Atlantic American(AAME) - 2020 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows, with detailed notes Condensed Consolidated Balance Sheets The balance sheet reflects a slight increase in total assets and shareholders' equity, driven by investment fair values Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $384,952 | $377,626 | | Total Investments | $274,657 | $268,637 | | Cash and cash equivalents | $8,940 | $12,893 | | Total Liabilities | $256,937 | $259,232 | | Total insurance reserves | $201,064 | $201,906 | | Total Shareholders' Equity | $128,015 | $118,394 | Condensed Consolidated Statements of Operations The company reported a net income turnaround in Q3 2020, driven by lower insurance benefits and losses incurred Statements of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $46,269 | $47,745 | $135,416 | $145,890 | | Insurance Premiums, net | $44,978 | $45,005 | $137,027 | $135,256 | | Insurance Benefits and Losses Incurred | $29,219 | $34,719 | $89,878 | $104,177 | | Net Income (Loss) | $1,876 | ($1,392) | $321 | ($1,656) | | EPS (Diluted) | $0.09 | ($0.07) | $0.00 | ($0.10) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly improved, while investing activities shifted to a net cash outflow Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($904) | ($7,570) | | Net cash (used in) provided by investing activities | ($2,965) | $31,476 | | Net cash used in financing activities | ($84) | ($523) | | Net (decrease) increase in cash | ($3,953) | $23,383 | | Cash and cash equivalents at end of period | $8,940 | $36,013 | Notes to Condensed Consolidated Financial Statements Notes provide detailed disclosures on financial statement preparation, COVID-19 impact, accounting standards, and key financial items - The company's primary operating subsidiaries are American Southern (property and casualty insurance) and Bankers Fidelity (life and health insurance)[17] - The company acknowledges the ongoing uncertainty and potential business impact from the COVID-19 pandemic, including potential difficulties in premium collection and volatility in investment markets, but does not expect a direct material impact from increased claims as of the reporting date[20] Segment Assets (in thousands) | Segment | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | American Southern | $151,865 | $141,524 | | Bankers Fidelity | $221,982 | $224,122 | | Corporate and Other | $11,105 | $11,980 | | Total Assets | $384,952 | $377,626 | Management's Discussion and Analysis (MD&A) Management discusses financial performance, highlighting increased operating income from favorable loss experience in life and health Overall Corporate Results Consolidated results shifted to net income in Q3 2020, driven by decreased claims in Medicare supplement business Reconciliation of Net Income (Loss) to Non-GAAP Operating Income (Loss) (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $1,876 | ($1,392) | $321 | ($1,656) | | Adjustments (Taxes, Inv. Gains/Losses) | $1,105 | ($866) | $7,565 | ($4,053) | | Non-GAAP operating income (loss) | $2,981 | ($2,258) | $7,886 | ($5,709) | - The increase in operating income was primarily driven by favorable loss experience in the life and health operations, specifically a significant decrease in incurred claims within the Medicare supplement line of business due to COVID-19 shelter-in-place orders[81] American Southern Segment Analysis The P&C segment reported improved underwriting results with a lower combined ratio and increased gross written premiums American Southern Underwriting Ratios | Ratio | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Loss Ratio | 61.8% | 65.2% | 63.0% | 65.9% | | Expense Ratio | 31.6% | 32.4% | 31.3% | 31.1% | | Combined Ratio | 93.4% | 97.6% | 94.3% | 97.0% | - Gross written premiums increased by 8.5% for the nine-month period, mainly due to a new agency that started in the second half of 2019, which increased writings in the automobile physical damage line of business[83] Bankers Fidelity Segment Analysis The Life & Health segment saw dramatic profitability improvement due to a sharp drop in the loss ratio Bankers Fidelity Underwriting Ratios | Ratio | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Loss Ratio | 66.5% | 82.8% | 66.9% | 82.2% | | Expense Ratio | 26.6% | 27.4% | 27.8% | 28.1% | | Combined Ratio | 93.1% | 110.2% | 94.7% | 110.3% | - The significant decrease in the loss ratio was primarily due to a much lower number of claims incurred in the Medicare supplement line of business, as policyholders were subject to shelter-in-place orders due to COVID-19[91] Liquidity and Capital Resources Primary cash sources are premiums and investment income, with sufficient liquidity expected to meet obligations - Primary sources of cash are written premiums, investment income, and proceeds from the sale and maturity of invested assets[97] - The parent company had approximately $4.6 million of unrestricted cash and investments at September 30, 2020[98] - Bankers Fidelity Life Insurance Company became a member of the Federal Home Loan Bank of Atlanta (FHLB) to enhance financial flexibility, gaining access to low-cost funding, though no borrowings have been made to date[105] Expected Impact of COVID-19 Management expects no significant decline in liquidity or operations from COVID-19, despite investment volatility - The most significant impact of COVID-19 on the Company's financial position has been volatility in the fair value of its fixed maturity and equity investments[108] - For P&C operations, a reduction in claim frequency and severity is expected in automobile lines as fewer miles are driven, and no material adverse effect is currently anticipated[112] - For life and health operations, the company has experienced lower utilization of accident and health benefits, particularly in the Medicare supplement line, due to shelter-in-place orders, and does not expect significant adverse development in total benefits and losses[115] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes during the quarter - Based on an evaluation, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[117] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[118] Part II. Other Information Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase plan, with no shares repurchased in Q3 2020 - The Board of Directors approved a plan allowing for the repurchase of up to 750,000 shares of the Company's common stock[120] Share Repurchases in Q3 2020 | Period | Total Shares Purchased | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | | July 2020 | 0 | 325,129 | | August 2020 | 0 | 325,129 | | September 2020 | 0 | 325,129 | Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The exhibits filed with this report include: - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act - XBRL Instance Document and related taxonomy files[123]