Atlantic American Corp. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Atlantic American Corporation is an insurance holding company operating primarily through two subsidiaries: American Southern (property and casualty insurance) and Bankers Fidelity (life and health insurance). The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenue | $28.1 million | $26.0 million |
| Net Income | $0.5 million | $0.4 million |
| Net Income (Common) | $0.3 million | $0.3 million |
| Earnings Per Share (Diluted) | $0.02 | $0.01 |
| Cash and Equivalents | $18.7 million | $17.4 million |
| Total Investments | $202.6 million | $184.6 million |
| Total Liabilities | $187.9 million | $194.9 million |
| Shareholders' Equity | $81.9 million | $82.7 million |
Debt & Liquidity: The company holds $41.2 million in Junior Subordinated Debentures. A $5.0 million revolving credit facility with Wells Fargo was available but had no outstanding balance as of March 31, 2011. Net cash used in operating activities was $2.5 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 8.1% year-over-year, driven by an 8.8% rise in insurance premiums to $25.4 million. This was primarily due to growth in Medicare supplement and commercial automobile business.
- Profitability: Net income increased 12.5% to $0.5 million. Income before taxes rose to $0.6 million from $0.6 million in the prior year.
- Investment Portfolio: Total investments grew by $18.0 million. However, the portfolio recorded net unrealized losses of $2.9 million, with significant unrealized losses in the media sector (including Gray Television, Inc.) and financial services.
- Cash Position: Cash and cash equivalents decreased by $9.6 million from the beginning of the period, primarily due to net investment purchases exceeding sales and maturities, alongside management bonus payments.
Outlook, Risks, and Management Commentary
- Segment Performance: American Southern's combined ratio improved to 98.0% from 98.4%, though the loss ratio increased slightly to 56.1% due to commercial automobile losses. Bankers Fidelity saw a 4.5% increase in premiums, driven by Medicare supplement growth.
- Investment Risks: Management notes that securities in an unrealized loss position are deemed temporarily impaired. The company does not intend to sell these securities. Valuation of Level 3 assets (unobservable inputs) involves significant judgment.
- Debt Covenants: The company is in compliance with all covenants regarding its credit facility and junior subordinated debentures. The credit facility expires June 30, 2011, with no assurance of renewal.
- Dividends: The company declared common stock dividends of $0.4 million and accrued preferred stock dividends of $0.1 million.
Investor Verification Checklist
- Investment Impairments: Verify the status of the $2.2 million unrealized loss in media sector investments (Gray Television) and the company's intent to hold these assets.
- Credit Facility Renewal: Confirm the status of the $5.0 million Wells Fargo credit facility expiring June 30, 2011.
- Loss Reserves: Review the adequacy of loss reserves, which comprise 28% of total liabilities, given the sensitivity to claim frequency and severity.
- Derivative Liability: Monitor the $1.4 million liability associated with the interest rate collar hedging junior subordinated debentures.
- Statutory Surplus: Note that dividend payments from subsidiaries exceeding $6.8 million in 2011 require regulatory approval.