Atlantic American(AAME) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information This section provides essential identification details for Atlantic American Corporation's Quarterly Report on Form 10-Q, including stock listing, filing status, and common stock outstanding Registrant Information This section provides the essential identification details for Atlantic American Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2025, including its stock listing, filing status, and common stock outstanding - Registrant: ATLANTIC AMERICAN CORPORATION, incorporated in Georgia, with IRS Employer Identification No. 58-1027114[2] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $1.00 per share | AAME | NASDAQ Global Market | - The registrant is a Non-accelerated filer and a Smaller reporting company[4] - Total number of Common Stock shares outstanding on July 31, 2025, was 20,397,228[4] Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements, emphasizing that actual results may differ materially and the Company disclaims any obligation to update them Disclaimer on Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, including macroeconomic conditions, industry developments, and regulatory changes. Actual results may differ materially, and the Company disclaims any obligation to update these statements - Forward-looking statements are subject to inherent risks and uncertainties, many beyond the Company's control, and actual results may differ materially[9] - Key risk factors include macroeconomic conditions, health care/insurance industry developments, financial market disruptions, claim rate increases, internal control weaknesses, reinsurance performance, and regulatory changes[9] - The Company undertakes no obligation to publicly update any forward-looking statements, except as required by law[9] Part I. Financial Information This part presents Atlantic American Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended June 30, 2025 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Atlantic American Corporation, including balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items Condensed Consolidated Balance Sheets This section presents the Company's financial position, detailing assets, liabilities, and shareholders' equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (2025 vs 2024) | | :------------------------------------ | :------------ | :---------------- | :-------------------- | | Total assets | $429,339 | $393,428 | +$35,911 | | Cash and cash equivalents | $46,423 | $35,570 | +$10,853 | | Total investments | $233,859 | $230,126 | +$3,733 | | Insurance premiums and other receivables | $50,242 | $27,458 | +$22,784 | | Total liabilities | $323,171 | $293,815 | +$29,356 | | Total insurance reserves and policyholder funds | $255,513 | $225,106 | +$30,407 | | Total shareholders' equity | $106,168 | $99,613 | +$6,555 | Condensed Consolidated Statements of Operations This section outlines the Company's financial performance, reporting revenues, benefits, expenses, and net income (loss) for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $55,290 | $47,668 | $105,415 | $94,665 | | Total benefits and expenses | $51,074 | $48,517 | $100,164 | $98,020 | | Income (loss) before income taxes | $4,216 | $(849) | $5,251 | $(3,355) | | Net income (loss) | $3,316 | $(684) | $4,118 | $(2,682) | | Net income (loss) applicable to common shareholders | $3,216 | $(784) | $3,919 | $(2,881) | | Earnings (loss) per common share (basic) | $0.16 | $(0.04) | $0.19 | $(0.14) | | Earnings (loss) per common share (diluted) | $0.15 | $(0.04) | $0.19 | $(0.14) | - Total revenue increased by $7.6 million (15.9%) for the three months ended June 30, 2025, and by $10.75 million (11.4%) for the six months ended June 30, 2025, compared to the prior year periods[15] - The Company reported a net income of $3.316 million for the three months ended June 30, 2025, a significant improvement from a net loss of $0.684 million in the prior year period[15] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the Company's comprehensive income (loss), including net income and other comprehensive income (loss), for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $3,316 | $(684) | $4,118 | $(2,682) | | Total other comprehensive income (loss), net of tax | $567 | $(1,348) | $3,045 | $(3,314) | | Total comprehensive income (loss) | $3,883 | $(2,032) | $7,163 | $(5,996) | - Total comprehensive income for the six months ended June 30, 2025, was $7.163 million, a substantial increase from a loss of $5.996 million in the comparable prior year period, driven by improved net income and positive other comprehensive income[18] Condensed Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, including retained earnings, accumulated other comprehensive loss, and common stock transactions, for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Shareholders' Equity Highlights (In thousands) | Metric | Balance, beginning of period (Six Months Ended June 30, 2025) | Balance, end of period (Six Months Ended June 30, 2025) | Balance, beginning of period (Six Months Ended June 30, 2024) | Balance, end of period (Six Months Ended June 30, 2024) | | :------------------------------------ | :---------------------------------------------------------- | :-------------------------------------------------------- | :---------------------------------------------------------- | :-------------------------------------------------------- | | Retained earnings | $45,854 | $49,366 | $50,929 | $47,641 | | Accumulated other comprehensive loss | $(18,712) | $(15,667) | $(16,121) | $(19,435) | | Total shareholders' equity | $99,613 | $106,168 | $100,672 | $100,672 | | Dividends declared on common stock per share | $0.02 | $0.02 | $0.02 | $0.02 | | Common shares outstanding (end of period) | 20,399,758 | 20,397,228 | 20,402,288 | 20,399,758 | - Total shareholders' equity increased by $6.555 million from December 31, 2024, to June 30, 2025, primarily due to net income and an improvement in accumulated other comprehensive loss[13][20] Condensed Consolidated Statements of Cash Flows This section summarizes the Company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows Highlights (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $8,556 | $(4,903) | | Net cash provided by (used in) investing activities | $2,708 | $(2,771) | | Net cash (used in) provided by financing activities | $(411) | $586 | | Net increase (decrease) in cash and cash equivalents | $10,853 | $(7,088) | | Cash and cash equivalents at end of period | $46,423 | $21,213 | - Net cash provided by operating activities significantly improved to $8.556 million for the six months ended June 30, 2025, compared to a net cash used of $4.903 million in the prior year, driven by net income and an increase in insurance reserves[22] - Cash and cash equivalents increased by $10.853 million, reaching $46.423 million at June 30, 2025, primarily due to positive cash flows from operating and investing activities[22] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide essential context and detail for the unaudited condensed consolidated financial statements, covering the basis of presentation, significant accounting policies, recent accounting standards, and specific financial instrument details, credit loss allowances, software capitalization, insurance reserves, credit arrangements, earnings per share, income taxes, leases, commitments, and segment information Note 1. Basis of Presentation and Significant Accounting Policies This note describes the basis of financial statement preparation, key accounting policies, and the Company's operating subsidiaries - The Company's primary operating subsidiaries are American Southern Insurance Company (property and casualty) and Bankers Fidelity Life Insurance Company (life and health)[23] - Financial statements are prepared in accordance with GAAP for interim financial information, with all adjustments considered necessary for fair presentation[23] - The One Big Beautiful Bill Act of 2025 (OBBBA), enacted July 4, 2025, is not expected to have a material impact on the Company's financials[25] Note 2. Recently Issued Accounting Standards This note discusses the impact and expected adoption of new accounting standards, particularly ASU No. 2018-12, on the Company's financial statements - ASU No. 2018-12, 'Targeted Improvements to the Accounting for Long-Duration Contracts,' is effective for annual periods beginning after December 15, 2024, and interim periods beginning after December 15, 2025[26] - The Company expects its Life, Medicare supplement, and certain individual Accident and Health products to be within the scope of ASU 2018-12[26] - The Company has completed actuarial model development and is testing, expecting a material impact on consolidated financial statements upon adoption using the modified retrospective method[26] Note 3. Investments This note provides detailed information on the Company's investment portfolio, including fixed maturities, equity securities, and unrealized gains/losses Fixed Maturities at Fair Value (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------- | :------------ | :---------------- | | U.S. Treasury securities and obligations of U.S. Government agencies and authorities | $24,251 | $22,251 | | Loan backed and structured securities | $22,209 | $22,290 | | Obligations of states and political subdivisions | $7,318 | $7,623 | | Corporate securities | $159,339 | $160,261 | | Redeemable preferred stocks | $206 | $187 | | Total fixed maturities | $213,323 | $212,612 | Equity Securities at Fair Value (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Financial services | $1,240 | $1,149 | | Communications | $10,040 | $6,751 | | Total equity securities | $11,280 | $7,900 | - Unrealized losses on fixed maturity securities are primarily due to general market changes in interest rates and credit spreads, not specific credit concerns, and the Company does not intend to sell these before recovery of amortized cost[35][38] - Net realized investment gains were $16 thousand for both the three and six months ended June 30, 2025, consistent with the prior year periods[41][42] - The Company holds passive interests in Variable Interest Entities (VIEs) totaling $7.562 million as of June 30, 2025, with maximum loss exposure limited to carrying value and outstanding commitments of $2.2 million[44][45] Note 4. Fair Values of Financial Instruments This note outlines the fair value hierarchy and categorization of financial instruments, detailing their measurement at fair value - The Company categorizes financial instruments measured at fair value into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[47][48][49] Financial Instruments Carried at Fair Value (In thousands) | Asset Category | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | Total (June 30, 2025) | | :--------------- | :---------------------- | :---------------------- | :---------------------- | :-------------------- | | Fixed maturities | $— | $213,323 | $— | $213,323 | | Equity securities | $11,087 | $— | $193 | $11,280 | | Cash equivalents | $28,421 | $— | $— | $28,421 | | Total | $39,508 | $213,323 | $193 | $253,024 | - The Company had no transfers into or out of Level 3 for the six months ended June 30, 2025, or the year ended December 31, 2024[51] Note 5. Allowance for Expected Credit Losses This note details the allowances for expected credit losses on reinsurance recoverables and insurance premiums and other receivables Reinsurance Recoverables Allowance for Expected Credit Losses (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Balance, beginning of period | $51 | $61 | | Current period change for expected credit losses | $(8) | $(7) | | Balance, end of period | $43 | $54 | Insurance Premiums and Other Receivables Allowance for Expected Credit Losses (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- |\n| Balance, beginning of period | $201 | $217 | | Current period change for expected credit losses | $(7) | $2 | | Balance, end of period | $194 | $219 | Note 6. Internal-Use Software This note describes the capitalization of internal-use software implementation costs and the expected timing of amortization - The Company renewed a cloud-based software service (SaaS) hosting arrangement in March 2024 for an additional five years[56] - Capitalized implementation costs for the software totaled $4.714 million as of June 30, 2025, with $39 thousand incurred during the six months ended June 30, 2025[57] - Amortization expense has not yet been recorded as the software is expected to be substantially ready for its intended use in the second half of 2025[57] Note 7. Insurance Reserves for Losses and Claims This note provides a roll-forward of insurance reserves for losses and claims, detailing incurred and paid amounts and prior accident year development Roll-forward of Insurance Reserves for Losses and Claims (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Beginning insurance reserves for losses and claims, net | $76,317 | $72,800 | | Total incurred | $60,803 | $59,680 | | Total paid | $52,313 | $59,421 | | Ending insurance reserves for losses and claims, net | $84,807 | $73,059 | | Ending insurance reserves for losses and claims, gross | $101,759 | $90,624 | - Prior accident year development was favorable by $2.543 million for the six months ended June 30, 2025, primarily due to the Medicare supplement line of business, partially offset by unfavorable development in automobile liability[58] - Total insurance benefits and losses incurred increased to $65.560 million for the six months ended June 30, 2025, from $63.732 million in the prior year[58] Note 8. Credit Arrangements This note details the Company's credit facilities, including the revolving credit agreement and junior subordinated debentures, and their associated terms - The Revolving Credit Agreement with Truist Bank was amended in March 2024, extending maturity to March 22, 2027, and updating interest rates to Adjusted Term SOFR plus 2.00%[59] - Outstanding borrowings under the revolving credit facility were $4.021 million as of June 30, 2025, with an effective interest rate of 6.43%[60][61] - Junior Subordinated Debentures totaling $33.738 million mature in 2032 and 2033, with interest rates based on 3-month SOFR plus applicable tenor spread and margin (effective rate 8.64% at June 30, 2025)[63][64] Note 9. Earnings (Loss) Per Common Share This note presents the calculation of basic and diluted earnings (loss) per common share for the reported periods Earnings (Loss) Per Common Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------ | :--- | :--- | | Net income (loss) applicable to common shareholders (in thousands) | $3,919 | $(2,881) | | Weighted average shares (in thousands) | 20,398 | 20,401 | | Basic EPS | $0.19 | $(0.14) | | Diluted EPS | $0.19 | $(0.14) | - The assumed conversion of Series D preferred stock was excluded from EPS calculation for the three and six months ended June 30, 2024, due to its antidilutive impact[69] Note 10. Income Taxes This note details the Company's income tax expense (benefit), including federal tax provision and current/deferred components Income Tax Expense (Benefit) (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Federal income tax provision at statutory rate of 21% | $886 | $(179) | $1,103 | $(705) | | Income tax expense (benefit) | $900 | $(165) | $1,133 | $(673) | | Current – Federal | $273 | $— | $273 | $— | | Deferred – Federal | $627 | $(165) | $860 | $(673) | - The Company recorded an income tax expense of $1.133 million for the six months ended June 30, 2025, a significant change from a benefit of $0.673 million in the prior year[70] Note 11. Leases This note provides information on the Company's operating lease agreements, lease expense, and related right-of-use assets and liabilities - The Company has two operating lease agreements for office space, with one amended in December 2024 to increase base rent and provide for future adjustments[71] - Lease expense for the six months ended June 30, 2025, was $569 thousand, up from $507 thousand in the prior year[73] Lease Information (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Right-of-use assets (in thousands) | $4,880 | $2,196 | | Weighted average discount rate | 7.9% | 6.8% | | Weighted average remaining lease term | 7.4 years | 2.4 years | - Total undiscounted lease payments amount to $7.203 million, resulting in an operating lease liability of $4.983 million as of June 30, 2025[74] Note 12. Commitments and Contingencies This note addresses the Company's commitments and contingencies, including litigation and regulatory matters - Management believes that current litigation and regulatory matters are not expected to have a material effect on the Company's financial condition or results of operations[75][76] Note 13. Segment Information This note provides financial information by operating segment, including assets, revenue, and income (loss) before income taxes - The Company operates in two principal business units: American Southern (property and casualty) and Bankers Fidelity (life and health), each evaluated on individual performance[77] - The Chief Operating Decision Maker (CODM) reviews income (loss) before income taxes to assess segment profitability, with significant expenses including insurance benefits and losses incurred, and commissions and underwriting[78] Segment Assets (In thousands) | Segment | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | American Southern | $174,390 | $147,214 | | Bankers Fidelity | $222,696 | $210,819 | Segment Revenue (In thousands) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | American Southern | $41,653 | $37,384 | | Bankers Fidelity | $63,590 | $57,374 | | Corporate, Other and Eliminations | $172 | $(93) | | Total revenue | $105,415 | $94,665 | Segment Income (Loss) Before Income Taxes (In thousands) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | American Southern | $1,560 | $2,258 | | Bankers Fidelity | $8,307 | $(92) | | Corporate, Other and Eliminations | $(4,616) | $(5,521) | | Total income (loss) before income taxes | $5,251 | $(3,355) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the three and six months ended June 30, 2025, highlighting key revenue and expense drivers, segment-specific results, investment performance, and liquidity. It also includes a reconciliation of GAAP net income to non-GAAP operating income Overview This section provides an overview of Atlantic American Corporation's business structure and operating subsidiaries - Atlantic American Corporation is an insurance holding company operating through American Southern (property and casualty) and Bankers Fidelity (life and health) subsidiaries[84] - Each operating company is managed separately, offers different products, and is evaluated on its individual performance[84] Critical Accounting Policies This section discusses the critical accounting policies and estimates used in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures[85] - Critical accounting policies are consistent with those disclosed in the 2024 Annual Report, except as noted in Note 1 of the Condensed Consolidated Financial Statements[85] Overall Corporate Results This section summarizes the Company's overall financial performance, including total revenue, net income, and non-GAAP operating income Overall Corporate Financial Results (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $55,290 | $47,668 | $105,415 | $94,665 | | Net income (loss) | $3,316 | $(684) | $4,118 | $(2,682) | | Non-GAAP operating income (loss) | $1,591 | $(1,105) | $1,859 | $(3,497) | - Net income for the three months ended June 30, 2025, was $3.3 million ($0.15 diluted EPS), a significant improvement from a net loss of $0.7 million ($0.04 diluted EPS) in the prior year[88] - Premium revenue increased by $5.2 million (11.5%) for the three months and $7.5 million (8.4%) for the six months ended June 30, 2025, driven by growth in inland marine, automobile physical damage, Medicare supplement, and group accident and health lines[89] - Operating income increased by $2.7 million for the three months and $5.4 million for the six months ended June 30, 2025, primarily due to increased premium revenue in key business lines[90] American Southern Segment Analysis This section analyzes the underwriting performance of the American Southern segment, including premiums, loss ratio, and expense ratio American Southern Underwriting Performance (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross written premiums | $52,285 | $36,499 | $61,621 | $44,969 | | Net earned premiums | $21,141 | $17,544 | $39,472 | $35,422 | | Underwriting income (loss) | $(216) | $(231) | $(621) | $296 | | Loss ratio | 75.7% | 81.1% | 77.5% | 76.3% | | Expense ratio | 25.3% | 20.2% | 24.0% | 22.8% | | Combined ratio | 101.0% | 101.3% | 101.5% | 99.1% | - Gross written premiums increased significantly by 43.3% for the three months and 37.0% for the six months ended June 30, 2025, driven by growth in automobile liability, inland marine, and automobile physical damage lines[93] - Net earned premiums increased by 20.5% for the three months and 11.4% for the six months ended June 30, 2025, primarily due to inland marine and automobile liability/physical damage[95] - The loss ratio decreased to 75.7% for the three months ended June 30, 2025, due to premium growth exceeding incurred losses, but increased to 77.5% for the six months due to higher losses in automobile physical damage and inland marine[97] - The expense ratio increased for both periods, primarily due to higher variable commissions resulting from favorable loss experience[98] Bankers Fidelity Segment Analysis This section analyzes the underwriting performance of the Bankers Fidelity segment, including premiums, loss ratio, and expense ratio Bankers Fidelity Underwriting Performance (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross earned premiums | $43,774 | $40,554 | $86,418 | $80,357 | | Net earned premiums | $29,005 | $27,449 | $57,587 | $54,123 | | Underwriting income (loss) | $1,783 | $(560) | $2,304 | $(3,344) | | Loss ratio | 60.8% | 64.0% | 60.7% | 67.8% | | Expense ratio | 33.1% | 38.0% | 35.3% | 38.4% | | Combined ratio | 93.9% | 102.0% | 96.0% | 106.2% | - Gross earned premiums increased by 7.9% for the three months and 7.5% for the six months ended June 30, 2025, driven by new business in Medicare supplement and group accident and health[99] - Net earned premiums increased by 5.7% for the three months and 6.4% for the six months ended June 30, 2025, primarily from Medicare supplement, group accident and health, and other individual accident and health lines[101] - The loss ratio decreased for both periods (60.8% and 60.7% respectively), primarily due to lower utilization within the Medicare supplement line of business[102] - The expense ratio decreased for both periods (33.1% and 35.3% respectively), mainly due to premium growth coupled with lower variable expenses in group lines of business[103][104] Net Investment Income and Realized Gains This section details changes in net investment income and realized investment gains for the reported periods - Net investment income increased by $0.1 million (4.1%) for the three months ended June 30, 2025, primarily due to increased equity in earnings from limited partnerships and limited liability companies[105] - Net realized investment gains were less than $0.1 million for both the three and six months ended June 30, 2025, consistent with prior periods, resulting from sales and redemptions of fixed maturity securities[106] Unrealized Gains on Equity Securities This section discusses the recognition of net unrealized gains on equity securities due to market value fluctuations - The Company recognized net unrealized gains on equity securities of $2.6 million for the three months and $3.4 million for the six months ended June 30, 2025, significantly higher than the prior year periods[107] - These gains are attributed to fluctuations in the market value of the Company's equity securities[107] Interest Expense This section explains the changes in interest expense related to the Company's credit arrangements - Interest expense decreased by $0.1 million (10.8%) for the three months and $0.2 million (10.2%) for the six months ended June 30, 2025[108] - The decrease is primarily due to changes in the Secured Overnight Financing Rate (SOFR), which is the reference rate for the Company's junior subordinated debentures and revolving credit facility[108] Liquidity and Capital Resources This section assesses the Company's liquidity position, cash needs, funding sources, and capital resources - Primary cash needs are for claims, operating expenses, statutory capital, and debt service, funded by premiums, investment income, and asset sales[109] - The Parent's cash flows are derived from dividends, management fees, and tax-sharing payments from subsidiaries[110] - Statutory net income for insurance subsidiaries was $4.7 million for the six months ended June 30, 2025, compared to a $0.4 million loss in the prior year[111] - The Parent received $4.2 million in dividends from subsidiaries through June 30, 2025, with dividend payments in excess of $6.3 million requiring prior approval in 2025[112] - Cash and cash equivalents increased from $35.6 million at December 31, 2024, to $46.4 million at June 30, 2025, primarily due to $8.6 million from operating activities and $2.7 million from investing activities[120] - The Company believes existing cash, subsidiary payments, and credit facilities will meet liquidity requirements for the foreseeable future[121] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, remediation efforts for material weaknesses, and inherent limitations of internal controls Evaluation of Disclosure Controls and Procedures Management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2025, due to an unremediated material weakness in internal control over financial reporting - Disclosure controls and procedures were deemed not effective as of June 30, 2025, due to an unremediated material weakness[124] Remediation of Material Weakness in Internal Control Over Financial Reporting The Company is actively remediating a material weakness related to the design of controls for reviewing insurance reserves and deferred acquisition costs within its life and health segment. Significant progress has been made, including independent calculations and system development, with full implementation expected by September 30, 2025 - A material weakness was identified in the design of controls for reviewing insurance reserves and deferred acquisition costs in the life and health segment[126] - Remediation efforts are ongoing, including systematic review of underwriting income components and independent actuarial value calculations for Life and Medicare Supplement products[128] - A system to perform independent calculations and verify product parameters is being developed, with implementation for individual life and Medicare Supplement products completed in Q2 2025, and full operationalization for other product lines expected by September 30, 2025[129] - Despite deficiencies, management believes the material weakness did not result in any identified material misstatements to financial statements[127] Changes in Internal Control Over Financial Reporting Aside from the ongoing remediation efforts for the identified material weakness, there were no other material changes to the Company's internal control over financial reporting during the quarter ended June 30, 2025 - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the Company's internal control during the quarter ended June 30, 2025, beyond the described remediation efforts[130] Inherent Limitations on Effectiveness of Controls The Company acknowledges that no system of controls can provide absolute assurance of meeting objectives or detecting all control issues and fraud, due to inherent limitations - No system of controls, regardless of design, can provide absolute assurance that all objectives are met or that all control issues and fraud are detected[131] Part II. Other Information This part includes information on unregistered sales of equity securities, other disclosures, and a list of exhibits filed with the Form 10-Q Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company has an approved share repurchase plan, but no common stock was repurchased during the three months ended June 30, 2025 - The Board of Directors approved a plan on October 31, 2016, to repurchase up to 750,000 shares of common stock[133] - No common stock was purchased under the Repurchase Plan during the three months ended June 30, 2025[134][135] - As of June 30, 2025, 325,129 shares may yet be purchased under the Repurchase Plan[134] Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by the Company's directors or officers during the quarter ended June 30, 2025 - None of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[136] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act and Inline XBRL documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[137] Signatures This section contains the authorized signatures for the Form 10-Q report Authorized Signatures The report is duly signed on behalf of Atlantic American Corporation by its Vice President and Chief Financial Officer, J. Ross Franklin - The report was signed on August 12, 2025, by J. Ross Franklin, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) of Atlantic American Corporation[139][140]