Atlantic American(AAME) - 2019 Q3 - Quarterly Report

Part I. Financial Information This section presents the company's consolidated financial statements, management's analysis of financial performance and condition, and an assessment of internal controls Financial Statements This section presents the company's consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets Total assets increased to $383.3 million by September 30, 2019, driven by higher cash and investments, while shareholders' equity also grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $36,013 | $12,630 | | Total investments | $247,392 | $241,929 | | Total assets | $383,335 | $344,274 | | Liabilities & Equity | | | | Total insurance reserves | $198,324 | $189,048 | | Total liabilities | $266,924 | $242,902 | | Total shareholders' equity | $116,411 | $101,372 | | Total liabilities and shareholders' equity | $383,335 | $344,274 | - Accumulated other comprehensive income (loss) significantly improved, shifting from a loss of $(7,535) thousand at year-end 2018 to an income of $9,791 thousand as of September 30, 2019[8] Condensed Consolidated Statements of Operations The company reported a net loss of $1.4 million for Q3 2019 and $1.7 million for the nine-month period, primarily due to increased insurance benefits and losses Consolidated Statements of Operations Summary (in thousands) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $47,745 | $46,370 | $145,890 | $136,353 | | Total benefits and expenses | $49,489 | $45,298 | $147,938 | $137,599 | | Income (loss) before income taxes | $(1,744) | $1,072 | $(2,048) | $(1,246) | | Net income (loss) | $(1,392) | $934 | $(1,656) | $(905) | | EPS (basic and diluted) | $(0.07) | $0.04 | $(0.10) | $(0.06) | Condensed Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income significantly improved to $15.7 million for the nine-month period, driven by unrealized gains on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(1,392) | $934 | $(1,656) | $(905) | | Other comprehensive income (loss), net of tax | $5,064 | $(333) | $17,326 | $(8,788) | | Total comprehensive income (loss) | $3,672 | $601 | $15,670 | $(9,693) | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $116.4 million by September 30, 2019, primarily due to $17.3 million in other comprehensive income offsetting the net loss and dividends - For the nine months ended September 30, 2019, retained earnings decreased from $37.2 million to $34.9 million, primarily due to a net loss of $1.7 million and dividends totaling $0.7 million[12] - Accumulated other comprehensive income saw a significant positive swing, increasing by $17.3 million during the first nine months of 2019[12] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $7.6 million, while investing activities provided $31.5 million, leading to a $23.4 million increase in cash and equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,570) | $(5,119) | | Net cash provided by (used in) investing activities | $31,476 | $(8,325) | | Net cash used in financing activities | $(523) | $(1,065) | | Net increase (decrease) in cash | $23,383 | $(14,509) | | Cash and cash equivalents at end of period | $36,013 | $10,038 | Notes to Condensed Consolidated Financial Statements This section details accounting policies, investment portfolio, liabilities, debt, and segment performance for American Southern (P&C) and Bankers Fidelity (L&H) - The company adopted the new lease accounting standard (ASU No. 2016-02) on January 1, 2019, recognizing a right-of-use (ROU) asset and lease liability of $6,088 thousand[16][18] - The investment portfolio primarily consists of fixed maturities with a fair value of $217.5 million and equity securities valued at $19.5 million[22][25] - The company has two unconsolidated statutory business trusts with outstanding Junior Subordinated Debentures totaling a net balance of $33.7 million[58][59] - The company operates in two principal business units: American Southern (property and casualty insurance) and Bankers Fidelity (life and health insurance)[75] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the $1.7 million net loss, attributing it to unfavorable life and health segment performance despite premium growth, while liquidity remains strong Overall Corporate Results The company reported a $1.7 million net loss for the nine-month period, despite 6.0% premium growth, primarily due to increased operating losses in the life and health segment Reconciliation of Net Income (Loss) to Non-GAAP Operating Loss (in thousands) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(1,392) | $934 | $(1,656) | $(905) | | Income tax expense (benefit) | $(352) | $138 | $(392) | $(341) | | Realized investment (gains) losses, net | $430 | $(484) | $(1,565) | $(797) | | Unrealized gains on equity securities, net | $(944) | $(1,083) | $(2,096) | $(753) | | Non-GAAP operating loss | $(2,258) | $(495) | $(5,709) | $(2,796) | - For the nine-month period, premium revenue increased by 6.0% to $135.3 million, driven by Medicare supplement and automobile physical damage business[86] American Southern Segment Analysis The American Southern (P&C) segment improved its combined ratio to 97.0% due to a lower loss ratio, despite an increased expense ratio from variable commissions American Southern Performance Summary | Metric | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Net earned premiums | $43,035 thousand | $39,299 thousand | | Underwriting income | $1,303 thousand | $1,018 thousand | | Loss ratio | 65.9% | 72.6% | | Expense ratio | 31.1% | 24.8% | | Combined ratio | 97.0% | 97.4% | - The decrease in the loss ratio for the nine-month period was primarily due to more favorable loss experience from a decline in the severity of losses in the surety line of business[93] - The increase in the expense ratio was mainly due to a variable commission structure, with variable commissions increasing by $2.6 million in the nine-month period[94] Bankers Fidelity Segment Analysis The Bankers Fidelity (L&H) segment's combined ratio deteriorated to 110.3% due to an increased loss ratio from unfavorable Medicare supplement claims experience Bankers Fidelity Performance Summary | Metric | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Net earned premiums | $92,221 thousand | $88,305 thousand | | Underwriting loss | $(9,537) thousand | $(6,408) thousand | | Loss ratio | 82.2% | 79.2% | | Expense ratio | 28.1% | 28.1% | | Combined ratio | 110.3% | 107.3% | - The increase in the loss ratio was primarily attributable to unfavorable loss experience in the Medicare supplement line of business, which experienced a higher than expected level of claims[98] Investment Results and Other Expenses Net investment income slightly decreased, while net realized and unrealized investment gains increased, and other expenses rose due to variable commissions and business growth - Net realized investment gains for the nine-month period were $1.6 million in 2019, compared to $0.8 million in 2018[102] - The company recognized net unrealized gains on equity securities still held of $2.1 million during the nine-month period of 2019, compared to $0.8 million in the same period of 2018, due to fluctuations in market values[103] Liquidity and Capital Resources Liquidity strengthened with cash and equivalents increasing to $36.0 million, driven by investment sales, and the Parent company holds $16.7 million in unrestricted cash - Cash and cash equivalents increased to $36.0 million at September 30, 2019, from $12.6 million at December 31, 2018, primarily due to net investment sales exceeding purchases[115] - At September 30, 2019, the Parent had approximately $16.7 million of unrestricted cash and investments[107] - The company has outstanding Junior Subordinated Debentures with a balance of $33.7 million, with interest rates tied to LIBOR[112] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - Based on an evaluation, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2019[119] - No material changes to the company's internal control over financial reporting occurred during the reporting period[120] Part II. Other Information This section provides details on unregistered sales of equity securities and lists exhibits filed with the report Unregistered Sales of Equity Securities and Use of Proceeds The company's share repurchase plan was suspended in May 2019, with no shares repurchased during Q3 2019, and a replacement plan is under evaluation - The company's share Repurchase Plan was suspended in May 2019[123] - No shares of common stock were repurchased by the company during the three-month period ended September 30, 2019[124][125] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[126]