Atlantic American Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Atlantic American is an insurance holding company operating through American Southern (property and casualty) and Bankers Fidelity (life and health). Dollar amounts below are in millions unless stated otherwise.
Financial results and position
| Metric | Q1 2024 / March 31, 2024 | Comparable / prior period |
|---|---|---|
| Total revenue | $47.0 | $46.3 |
| Net premiums | $44.6 | $46.1 |
| Net investment income | $2.6 | $2.5 |
| Net loss | $2.0; $0.10 loss per common share | $1.4; $0.08 loss per common share |
| Non-GAAP operating income (loss) | $(2.4) | $0.6 |
| Operating cash flow | $(5.3) | $(11.6) |
| Cash and cash equivalents | $21.2 | $28.3 at Dec. 31, 2023 |
| Total assets / shareholders’ equity | $365.8 / $102.8 | $381.3 / $107.3 at Dec. 31, 2023 |
| Revolving credit facility | $4.0 outstanding | $3.0 at Dec. 31, 2023 |
| Junior subordinated debentures, net | $33.7 | $33.7 at Dec. 31, 2023 |
Insurance benefits and losses were $31.9 million, commissions and underwriting expenses $12.7 million, interest expense $0.9 million, and other expense $4.1 million. The filing does not present a consolidated profit margin. American Southern’s combined ratio was 97.1%; Bankers Fidelity’s was 110.5%.
Material changes and segment performance
- Net premiums fell 3.4%, primarily because Medicare supplement premiums declined. Management attributed the greater consolidated net loss and $2.9 million decline in operating income to weaker life and health results, including higher losses in group life and Medicare supplement.
- American Southern: Revenue was $18.9 million and pretax income $1.5 million. Net earned premiums rose 3.9% to $17.9 million; underwriting income was $0.5 million. Its combined ratio improved to 97.1% from 97.9%, despite lower gross written premiums, mainly due to reduced automobile physical damage business amid trucking-industry weakness.
- Bankers Fidelity: Revenue was $28.2 million and pretax loss $1.3 million. Net earned premiums fell 7.7% to $26.7 million, while underwriting results swung to a $2.8 million loss from $0.4 million of income. Its loss ratio rose to 71.7% from 61.6%; management cited increased group life and Medicare supplement losses and Medicare supplement non-renewals exceeding new writings.
- Fixed-maturity securities had $23.9 million of gross unrealized losses at March 31, 2024, compared with $21.7 million at year-end. The company reported no allowance for expected credit losses on these securities and said it did not intend, and was not more likely than not required, to sell them before recovery of amortized cost.
Liquidity, debt, outlook and risks
- Cash declined $7.1 million during the quarter. Operating cash use was $5.3 million and investing cash use $2.8 million, partly offset by $1.0 million of net revolving-credit proceeds. Parent unrestricted cash and investments were approximately $5.9 million.
- The $10 million unsecured Truist revolver was amended in March: maturity extended to March 22, 2027; borrowing rate set at Adjusted Term SOFR plus 2.00%; and minimum consolidated net worth covenant set at $64.2 million. The agreement also limits consolidated debt to 35% of consolidated capitalization. The company reported $4.0 million drawn at quarter-end.
- Junior subordinated debentures mature in 2032 and 2033 and bear floating rates based on three-month SOFR plus spreads and margins. Their effective rate was 9.64% at March 31, 2024. The company said it had not elected to defer interest payments.
- Management believes available cash, subsidiary dividends, fees and tax-sharing payments, and potential borrowing will meet liquidity needs for the foreseeable future. Insurance subsidiary assets are subject to state regulatory restrictions; dividends above $8.8 million in 2024 require prior approval. The Parent received $2.7 million in subsidiary dividends through March 31.
- No earnings guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results. Forward-looking statements remain subject to risks described in the company’s filings.
- Controls: Management concluded disclosure controls were not effective at quarter-end due to a material weakness in review controls over life and health insurance reserves and deferred acquisition costs. Remediation began in Q1 2024; enhanced analytical reports were expected to be operational by September 30, 2024. Management reported no identified material misstatement from the weakness.
- Management said ordinary-course litigation and known regulatory matters were not expected to have a material effect. The company also had $4.5 million of commitments to fund limited partnership investments, callable during commitment periods.
Investor verification priorities
- Track Bankers Fidelity’s Medicare supplement premium attrition, group life and Medicare supplement claims, and whether its combined ratio improves.
- Monitor remediation and testing of the material weakness, including whether the planned actuarial-model controls and reports are implemented on schedule.
- Review cash generation, Parent-level liquidity, subsidiary dividend availability, and compliance with the revolver’s net-worth and debt-to-capital covenants.
- Assess exposure to floating-rate debt and the duration and unrealized-loss profile of the fixed-maturity portfolio.
- Reconcile operating cash use and quarterly reserve movements with subsequent filings; Q1 cash flows included significant decreases in receivables, insurance reserves, and accrued expenses.