Premium growth reflected higher automobile liability and physical-damage business and Medicare supplement rate increases. Gross written premiums at American Southern increased 10.7%; Bankers Fidelity’s Medicare supplement gross earned premiums increased 9.2%.
- Investment income fell 6.0%, and realized gains declined from 2018, which included a substantial gain from a real-estate partnership property sale. Year-end investments were $268.6 million, up from $241.9 million; 98% of the bond portfolio was investment grade under NAIC classifications.
- Cash and cash equivalents were $12.9 million, versus $12.6 million. Total investments were $268.6 million. Operating cash flow was negative despite positive investing cash flow of $3.0 million, largely reflecting portfolio sales and maturities.
- Junior subordinated debentures had a $33.7 million carrying amount, with $33.7 million outstanding net of treasury debt. They mature in 2032 and 2033, bear floating LIBOR-based rates, and had a 5.96% effective rate at year-end. The Parent reported approximately $5.3 million of unrestricted cash and investments; insurance-subsidiary dividends are subject to statutory limits.
- Insurance reserves and policyholder funds totaled $201.9 million. Loss reserves were $81.4 million, up from $72.6 million. Management’s reserve ranges indicated possible outcomes from 8.5% below to 4.2% above recorded reserves; revisions could materially affect future results.
Outlook, risks and unusual items
- The filing provides no quantified earnings or revenue guidance. Management said subsidiary cash flows, investments, premiums, reinsurance collections and, if needed, additional borrowing should meet liquidity needs for the foreseeable future.
- COVID-19 was identified as a subsequent event. The company could face higher life-and-health claims and investment losses from market volatility; it could not estimate the amount and expected adverse effects on first-quarter 2020 results and potentially later periods.
- Reinsurance recoverables were $32.1 million, and approximately 99.7% were due from one reinsurer, General Re Corporation, which the filing reported as highly rated. The company remains liable to policyholders if reinsurers fail to pay.
- Bankers Fidelity’s statutory net loss was $9.5 million in 2019, versus a $4.0 million loss in 2018; Bankers Fidelity Assurance reported certain IRIS ratios outside usual ranges. Management did not anticipate regulatory action, and all insurance subsidiaries exceeded required RBC levels.
- Ordinary-course litigation was not expected to materially affect consolidated financial condition, though results in a given period could be affected. The company also disclosed related-party office leasing and Series D preferred stock held by an affiliate of its controlling shareholder.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements; it did not attest to internal controls, consistent with the company’s smaller-reporting-company status.
Important facts for investors to verify
- Whether Medicare supplement claims experience and Bankers Fidelity’s combined ratio improve, and how reserve estimates develop.
- The quality, collectibility and concentration of reinsurance recoverables, especially the exposure to General Re.
- COVID-19’s realized effects on claims, investments, statutory capital and 2020 liquidity.
- The sustainability of cash generation, subsidiary dividends available to the Parent, and the cost and terms of floating-rate debentures.
- The effect of market movements on investment values and earnings, including the company’s significant equity-security holdings and related-party Gray Television investments.