Atlantic American Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Atlantic American is an insurance holding company, with property and casualty operations in American Southern and life and health operations in Bankers Fidelity. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $49.1 | $39.4 |
| Net premiums | $46.1 | $45.6 |
| Net investment income | $2.1 | $2.0 |
| Net loss | $0.4 | $8.1 |
| Net loss applicable to common shareholders | $0.5; $0.03 loss per share | $8.2; $0.40 loss per share |
| Operating loss, company-defined non-GAAP | $1.4 | $2.0 |
| Cash from operating activities | $(6.0) | $(10.5) |
Revenue rose chiefly because equity securities recorded a $0.7 gain, versus an $8.5 loss in Q1 2020; net premiums increased 1.2%. Total benefits and expenses were nearly unchanged at $49.6. The company remained loss-making. No consolidated profit margin was reported.
- American Southern: Net earned premiums were $16.6, up 11.3%; underwriting income was $0.6. Its combined ratio was 96.5% (96.2% prior year), comprising a 70.7% loss ratio and 25.8% expense ratio.
- Bankers Fidelity: Net earned premiums were $29.5, down 3.8%; underwriting loss improved to $1.9 from $3.0. Its combined ratio improved to 106.5% from 109.9%, with a 73.0% loss ratio and 33.5% expense ratio.
Financial position and liquidity
At March 31, 2021, cash and cash equivalents were $20.4, total investments $271.1, total assets $383.1, total liabilities $249.9, and shareholders’ equity $133.2. At December 31, 2020, these were $19.3, $279.3, $405.2, $260.1, and $145.1, respectively. The decline in equity included a $11.0 after-tax other comprehensive loss, mainly from unrealized losses on available-for-sale fixed maturities as interest rates rose.
Operating cash use of $6.0 was largely offset by $7.2 of investing cash flow, as investment sales and maturities exceeded purchases; cash increased $1.1. The company reported $33.7 of junior subordinated debentures, with floating rates of LIBOR plus 4.00%–4.10%, and $4.9 of operating lease liabilities. The Parent had approximately $3.8 of unrestricted cash and investments. Insurance-subsidiary assets are subject to regulatory restrictions; dividends above $9.6 in 2021 require prior approval. The company said it expects available resources and subsidiary payments to meet foreseeable liquidity needs.
Material changes and management commentary
- Premium growth reflected higher automobile physical damage and liability business at American Southern, partly offset by declining Medicare supplement premiums at Bankers Fidelity. Medicare supplement non-renewals exceeded new writings.
- Bankers Fidelity’s claims experience improved, which management attributed to improved rate adequacy and fewer Medicare supplement claims, partly associated with pandemic-related shelter-in-place orders. American Southern’s loss ratio worsened due to increased claim frequency in automobile physical damage and inland marine.
- Prior-year reserve development was unfavorable by $0.5, primarily from Medicare supplement at Bankers Fidelity; Q1 2020 had favorable development of $2.6, primarily in that line.
- Available-for-sale fixed maturities had $1.1 of gross unrealized losses at quarter-end, versus $0.1 at year-end. Management attributed the increase in loss-position securities primarily to rising interest rates, deemed the impairments temporary, and said it did not intend or expect to need to sell those securities.
- The company declared common dividends of $0.02 per share. No shares were repurchased during the quarter. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Outlook, risks, and contingencies
The filing provides no quantified earnings or revenue guidance. Management said COVID-19’s future effects remain uncertain and could pressure sales, policy retention, premium collections, and investment values. It did not expect a significant near-term decline in liquidity or operating results, or a material claims impact in property and casualty operations, but acknowledged potential higher life claims and reduced accident and health utilization. A prolonged economic slowdown could adversely affect results. Investment-market volatility, reserve estimates, insurance regulatory limits, and floating-rate debt are additional considerations. Management said ordinary-course claims and lawsuits were not expected to materially affect financial condition or results; the filing also notes $2.0 of unfunded investment commitments.
Investor facts to verify
- Whether Medicare supplement premium attrition and non-renewals continue, and whether new business offsets them.
- Whether Bankers Fidelity’s lower claims frequency persists as pandemic-related utilization patterns change; monitor reserve development.
- Whether American Southern’s higher claim frequency and loss ratio affect underwriting results.
- How interest rates and markets affect fixed-maturity valuations, accumulated other comprehensive income, and liquidity.
- Parent-level liquidity, permitted subsidiary dividends, and servicing of floating-rate debentures as benchmark rates change.