UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☑
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019March 31, 2020

orOR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-3722

ATLANTIC AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)

Georgia 58-1027114
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

4370 Peachtree Road, N.E.,
Atlanta, Georgia
 30319
(Address of principal executive offices) (Zip Code)

(404) 266-5500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☑   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐   Accelerated filer  ☐   Non-accelerated filer  ☐  (Do not check if a smaller reporting company)  Smaller reporting company  ☑   Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐   No  ☑

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding on October 23, 2019March 31, 2020 was 20,479,50120,438,366.

ATLANTIC AMERICAN CORPORATION

TABLE OF CONTENTS

Part I. Financial Information

Item 1.
2
   
 2
   
 3
   
 4
   
 5
   
 6
   
 7
   
Item 2.
22
19
   
Item 4.
29
25
   
Part II.Other Information 
   
Item 2.
30
26
   
Item 6.
3026
   
3127

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

ASSETS
 
Unaudited
September 30,
2019
  
December 31,
2018
  
Unaudited
March 31,
2020
 
December 31,
2019
 
Cash and cash equivalents 
$
36,013
  
$
12,630
  
$
8,338
  
$
12,893
 
Investments:              
Fixed maturities, available-for-sale, at fair value (amortized cost: $205,124 and $219,924) 
217,517
  
210,386
 
Equity securities, at fair value (cost: $7,168 and $10,515) 
19,507
  
20,758
 
Other invested assets (cost: $7,005 and $6,905) 
7,103
  
7,424
 
Fixed maturities, available-for-sale, at fair value (amortized cost: $211,586 and $219,233)  
213,696
   
232,472
 
Equity securities, at fair value (cost: $7,168 and $7,168)  
14,467
   
22,922
 
Other invested assets (cost: $9,908 and $9,908)  
9,775
   
9,960
 
Policy loans 
1,989
  
2,085
   
2,011
   
2,007
 
Real estate 
38
  
38
   
38
   
38
 
Investment in unconsolidated trusts  
1,238
   
1,238
   
1,238
   
1,238
 
Total investments  
247,392
   
241,929
   
241,225
   
268,637
 
Receivables:              
Reinsurance 
30,481
  
26,110
   
33,102
   
32,135
 
Insurance premiums and other (net of allowance for doubtful accounts: $192 and $207) 
17,996
  
15,223
 
Insurance premiums and other (net of allowance for doubtful accounts: $192 and $183)  
10,752
   
13,134
 
Deferred income taxes, net 
175
  
4,184
   
4,920
   
314
 
Deferred acquisition costs 
38,801
  
37,094
   
38,305
   
38,861
 
Other assets 
9,933
  
4,560
   
8,675
   
9,108
 
Intangibles  
2,544
   
2,544
   
2,544
   
2,544
 
Total assets 
$
383,335
  
$
344,274
  
$
347,861
  
$
377,626
 
              
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES AND SHAREHOLDERS’ EQUITY 
Insurance reserves and policyholder funds:              
Future policy benefits 
$
92,685
  
$
90,257
  
$
92,037
  
$
92,490
 
Unearned premiums 
28,152
  
24,206
   
19,276
   
26,035
 
Losses and claims 
76,261
  
72,612
   
80,195
   
81,448
 
Other policy liabilities  
1,226
   
1,973
   
1,338
   
1,933
 
Total insurance reserves and policyholder funds 
198,324
  
189,048
   
192,846
   
201,906
 
Other liabilities 
34,862
  
20,116
 
Accounts payable and accrued expenses  
19,759
   
23,588
 
Junior subordinated debenture obligations, net  
33,738
   
33,738
   
33,738
   
33,738
 
Total liabilities  
266,924
   
242,902
   
246,343
   
259,232
 
              
Commitments and contingencies (Note 10)              
Shareholders’ equity:              
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value 
55
  
55
   
55
   
55
 
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,479,501 and 20,170,360 
22,401
  
22,401
 
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,438,366 and 20,472,162  
22,401
   
22,401
 
Additional paid-in capital 
57,819
  
57,414
   
57,777
   
57,820
 
Retained earnings 
34,850
  
37,208
   
27,834
   
36,020
 
Accumulated other comprehensive income (loss) 
9,791
  
(7,535
)
Accumulated other comprehensive income  
1,667
   
10,459
 
Unearned stock grant compensation 
(943
)
 
(186
)
  
(584
)
  
(781
)
Treasury stock, at cost: 1,921,393 and 2,230,534 shares  
(7,562
)
  
(7,985
)
Treasury stock, at cost: 1,962,528 and 1,928,732 shares  
(7,632
)
  
(7,580
)
Total shareholders’ equity  
116,411
   
101,372
   
101,518
   
118,394
 
Total liabilities and shareholders’ equity 
$
383,335
  
$
344,274
  
$
347,861
  
$
377,626
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except per share data)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
Revenue:                 
Insurance premiums, net 
$
45,005
  
$
42,557
  
$
135,256
  
$
127,604
  
$
45,550
  
$
44,782
 
Net investment income 
2,187
  
2,215
  
6,834
  
7,111
   
2,039
   
2,334
 
Realized investment gains (losses), net 
(430
)
 
484
  
1,565
  
797
 
Unrealized gains on equity securities, net 
944
  
1,083
  
2,096
  
753
 
Realized investment gains, net  
249
   
1,385
 
Unrealized gains (losses) on equity securities, net  
(8,455
)
  
6,489
 
Other income  
39
   
31
   
139
   
88
   
27
   
28
 
Total revenue  
47,745
   
46,370
   
145,890
   
136,353
   
39,410
   
55,018
 
                    
Benefits and expenses:                    
Insurance benefits and losses incurred 
34,719
  
33,087
  
104,177
  
98,478
   
33,583
   
35,307
 
Commissions and underwriting expenses 
11,471
  
8,722
  
33,995
  
28,456
   
12,626
   
11,015
 
Interest expense 
533
  
529
  
1,624
  
1,497
   
476
   
546
 
Other expense  
2,766
   
2,960
   
8,142
   
9,168
   
2,952
   
2,865
 
Total benefits and expenses  
49,489
   
45,298
   
147,938
   
137,599
   
49,637
   
49,733
 
Income (loss) before income taxes 
(1,744
)
 
1,072
  
(2,048
)
 
(1,246
)
  
(10,227
)
  
5,285
 
Income tax expense (benefit)  
(352
)
  
138
   
(392
)
  
(341
)
  
(2,140
)
  
1,123
 
Net income (loss) 
(1,392
)
 
934
  
(1,656
)
 
(905
)
  
(8,087
)
  
4,162
 
Preferred stock dividends  
(100
)
  
(100
)
  
(299
)
  
(299
)
  
(99
)
  
(99
)
Net income (loss) applicable to common shareholders 
$
(1,492
)
 
$
834
  
$
(1,955
)
 
$
(1,204
)
 
$
(8,186
)
 
$
4,063
 
Earnings (loss) per common share (basic and diluted) 
$
(.07
)
 
$
.04
  
$
(.10
)
 
$
(.06
)
        
Earnings (loss) per common share (basic)
 
$
(0.40
)
 
$
0.20
 
Earnings (loss) per common share (diluted)
 
$
(0.40
)
 
$
0.19
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; Dollars in thousands)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
Net income (loss) 
$
(1,392
)
 
$
934
  
$
(1,656
)
 
$
(905
)
 
$
(8,087
)
 
$
4,162
 
Other comprehensive income (loss):                    
Available-for-sale fixed maturity securities:
                    
Gross unrealized holding gain (loss) arising in the period 
5,871
  
63
  
22,275
  
(10,327
)
  
(10,880
)
  
8,440
 
Related income tax effect  
(1,232
)
  
(13
)
  
(4,677
)
  
2,169
   
2,285
   
(1,772
)
Subtotal 
4,639
  
50
  
17,598
  
(8,158
)
  
(8,595
)
  
6,668
 
Less: reclassification adjustment for net realized (gains) losses included in net income (loss) 
538
  
(484
)
 
(344
)
 
(797
)
        
Less: reclassification adjustment for net realized gains included in net income (loss)  
(249
)
  
(272
)
Related income tax effect  
(113
)
  
101
   
72
   
167
   
52
   
57
 
Subtotal  
425
   
(383
)
  
(272
)
  
(630
)
  
(197
)
  
(215
)
        
Total other comprehensive income (loss), net of tax  
5,064
   
(333
)
  
17,326
   
(8,788
)
  
(8,792
)
  
6,453
 
Total comprehensive income (loss) 
$
3,672
  
$
601
  
$
15,670
  
$
(9,693
)
 
$
(16,879
)
 
$
10,615
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited; Dollars in thousands, except per share data)thousands)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018 
(Dollars in thousands, except per share data) 2020 2019 
Preferred stock:                 
Balance, beginning of period 
$
55
  
$
55
  
$
55
  
$
55
  
$
55
  
$
55
 
Repurchases of preferred stock 
-
  
-
  
-
  
-
 
Net issuance of preferred stock  
-
   
-
   
-
   
-
 
Balance, end of period 
55
  
55
  
55
  
55
   
55
   
55
 
Common stock:                    
Balance, beginning of period 
22,401
  
22,401
  
22,401
  
22,401
   
22,401
   
22,401
 
Repurchases of common stock 
-
  
-
  
-
  
-
 
Net issuance of common stock  
-
   
-
   
-
   
-
 
Balance, end of period 
22,401
  
22,401
  
22,401
  
22,401
   
22,401
   
22,401
 
Additional paid-in capital:                    
Balance, beginning of period 
57,444
  
57,416
  
57,414
  
57,495
   
57,820
   
57,414
 
Restricted stock grants, net of forfeitures 
372
  
-
  
396
  
(88
)
  
(44
)
  
-
 
Issuance of shares under stock plans  
3
   
3
   
9
   
12
   
1
   
3
 
Balance, end of period 
57,819
  
57,419
  
57,819
  
57,419
   
57,777
   
57,417
 
Retained earnings:                    
Balance, beginning of period 
36,342
  
36,273
  
37,208
  
30,993
   
36,020
   
37,208
 
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018 
-
  
-
  
-
  
9,825
 
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018 
-
  
-
  
-
  
(2,100
)
Net income (loss) 
(1,392
)
 
934
  
(1,656
)
 
(905
)
  
(8,087
)
  
4,162
 
Dividends on common stock 
-
  
-
  
(403
)
 
(407
)
  
-
   
(403
)
Dividends accrued on preferred stock  
(100
)
  
(100
)
  
(299
)
  
(299
)
  
(99
)
  
(99
)
Balance, end of period 
34,850
  
37,107
  
34,850
  
37,107
   
27,834
   
40,868
 
Accumulated other comprehensive income (loss):                    
Balance, beginning of period 
4,727
  
(6,429
)
 
(7,535
)
 
9,751
   
10,459
   
(7,535
)
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018 
-
  
-
  
-
  
(9,825
)
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018 
-
  
-
  
-
  
2,100
 
Other comprehensive income (loss), net of tax  
5,064
   
(333
)
  
17,326
   
(8,788
)
  
(8,792
)
  
6,453
 
Balance, end of period 
9,791
  
(6,762
)
 
9,791
  
(6,762
)
  
1,667
   
(1,082
)
Unearned Stock Grant Compensation:                    
Balance, beginning of period 
(150
)
 
(322
)
 
(186
)
 
(579
)
  
(781
)
  
(186
)
Restricted stock grants, net of forfeitures 
(877
)
 
-
  
(948
)
 
135
   
98
   
-
 
Amortization of unearned compensation  
84
   
70
   
191
   
192
   
99
   
58
 
Balance, end of period 
(943
)
 
(252
)
 
(943
)
 
(252
)
  
(584
)
  
(128
)
Treasury Stock:                    
Balance, beginning of period 
(8,049
)
 
(7,727
)
 
(7,985
)
 
(7,133
)
  
(7,580
)
  
(7,985
)
Restricted stock grants, net of forfeitures 
505
  
-
  
552
  
(47
)
  
(54
)
  
-
 
Purchase of shares for treasury 
-
  
(103
)
 
(71
)
 
(463
)
Purchase of 0 and 17,865 shares, as of 2020 and 2019, respectively, for treasury  
-
   
(49
)
Net shares acquired related to employee share-based compensation plans 
(23
)
 
(26
)
 
(72
)
 
(223
)
  
-
   
(14
)
Issuance of shares under stock plans  
5
   
6
   
14
   
16
   
2
   
4
 
Balance, end of period  
(7,562
)
  
(7,850
)
  
(7,562
)
  
(7,850
)
  
(7,632
)
  
(8,044
)
                    
Total shareholders’ equity 
$
116,411
  
$
102,118
  
$
116,411
  
$
102,118
  
$
101,518
  
$
111,487
 
Dividends declared on common stock per share 
$
-
  
$
-
  
$
.02
  
$
.02
  
$
-
  
$
(.02
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)

 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2020 2019 
CASH FLOWS FROM OPERATING ACTIVITIES:           
Net loss 
$
(1,656
)
 
$
(905
)
Adjustments to reconcile loss to net cash used in operating activities:      
Acquisition costs deferred, net 
(1,707
)
 
(2,240
)
Net income (loss) 
$
(8,087
)
 
$
4,162
 
Adjustments to reconcile income (loss) to net cash used in operating activities:        
Amortization of (additions to) acquisition costs, net  
556
   
(265
)
Realized investment gains, net 
(1,565
)
 
(797
)
  
(249
)
  
(1,385
)
Unrealized gains on equity securities, net 
(2,096
)
 
(753
)
Distributions received from equity method investees 
379
  
725
 
Unrealized (gains) losses on equity securities, net  
8,455
   
(6,489
)
Compensation expense related to share awards 
191
  
192
   
99
   
58
 
Depreciation and amortization 
588
  
783
   
251
   
193
 
Deferred income tax benefit 
(596
)
 
(1,335
)
Increase in receivables, net 
(7,917
)
 
(7,882
)
Increase in insurance reserves and policyholder funds 
9,276
  
14,230
 
Increase (decrease) in other liabilities 
3,271
  
(6,760
)
Deferred income tax (benefit) expense  
(2,269
)
  
1,123
 
Decrease in receivables, net  
3,218
   
3,936
 
Decrease in insurance reserves and policyholder funds  
(9,060
)
  
(4,767
)
(Decrease) increase in accounts payable and accrued expenses  
(3,928
)
  
2,100
 
Other, net  
(5,738
)
  
(377
)
  
502
   
(5,612
)
Net cash used in operating activities  
(7,570
)
  
(5,119
)
  
(10,512
)
  
(6,946
)
              
CASH FLOWS FROM INVESTING ACTIVITIES:              
Proceeds from investments sold 
119,929
  
28,177
   
5,641
   
18,604
 
Proceeds from investments matured, called or redeemed 
5,907
  
4,577
   
2,555
   
1,878
 
Investments purchased 
(94,316
)
 
(40,827
)
  
(2,204
)
  
(17,470
)
Additions to property and equipment  
(44
)
  
(252
)
  
(38
)
  
(26
)
Net cash provided by (used in) investing activities  
31,476
   
(8,325
)
Net cash provided by investing activities  
5,954
   
2,986
 
              
CASH FLOWS FROM FINANCING ACTIVITIES:              
Payment of dividends on common stock 
(403
)
 
(407
)
Proceeds from shares issued under stock plans 
23
  
28
   
3
   
7
 
Treasury stock acquired — share repurchase authorization 
(71
)
 
(463
)
  
-
   
(49
)
Treasury stock acquired — net employee share-based compensation  
(72
)
  
(223
)
  
-
   
(14
)
Net cash used in financing activities  
(523
)
  
(1,065
)
Net cash provided by (used in) financing activities  
3
   
(56
)
              
Net increase (decrease) in cash and cash equivalents 
23,383
  
(14,509
)
Net decrease in cash and cash equivalents
  
(4,555
)
  
(4,016
)
Cash and cash equivalents at beginning of period  
12,630
   
24,547
   
12,893
   
12,630
 
      
Cash and cash equivalents at end of period 
$
36,013
  
$
10,038
  
$
8,338
  
$
8,614
 
              
SUPPLEMENTAL CASH FLOW INFORMATION:              
Cash paid for interest 
$
1,644
  
$
1,471
  
$
491
  
$
552
 
Cash paid for income taxes 
$
1,625
  
$
1,892
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATLANTIC AMERICAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in thousands, except per share amounts)

Note 1.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Atlantic American Corporation (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). The Parent’s primary operating subsidiaries, American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), operate in two principal business units. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for audited annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The unaudited condensed consolidated financial statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Annual Report”). The Company’s financial condition and results of operations and cash flows as of and for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 are not necessarily indicative of the financial condition or results of operations and cash flows that may be expected for the year ending December 31, 20192020 or for any other future period.

The Company’s significant accounting policies have not changed materially from those set out in the 20182019 Annual Report, except as noted below for the adoption of new accounting standards.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

On March 11, 2020, the World Health Organization declared the Novel Coronavirus (“COVID-19”) outbreak a global pandemic. The impact of COVID-19 and related actions to attempt to control its spread began to impact the Company’s business operations in March 2020, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating results. The Company’s insurance subsidiaries may experience difficulties collecting premiums from some policyholders, and policyholders with financial difficulties may decide not to renew insurance policies with the Company.  Although it cannot be predicted with certainty at this time, the Company’s insurance subsidiaries do not expect a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses, but that may change as more information becomes available.  In addition, economic uncertainty related to COVID-19 has led to a decline in the investment markets, and may continue to create increased volatility.  The impact of COVID-19 on the economy and on the Company is evolving and its future effects are uncertain. The Company is closely monitoring the effects and risks of COVID-19 to assess its impact on the Company's business, financial condition, results of operations, liquidity and capital position.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is intended to provide fast and direct economic assistance for American workers and families, small businesses, and to preserve jobs in American industries. The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The Company does not qualify as a small business under the CARES Act and therefore did not apply for any of the government loan programs; however, the Company intends to monitor and assess the availability of resources and other benefits that might be available to the Company under the CARES Act and through other programs.
Note 2.
Recently Issued Accounting Standards

Adoption of New Accounting Standards

Leases. On January 1, 2019,Fair Value Measurement – Changes to the Company adoptedDisclosure Requirements for Fair Value Measurement.  In August 2018, the requirements ofFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases2018-13, Fair Value Measurement (Topic 842)820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The objectiveThis guidance removes the following disclosure requirements from Topic 820: (1) the amount of this ASU, along with several related ASUs issued subsequently, is to increase transparency and comparabilityreasons for transfers between organizations that enter into lease agreements. For lessees, the key differenceLevel 1 and Level 2 of the new standard fromfair value hierarchy, (2) the previous guidance (Topic 840) ispolicy for timing of transfers between levels, and (3) the recognition of a right-of-use (“ROU”) assetvaluation processes for Level 3 fair value measurements.  This disclosure also includes the changes in unrealized gains and lease liability onlosses for the balance sheet. The most significant change isperiod included in other comprehensive income for recurring Level 3 fair value measurements held at the requirement to recognize ROU assets and lease liabilities for leases classified as operating leases. The new standard requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

As partend of the transitionreporting period and the range and weighted average of significant unobservable inputs used to the new standard, the Company was required to measure and recognize leases that existed at January 1, 2019 and elected to use a modified retrospective approach. For leases that existed at the effective date, the Company elected the package of three transition practical expedients and therefore did not reassess any of the following: (i) whether an arrangement is or contains a lease, (ii) lease classification, or (iii) what qualifies as an initial direct cost.

The adoption of this ASU resulted in the Company recognizing a ROU asset of $6,088 as part of other assets and a lease liability of $6,088 as part of other liabilities in the consolidated balance sheet. The adoption of this ASU did not have a material effect on the Company’s results of operations or liquidity.

Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09, as modified, provides guidance for recognizing revenue which excludes insurance contracts and financial instruments. Revenue is to be recognized when, or as, goods or services are transferred to customers in an amount that reflects the consideration that an entity is expected to be entitled in exchange for those goods or services. For the nine months ended September 30, 2019 and 2018, approximately $139 and $88, respectively, or approximately one-tenth of 1% of the Company’s total revenues, were within the scope of this updated guidance.develop Level 3 fair value measurements.  The Company adopted ASU 2014-092018-13 as of January 1, 2018.2020. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

Goodwill.  In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).  ASU 2017-04 is intended to simplify the evaluation of goodwill.  The updated guidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unit compared to its estimated fair value, with the amount of the impairment not to exceed the carrying value of the reporting unit’s goodwill. Under the prior accounting guidance, if the reporting unit’s carrying value exceeds its estimated fair value, the Company allocates the fair value of the reporting unit to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. An impairment loss is then recognized for the excess, if any, of the carrying value of the reporting unit’s goodwill compared to the implied goodwill value. The Company adopted ASU 2017-04 as of January 1, 2020. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

Future Adoption of New Accounting Standards

Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. The Company is currently assessing the effect of adopting this guidance on the financial condition and results of operations.

Investments – Equity Securities. In January 2020, the FASB issued ASU No. 2020-01 (“ASU 2020-01”) Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This update, among others, clarifies the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323 when there is a change in level of ownership or degree of influence. ASU 2020-01 is effective for the Company beginning with the first quarter of 2021 and will be applied prospectively. Early adoption is permitted. This guidance will not have a material impact on the Company’s consolidated financial statements.

For information regarding accounting standards that the Company has not yet adopted, see the “Recently Issued Accounting Standards - Future Adoption of New Accounting Standards” section of Note 1 of Notes to Consolidated Financial Statements in the 20182019 Annual Report.

Note 3.
Investments

The following tables set forth the estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortized cost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of September 30, 2019March 31, 2020 and December 31, 2018.2019.

Fixed maturities were comprised of the following:

 September 30, 2019  March 31, 2020 
 
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
  
Estimated
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Cost or
Amortized
Cost
 
Fixed maturities:                     
Bonds:                     
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
19,338
  
$
624
  
$
122
  
$
18,836
  
$
20,723
  
$
1,529
  
$
61
  
$
19,255
 
Obligations of states and political subdivisions  
4,999
   
432
   
-
   
4,567
   
11,009
   
406
   
10
   
10,613
 
Corporate securities:                            
Utilities and telecom 
21,287
  
2,110
  
3
  
19,180
   
26,797
   
2,328
   
303
   
24,772
 
Financial services 
58,290
  
3,510
  
69
  
54,849
   
65,655
   
1,899
   
2,342
   
66,098
 
Other business – diversified 
51,719
  
2,446
  
87
  
49,360
   
36,186
   
1,512
   
3,797
   
38,471
 
Other consumer – diversified  
61,692
   
3,644
   
92
   
58,140
   
53,076
   
2,517
   
1,626
   
52,185
 
Total corporate securities  
192,988
   
11,710
   
251
   
181,529
   
181,714
   
8,256
   
8,068
   
181,526
 
Redeemable preferred stocks:                            
Other consumer – diversified  
192
   
—
   
—
   
192
   
250
   
58
   
—
   
192
 
Total redeemable preferred stocks  
192
   
—
   
—
   
192
   
250
   
58
   
—
   
192
 
Total fixed maturities 
$
217,517
  
$
12,766
  
$
373
  
$
205,124
  
$
213,696
  
$
10,249
  
$
8,139
  
$
211,586
 

 December 31, 2018  December 31, 2019 
 
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
  
Estimated
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Cost or
Amortized
Cost
 
Fixed maturities:                     
Bonds:                     
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
 
$
27,422
  
$
36
  
$
1,061
  
$
28,447
  
$
20,259
  
$
467
  
$
53
  
$
19,845
 
Obligations of states and political subdivisions 
8,364
  
347
  
72
  
8,089
   
11,940
   
371
   
53
   
11,622
 
Corporate securities:                            
Utilities and telecom 
19,642
  
873
  
431
  
19,200
   
26,648
   
2,404
   
32
   
24,276
 
Financial services 
49,477
  
747
  
2,942
  
51,672
   
73,917
   
4,249
   
57
   
69,725
 
Other business – diversified 
49,196
  
226
  
2,844
  
51,814
   
41,706
   
2,335
   
98
   
39,469
 
Other consumer – diversified  
56,093
   
84
   
4,501
   
60,510
   
57,752
   
3,702
   
54
   
54,104
 
Total corporate securities  
174,408
   
1,930
   
10,718
   
183,196
   
200,023
   
12,690
   
241
   
187,574
 
Redeemable preferred stocks:                            
Other consumer – diversified  
192
   
—
   
—
   
192
   
250
   
58
   
-
   
192
 
Total redeemable preferred stocks  
192
   
—
   
—
   
192
   
250
   
58
   
-
   
192
 
Total fixed maturities 
$
210,386
  
$
2,313
  
$
11,851
  
$
219,924
  
$
232,472
  
$
13,586
  
$
347
  
$
219,233
 

Bonds having an amortized cost of $10,444 and $10,452$10,669 and included in the tables above were on deposit with insurance regulatory authorities as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, in accordance with statutory requirements.

Equity securities were comprised of the following:

 September 30, 2019  March 31, 2020 
 
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
  
Estimated
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Cost or
Amortized
Cost
 
Equity securities:                     
Common and non-redeemable preferred stocks:           ��         
Financial services 
$
2,797
  
$
309
  
$
—
  
$
2,488
  
$
2,871
  
$
338
  
$
2
  
$
2,535
 
Other business – diversified 
312
  
265
  
—
  
47
   
11,596
   
6,963
   
-
   
4,633
 
Other consumer – diversified  
16,398
   
11,765
   
—
   
4,633
 
Total equity securities 
$
19,507
  
$
12,339
  
$
—
  
$
7,168
  
$
14,467
  
$
7,301
  
$
2
  
$
7,168
 

 December 31, 2018  December 31, 2019 
 
Estimated
Fair Value
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Cost or
Amortized
Cost
  
Estimated
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Cost or
Amortized
Cost
 
Equity securities:                     
Common and non-redeemable preferred stocks:                     
Utilities and telecom 
$
1,686
  
$
722
  
$
—
  
$
964
 
Financial services 
4,552
  
172
  
—
  
4,380
  
$
3,159
   
624
   
-
   
2,535
 
Other business – diversified 
306
  
259
  
—
  
47
   
19,763
   
15,130
   
-
   
4,633
 
Other consumer – diversified  
14,214
   
9,090
   
—
   
5,124
 
Total equity securities 
$
20,758
  
$
10,243
  
$
—
  
$
10,515
  
$
22,922
  
$
15,754
  
$
-
  
$
7,168
 

The carrying value and amortized cost of the Company’s investments in fixed maturities at September 30, 2019March 31, 2020 and December 31, 20182019 by contractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

 September 30, 2019  December 31, 2018  March 31, 2020 December 31, 2019 
 
Carrying
Value
  
Amortized
Cost
  
Carrying
Value
  
Amortized
Cost
  
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 
Amortized
Cost
 
Due in one year or less 
$
-
  
$
-
  
$
3,150
  
$
3,150
  
$
-
  
$
-
  
$
-
  
$
-
 
Due after one year through five years 
13,665
  
13,267
  
19,787
  
19,699
   
16,300
   
16,078
   
14,664
   
14,280
 
Due after five years through ten years 
76,413
  
72,480
  
127,617
  
133,863
   
74,840
   
76,041
   
77,934
   
73,521
 
Due after ten years 
119,335
  
111,267
  
43,823
  
46,338
   
113,770
   
110,938
   
130,680
   
122,321
 
Asset backed securities  
8,104
   
8,110
   
16,009
   
16,874
   
8,786
   
8,529
   
9,194
   
9,111
 
Totals 
$
217,517
  
$
205,124
  
$
210,386
  
$
219,924
  
$
213,696
  
$
211,586
  
$
232,472
  
$
219,233
 

The following tables present the Company’s unrealized lossesloss aging for securities by type and length of time the security was in a continuous unrealized loss position as of September 30, 2019March 31, 2020 and December 31, 2018.2019.

  March 31, 2020 
  Less than 12 months  12 months or longer  Total 
  
Fair
Value
  Unrealized
Losses		  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
 
U.S. Treasury securities and obligations of U.S. Government agencies and authorities 
$
1,858
  
$
61
  
$
-
  
$
-
  
$
1,858
  
$
61
 
Obligations of states and political subdivisions  
4,153
   
10
   
-
   
-
   
4,153
   
10
 
Corporate securities  
79,654
   
8,068
   
-
   
-
   
79,654
   
8,068
 
Total temporarily impaired securities 
$
85,665
  
$
8,139
  
$
-
  
$
-
  
$
85,665
  
$
8,139
 

-10-
Table of Contents
  September 30, 2019 
  Less than 12 months  12 months or longer  Total 
  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
 
U.S. Treasury securities and obligations of U.S. Government agencies and authorities 
$
1,020
  
$
4
  
$
7,689
  
$
118
  
$
8,709
  
$
122
 
Corporate securities  
22,791
   
61
   
7,430
   
190
   
30,221
   
251
 
Total temporarily impaired securities 
$
23,811
  
$
65
  
$
15,119
  
$
308
  
$
38,930
  
$
373
 

 December 31, 2018  December 31, 2019 
 Less than 12 months  12 months or longer  Total  Less than 12 months 12 months or longer Total 
 
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
  
Unrealized
Losses
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
U.S. Treasury securities and obligations of U.S. Government agencies and authorities 
$
—
  
$
—
  
$
24,786
  
$
1,061
  
$
24,786
  
$
1,061
  
$
3,432
  
$
22
  
$
3,533
  
$
31
  
$
6,965
  
$
53
 
Obligations of states and political subdivisions 
—
  
—
  
3,980
  
72
  
3,980
  
72
   
3,106
   
53
   
-
   
-
   
3,106
   
53
 
Corporate securities  
49,633
   
1,592
   
97,012
   
9,126
   
146,645
   
10,718
   
23,245
   
145
   
2,504
   
96
   
25,749
   
241
 
Total temporarily impaired securities 
$
49,633
  
$
1,592
  
$
125,778
  
$
10,259
  
$
175,411
  
$
11,851
  
$
29,783
  
$
220
  
$
6,037
  
$
127
  
$
35,820
  
$
347
 

The evaluation for an other than temporary impairment (“OTTI”) is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status.

There were no OTTI charges recorded during the three month and nine month periods ended September 30, 2019March 31, 2020 and 2018.2019.

As of September 30, 2019March 31, 2020 and December 31, 2018,2019, there were twenty-foursixty-nine and one hundred fortythirty securities, respectively, in an unrealized loss position which primarily included certain of the Company’s investments in fixed maturities within the financial services, other diversified business and other diversified consumer sectors. The decreaseincrease in the number and value of securities in an unrealized loss position during the ninethree month period ended September 30, 2019March 31, 2020, was primarily attributable to the appreciationvolatility and weakening of fixed maturity market prices due to the current interest rate environment.financial markets as a result of the COVID-19 pandemic.  The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securities to be temporarily impaired as of September 30, 2019.March 31, 2020.

-11-
The following table is a summary of realized investment gains (losses) for the three month and nine month periods ended September 30, 2019March 31, 2020 and 2018.2019.

 
Three Months Ended
September 30, 2019
  
Three Months Ended
March 31, 2020
 
 
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total  
Fixed
Maturities
 
Equity
Securities
 
Other
Invested
Assets
 Total 
Gains 
$
1,112
  
$
108
  
$
—
  
$
1,220
  
$
249
  
$
-
  
$
—
  
$
249
 
Losses  
(1,650
)
  
—
   
—
   
(1,650
)
  
—
   
—
   
—
   
—
 
Realized investment gains (losses), net 
$
(538
)
 
$
108
  
$
—
  
$
(430
)
 
$
249
  
$
-
  
$
—
  
$
249
 

  
Three Months Ended
September 30, 2018
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains 
$
212
  
$
272
  
$
—
  
$
484
 
Losses  
—
   
—
   
—
   
—
 
Realized investment gains (losses), net 
$
212
  
$
272
  
$
—
  
$
484
 

 
Nine Months Ended
September 30, 2019
  
Three Months Ended
March 31, 2019
 
 
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total  
Fixed
Maturities
 Equity
 Securities		 
Other
Invested
Assets
 Total 
Gains 
$
1,994
  
$
1,221
  
$
—
  
$
3,215
  
$
272
  
$
1,113
  
$
—
  
$
1,385
 
Losses  
(1,650
)
  
—
   
—
   
(1,650
)
  
—
   
—
   
—
   
—
 
Realized investment gains (losses), net 
$
344
  
$
1,221
  
$
—
  
$
1,565
  
$
272
  
$
1,113
  
$
—
  
$
1,385
 

  
Nine Months Ended
September 30, 2018
 
  
Fixed
Maturities
  
Equity
Securities
  
Other
Invested
Assets
  Total 
Gains 
$
829
  
$
272
  
$
—
  
$
1,101
 
Losses  
(304
)
  
—
   
—
   
(304
)
Realized investment gains (losses), net 
$
525
  
$
272
  
$
—
  
$
797
 

The following table presents the portion of unrealized gains (losses) onrelated to equity securities still held for the three month and nine month periods ended September 30, 2019March 31, 2020 and 2018.2019.

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
Net realized and unrealized gains (losses) recognized during the period on equity securities 
$
1,052
  
$
1,355
  
$
3,317
  
$
1,025
  
$
(8,455
)
 
$
7,602
 
Less: Net realized gains (losses) recognized during the period on equity securities sold during the period  
108
   
272
   
1,221
   
272
   
-
   
1,113
 
Unrealized gains (losses) recognized during the reporting period        
Unrealized gains (losses) on equity securities, net 
$
944
  
$
1,083
  
$
2,096
  
$
753
  
$
(8,455
)
 
$
6,489
 

Variable Interest Entities

The Company holds passive interests in a number of entities that are considered to be variable interest entities (“VIEs”) under GAAP guidance. The Company’s VIE interests principally consist of interests in limited partnerships and limited liability companies formed for the purpose of achieving diversified equity returns. The Company’s VIE interests, carried as a part of other invested assets, totaled $7,103$9,775 and $7,424$9,960 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The Company’s VIE interests, carried as a part of investment in unconsolidated trusts, totaled $1,238 as of September 30, 2019March 31, 2020 and December 31, 2018.2019.

The Company does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Therefore, the Company has not consolidated these VIEs. The Company’s involvement with each VIE is limited to its direct ownership interest in the VIE. The Company has no arrangements with any of the VIEs to provide other financial support to or on behalf of the VIE. The Company’s maximum loss exposure relative to these investments was limited to the carrying value of the Company’s investment in the VIEs, which amount to $8,341$11,013 and $8,662,$11,198, as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company has outstanding commitments totaling $4,900 and $0, respectively,$1,997, whereby the Company is committed to fund these investments and may be called by such VIEsthe partnership during the commitment period to fund the purchase of new investments and partnership expenses.

Note 4.
Fair Values of Financial Instruments

The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates.  However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.

Level 1
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents U.S. Treasury securities and exchange traded common stocks.

Level 2
Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers.  Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize a matrix pricing concept, which is a mathematical technique used widely inmodels where the industry to value debt securities based on various relationships to other benchmark quoted prices.significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

Level 3
Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk).  Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. The Company’s financial instruments valued using Level 3 criteria consistWith little or no observable market, the determination of a limited number of fixed maturities. As of September 30, 2019fair values uses considerable judgment and December 31, 2018, the value ofrepresents the Company’s fixed maturities valued using Level 3 criteria was $1,220 and $1,066, respectively. The usebest estimate of different criteriaan amount that could be realized in a market exchange for the asset or assumptions regarding data may have yielded materially different valuations.liability.

As of March 31, 2020, financial instruments carried at fair value were measured on a recurring basis as summarized below:

  
Quoted Prices
 in Active
Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total 
Assets:
            
Fixed maturities
 
$
-
  
$
213,696
  
$
-
  
$
213,696
 
Equity securities
  
14,467
   
-
   
—
   
14,467
 
Cash equivalents
  
5,720
   
—
   
—
   
5,720
 
Total 
$
20,187
  
$
213,696
  
$
-
  
$
233,883
 

As of September 30,December 31, 2019, financial instruments carried at fair value were measured on a recurring basis as summarized below:

 
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total  
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total 
Assets:
                  
Fixed maturities 
$
11,233
  
$
205,064
  
$
1,220
(1)
 
$
217,517
  
$
-
  
$
232,472
  
$
-
  
$
232,472
 
Equity securities  
16,921
   
2,586
(1)  
—
   
19,507
   
22,922
   
-
   
—
   
22,922
 
Cash equivalents  
29,132
   
—
   
—
   
29,132
   
7,173
   
—
   
—
   
7,173
 
Total 
$
57,286
  
$
207,650
  
$
1,220
  
$
266,156
  
$
30,095
  
$
232,472
  
$
-
  
$
262,567
 


(1)
All underlying securities are financial services industry related.

As of December 31, 2018, financial instruments carried at fair value were measured on a recurring basis as summarized below:

  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total 
Assets:
            
Fixed maturities 
$
11,413
  
$
197,907

 
$
1,066
(1) 
$
210,386
 
Equity securities  
16,398
   
4,360
(1)  
—
   
20,758
 
Cash equivalents  
8,250
   
—
   
—
   
8,250
 
Total 
$
36,061
  $
202,267
  
$
1,066
  
$
239,394
 


(1)
All underlying securities are financial services industry related.

The following tables provide a roll-forward of the Company’s financial instrumentsCompany does not have any fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three monthas of March 31, 2020 and nine month periods ended September 30, 2019 and 2018.


 
Fixed
Maturities
 
Balance, December 31, 2018 
$
1,066
 
Total unrealized gains included in other comprehensive loss  
49
 
Balance, March 31, 2019  
1,115
 
Total unrealized gains included in other comprehensive income  
59
 
Balance, June 30, 2019  
1,174
 
Total unrealized gains included in other comprehensive income  
46
 
Balance, September 30, 2019 
$
1,220
 


 
Fixed
Maturities
 
Balance, December 31, 2017 
$
1,369
 
Total unrealized losses included in other comprehensive loss  
(30
)
Balance, March 31, 2018  
1,339
 
Total unrealized gains included in other comprehensive loss  
7
 
Balance, June 30, 2018  
1,346
 
Total realized gains included in earnings  
208
 
Total unrealized losses included in other comprehensive loss  
(53
)
Settlements  
(483
)
Balance, September 30, 2018 
$
1,018
 

The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies that are not actively traded. There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable.December 31, 2019.

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2019March 31, 2020 and December 31, 2018.2019.


    September 30, 2019  December 31, 2018    March 31, 2020 December 31, 2019 
 
Level in Fair
Value
Hierarchy (1)
  
Carrying
Amount
  
Estimated
Fair Value
  
Carrying
Amount
  
Estimated
Fair Value
  
Level in Fair
Value
Hierarchy (1)
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
Assets:
                          
Cash and cash equivalents Level 1  
$
36,013
  
$
36,013
  
$
12,630
  
$
12,630
  Level 1  
$
8,338
  
$
8,338
  
$
12,893
  
$
12,893
 
Fixed maturities  (1
) 
 
217,517
  
217,517
  
210,386
  
210,386
   
(1)

  
213,696
   
213,696
   
232,472
   
232,472
 
Equity securities (1
) 
 
19,507
  
19,507
  
20,758
  
20,758
   
(1)

  
14,467
   
14,467
   
22,922
   
22,922
 
Other invested assets Level 3  
7,103
  
7,103
  
7,424
  
7,424
  Level 3   
9,775
   
9,775
   
9,960
   
9,960
 
Policy loans Level 2  
1,989
  
1,989
  
2,085
  
2,085
  Level 2   
2,011
   
2,011
   
2,007
   
2,007
 
Real estate Level 2  
38
  
38
  
38
  
38
  Level 2   
38
   
38
   
38
   
38
 
Investment in unconsolidated trusts Level 2  
1,238
  
1,238
  
1,238
  
1,238
  Level 2   
1,238
   
1,238
   
1,238
   
1,238
 
                                   
Liabilities:
                                   
Junior subordinated debentures, net Level 2  
33,738
  
33,738
  
33,738
  
33,738
  Level 2   
33,738
   
30,138
   
33,738
   
35,977
 


(1)
See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.

There have not been any transfers between Level 1, Level 2 and Level 3 during the periods presented in these condensed consolidated financial statements.

Note 5.
Liabilities for Unpaid Losses, Claims and Loss Adjustment Expenses

The roll-forward of liabilities for unpaid losses, claims and loss adjustment expenses for the ninethree months ended September 30,March 31, 2020 and 2019 and 2018 is as follows:


 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 

 2019  2018  2020 2019 
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, gross 
$
72,612
  
$
65,689
  
$
81,448
  
$
72,612
 
Less: Reinsurance recoverable on unpaid losses  
(14,354
)
  
(11,968
)
  
(18,339
)
  
(14,354
)
Beginning liabilities for unpaid losses, claims and loss adjustment expenses, net  
58,258
   
53,721
   
63,109
   
58,258
 
              
Incurred related to:              
Current accident year 
103,017
  
96,424
   
35,985
   
34,364
 
Prior accident year development(1)  
(629
)
  
(1,049
)
  
(2,583
)(2)
  
499
 
Total incurred  
102,388
   
95,375
   
33,402
   
34,863
 
              
Paid related to:              
Current accident year 
66,682
  
62,598
   
14,008
   
13,707
 
Prior accident years  
34,314
   
28,950
   
20,856
   
19,877
 
Total paid  
100,996
   
91,548
   
34,864
   
33,584
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, net 
59,650
  
57,548
   
61,647
   
59,537
 
Plus: Reinsurance recoverable on unpaid losses  
16,611
   
14,268
   
18,548
   
15,176
 
Ending liabilities for unpaid losses, claims and loss adjustment expenses, gross 
$
76,261
  
$
71,816
  
$
80,195
  
$
74,713
 


(1)
In establishing property and casualty reserves, the Company initially reserves for losses at the higher end of the reasonable range if no other value within the range is determined to be more probable. Selection of such an initial loss estimate is an attempt by management to give recognition that initial claims information received generally is not conclusive with respect to legal liability, is generally not comprehensive with respect to magnitude of loss and generally, based on historical experience, will develop more adversely as time passes and more information becomes available. Accordingly, the Company generally experiences reserve redundancies when analyzing the development of prior year losses in a current period.


(2)
Prior years’ development was primarily the result of favorable development in the loss and claim reserves for the Medicare supplement line of business in Bankers Fidelity.

Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred for the nine months ended September 30, 2019 and 2018:incurred:


 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 

 2019  2018  2020 2019 
Total incurred losses 
$
102,388
  
$
95,375
  
$
33,402
  
$
34,863
 
Cash surrender value and matured endowments 
1,020
  
1,057
   
368
   
360
 
Benefit reserve changes  
769
   
2,046
   
(187
)
  
84
 
Total insurance benefits and losses incurred 
$
104,177
  
$
98,478
  
$
33,583
  
$
35,307
 

Note 6.
Junior Subordinated Debentures

The Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of: (i) issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic American; and (iii) engaging in those activities necessary or incidental thereto.

The financial structure of each of Atlantic American Statutory Trust I and II as of September 30, 2019March 31, 2020 was as follows:

 
Atlantic American
Statutory Trust I
  
Atlantic American
Statutory Trust II
  
Atlantic American
Statutory Trust I
 
Atlantic American
Statutory Trust II
 
JUNIOR SUBORDINATED DEBENTURES (1) (2)
           
Principal amount owed September 30, 2019 
$
18,042
  
$
23,196
 
Principal amount owed March 31, 2020
 
$
18,042
  
$
23,196
 
Less: Treasury debt (3)
  
—
   
(7,500
)
  
—
   
(7,500
)
Net balance September 30, 2019 
$
18,042
  
$
15,696
 
Net balance December 31, 2018 
$
18,042
  
$
15,696
 
Net balance March 31, 2020
 
$
18,042
  
$
15,696
 
Net balance December 31, 2019
 
$
18,042
  
$
15,696
 
Coupon rate LIBOR + 4.00% LIBOR + 4.10
%
 LIBOR + 4.00% LIBOR + 4.10%
Interest payable Quarterly  Quarterly  Quarterly Quarterly 
Maturity date December 4, 2032  May 15, 2033  December 4, 2032 May 15, 2033 
Redeemable by issuer Yes  Yes  Yes Yes 
TRUST PREFERRED SECURITIES              
Issuance date December 4, 2002  May 15, 2003  December 4, 2002 May 15, 2003 
Securities issued 
17,500
  
22,500
   
17,500
   
22,500
 
Liquidation preference per security 
$
1
  
$
1
  
$
1
  
$
1
 
Liquidation value 
$
17,500
  
$
22,500
  
$
17,500
  
$
22,500
 
Coupon rate LIBOR + 4.00% LIBOR + 4.10% LIBOR + 4.00% LIBOR + 4.10%
Distribution payable Quarterly  Quarterly  Quarterly Quarterly 
Distribution guaranteed by (4)
 
Atlantic American
Corporation
  
Atlantic American
Corporation
  
Atlantic American
Corporation
 
Atlantic American
Corporation
 

(1)
For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior Subordinated Debentures to be distributed to the holders of the Trust Preferred Securities.

(2)
The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries.

(3)
On August 4, 2014, the Company acquired $7,500 of the Junior Subordinated Debentures.

(4)
The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation.

Note 7.
Earnings (Loss) Per Common Share

A reconciliation of the numerator and denominator used in the earnings (loss) per common share calculations is as follows:


 
Three Months Ended
September 30, 2019
  Three Months Ended
March 31, 2020		 

 Loss  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
  Loss Weighted
Average
Shares
(In thousands)		  
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:                    
Net loss 
$
(1,392
)
 
20,250
      $(8,087)  20,470    
Less preferred stock dividends  
(100
)
  
—
       (99)  —  
 
Net loss applicable to common shareholders 
$
(1,492
)
  
20,250
 
$
(.07) $(8,186)  20,470  
$
(.40
)


 
Three Months Ended
September 30, 2018
 

 Income  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Earnings Per Common Share:            
Net income 
$
934
   
20,420
     
Less preferred stock dividends  
(100
)
  
—
     
Net income applicable to common shareholders 
$
834
   
20,420
 
$
.04 

  
Nine Months Ended
September 30, 2019
 
  Loss  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:            
Net loss 
$
(1,656
)
  
20,185
     
Less preferred stock dividends  
(299
)
  
—
     
Net loss applicable to common shareholders 
$
(1,955
)
  
20,185
 
$
(.10)

  
Nine Months Ended
September 30, 2018
 
  Loss  
Weighted
Average
Shares
(In thousands)
 
Per Share
Amount
 
Basic and Diluted Loss Per Common Share:            
Net loss 
$
(905
)
  
20,314
     
Less preferred stock dividends  
(299
)
  
—
     
Net loss applicable to common shareholders 
$
(1,204
)
  
20,314
 
$
(.06)


 
Three Months Ended
March 31, 2019
 
  Income  
Weighted
Average
Shares
(In thousands)
  
Per Share
Amount
 
Basic Earnings Per Common Share:         
Net income
 
$
4,162
   
20,159
    
Less preferred stock dividends
  
(99
)
       
Net income applicable to common shareholders  
4,063
   
20,159
  
$
.20
 
Diluted Earnings Per Common Share:            
Effect of Series D preferred stock
  
99
   
1,378
     
Net income applicable to common shareholders 
$
4,162
   
21,537
  
$
.19
 

The assumed conversion of the Company’s Series D preferred stock was excluded from the earnings (loss)diluted loss per common share calculation for all periods presentedthe three month period ended March 31, 2020, since its impact would have been antidilutive.

Note 8.
Income Taxes

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and income tax expense (benefit) is as follows:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
Federal income tax provision at statutory rate of 21% 
$
(366
)
 
$
225
  
$
(430
)
 
$
(262
)
 
$
(2,148
)
 
$
1,110
 
Dividends-received deduction 
(6
)
 
(10
)
 
(20
)
 
(30
)
  
(3
)
  
(9
)
Other permanent differences 
41
  
22
  
79
  
50
   
11
   
22
 
Adjustment for prior years’ estimates to actual  
(21
)
  
(99
)
  
(21
)
  
(99
)
Income tax expense (benefit) 
$
(352
)
 
$
138
  
$
(392
)
 
$
(341
)
 
$
(2,140
)
 
$
1,123
 

The components of income tax expense (benefit) were:

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2019  2018  2019  2018 
Current - Federal 
$
(368
)
 
$
255
  
$
204
  
$
994
 
Deferred - Federal  
16
   
(117
)
  
(596
)
  
(1,335
)
Total 
$
(352
)
 
$
138
  
$
(392
)
 
$
(341
)
  
Three Months Ended
March 31,
 
  2020  2019 
Current – Federal
 
$
129
  
$
-
 
Deferred – Federal
  
(2,269
)
  
1,123
 
Total 
$
(2,140
)
 
$
1,123
 

In addition, the Company determined there were no significant tax implications as a result of the CARES Act.

Note 9.
Leases

The Company has identified two operating lease agreements, each for the use of office space in the ordinary course of business.
The first lease renews annually on an automatic basis and based on original assumptions, management is reasonably certain to exercise the renewal option for an additional eight years from the January 1, 2019 effective date of the new lease guidance. The original term of the second lease was ten years and amended in January 2017 to provide for an additional seven years, with a termination date on September 30, 2026. The rate used in determining the present value of lease payments is based upon an estimate of the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Lease expense reported for the ninethree months ended September 30,March 31, 2020 and March 31, 2019 was $761. See the “Adoption of New Accounting Standards – Leases” section of Note 2 of Notes to Condensed Consolidated Financial Statements for additional information regarding the accounting for leases.$254.

Additional information regarding the Company’s real estate operating leases is as follows:

 
Nine Months
Ended
September 30,
 
 2019  
Three Months Ended
March 31,
 
Other information on operating leases:    
2020
  
2019
 
Cash payments included in the measurement of lease liabilities reported in operating cash flows 
$
632
  
$
978
  
$
233
 
Right-of-use assets included in other assets on the condensed consolidated balance sheet 
5,631
  
5,319
  
5,938
 
Weighted average discount rate 
6.8
%
 
6.8
%
 
6.8
%
Weighted average remaining lease term in years 7.1 years  
6.6 years
  
7.9 years
 

The following table presents maturities and present value of the Company’s lease liabilities:

 Lease Liability  Lease Liability 
Remainder of 2019 
$
182
 
2020 
978
 
Remainder of 2020 
$
753
 
2021 
1,015
   
1,015
 
2022 
1,031
   
1,031
 
2023 
1,048
   
1,048
 
2024  
1,065
 
Thereafter  
3,091
   
2,025
 
Total undiscounted lease payments 
7,345
   
6,937
 
Less: present value adjustment  
1,585
   
1,391
 
Operating lease liability included in other liabilities on the condensed consolidated balance sheet 
$
5,760
 
Operating lease liability included in accounts payable and accrued expenses on the condensed consolidated balance sheet 
$
5,546
 

As of September 30, 2019,March 31, 2020, the Company has no operating leases that have not yet commenced.

Note 10.
Commitments and Contingencies

From time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and in the ordinary course of its businesses. In the opinion of management, any such known claims are not expected to have a material effect on the financial condition or results of operations of the Company.

Note 11.
Segment Information

The Parent’s primary insurance subsidiaries, American Southern and Bankers Fidelity, operate in two principal business units, each focusing on specific products. American Southern operates in the property and casualty insurance market, while Bankers Fidelity operates in the life and health insurance market. Each business unit is managed independently and is evaluated on its individual performance. Substantially all revenue other than in the corporate and other segment is from external sources. The following sets forth the assets, revenue and income (loss) before income taxes for each business unit as of and for the periods ended 20192020 and 2018.2019.

Assets 
September 30,
2019
  
December 31,
2018
  
March 31,
2020
 
December 31,
2019
 
American Southern 
$
141,569
  
$
122,724
  
$
126,621
  
$
141,524
 
Bankers Fidelity 
216,850
  
195,663
   
206,232
   
224,122
 
Corporate and Other 
154,527
  
134,643
   
15,008
   
11,980
 
Adjustments & Eliminations  
(129,611
)
  
(108,756
)
Total assets 
$
383,335
  
$
344,274
  
$
347,861
  
$
377,626
 

Revenues 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  
2020
  
2019
 
American Southern 
$
14,605
  
$
13,998
  
$
45,580
  
$
42,174
  
$
15,227
  
$
15,235
 
Bankers Fidelity 
32,311
  
31,196
  
97,931
  
92,950
   
24,873
   
34,376
 
Corporate and Other 
3,069
  
3,703
  
9,686
  
9,122
   
(690
)
  
5,407
 
Adjustments & Eliminations  
(2,240
)
  
(2,527
)
  
(7,307
)
  
(7,893
)
Total revenue 
$
47,745
  
$
46,370
  
$
145,890
  
$
136,353
  
$
39,410
  
$
55,018
 

Income (Loss) Before Income Taxes 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  
2020
  
2019
 
American Southern 
$
471
  
$
995
  
$
3,849
  
$
3,892
  
$
878
  
$
1,982
 
Bankers Fidelity 
(1,334
)
 
512
  
(3,828
)
 
(1,762
)
  
(8,781
)
  
(496
)
Corporate and Other  
(881
)
  
(435
)
  
(2,069
)
  
(3,376
)
  
(2,324
)
  
3,799
 
Income (loss) before income taxes 
$
(1,744
)
 
$
1,072
  
$
(2,048
)
 
$
(1,246
)
 
$
(10,227
)
 
$
5,285
 

Note 12.
Related Party Transactions
Subsequent Events

DuringSince March 31, 2020, the nine month period ended September 30, 2019,COVID-19 pandemic continues to cause material disruption to financial markets and the economy.  As a result of the pandemic, the Company transferredcould experience future losses in its remaining fractional interestinvestment portfolio as a result of the weakened and volatile markets.  Additionally, the Company can experience increased risk of loss any time unforeseen infectious diseases impact large portions of a population. Specifically, the Company’s life and health business could experience significant loss due to increased claims volume arising from COVID-19. The duration and impact of the COVID-19 pandemic is unknown at this time and it is not possible to reliably estimate the impact on the financial condition, operating results or liquidity of the Company and its operating subsidiaries in an aircraft arrangement to Gray Television, Inc., a related party, for $151.future periods.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periodsperiod ended September 30, 2019.March 31, 2020. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Annual Report”).

Atlantic American is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries: American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”). Each operating company is managed separately, offers different products and is evaluated on its individual performance.

Recent Events and Outlook

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic.  In March 2020, the impact of COVID-19 and related actions to attempt to control its spread began to impact our business operations, and we expect that the pandemic, actions that have been or will be taken in response to it and its overall impact on the economy, will continue to have an effect on our business operations and our operating results. See “Expected Impact of COVID-19 on the Company’s Financial Condition and Results of Operations.”

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the 20182019 Annual Report. Except as disclosed in Note 2 of Notes to Condensed Consolidated Financial Statements, the Company’s critical accounting policies are consistent with those disclosed in the 20182019 Annual Report.

Overall Corporate Results

The following presents the Company’s revenue, expenses and net income (loss) for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 and the comparable period in 2018:2019:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
 (In thousands)  (In thousands) 
Insurance premiums, net 
$
45,005
  
$
42,557
  
$
135,256
  
$
127,604
 
Insurance premiums
 
$
45,550
  
$
44,782
 
Net investment income 
2,187
  
2,215
  
6,834
  
7,111
   
2,039
   
2,334
 
Realized investment gains (losses), net 
(430
)
 
484
  
1,565
  
797
 
Unrealized gains on equity securities, net 
944
  
1,083
  
2,096
  
753
 
Realized investment gains, net
  
249
   
1,385
 
Unrealized gains (losses) on equity securities, net
  
(8,455
)
  
6,489
 
Other income  
39
   
31
   
139
   
88
   
27
   
28
 
Total revenue  
47,745
   
46,370
   
145,890
   
136,353
   
39,410
   
55,018
 
Insurance benefits and losses incurred 
34,719
  
33,087
  
104,177
  
98,478
   
33,583
   
35,307
 
Commissions and underwriting expenses 
11,471
  
8,722
  
33,995
  
28,456
   
12,626
   
11,015
 
Interest expense 
533
  
529
  
1,624
  
1,497
   
476
   
546
 
Other expense  
2,766
   
2,960
   
8,142
   
9,168
   
2,952
   
2,865
 
Total benefits and expenses  
49,489
   
45,298
   
147,938
   
137,599
   
49,637
   
49,733
 
Income (loss) before income taxes 
$
(1,744
)
 
$
1,072
  
$
(2,048
)
 
$
(1,246
)
 
$
(10,227
)
 
$
5,285
 
Net income (loss) 
$
(1,392
)
 
$
934
  
$
(1,656
)
 
$
(905
)
 
$
(8,087
)
 
$
4,162
 

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income (loss), and believes it is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).

-22-
A reconciliation of net income (loss) to operating loss for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 and the comparable periodsperiod in 20182019 is as follows:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
Reconciliation of Non-GAAP Financial Measure 2019  2018  2019  2018  2020 2019 
 (In thousands)  (In thousands) 
Net income (loss) 
$
(1,392
)
 
$
934
  
$
(1,656
)
 
$
(905
)
 
$
(8,087
)
 
$
4,162
 
Income tax expense (benefit) 
(352
)
 
138
  
(392
)
 
(341
)
  
(2,140
)
  
1,123
 
Realized investment (gains) losses, net 
430
  
(484
)
 
(1,565
)
 
(797
)
Unrealized gains on equity securities, net  
(944
)
  
(1,083
)
  
(2,096
)
  
(753
)
Realized investment gains, net
  
(249
)
  
(1,385
)
Unrealized (gains) losses on equity securities, net
  
8,455
   
(6,489
)
Non-GAAP operating loss 
$
(2,258
)
 
$
(495
)
 
$
(5,709
)
 
$
(2,796
)
 
$
(2,021
)
 
$
(2,589
)

On a consolidated basis, the Company had a net loss of $1.4$8.1 million, or $0.07$0.40 per diluted share, for the three month period ended September 30, 2019,March 31, 2020, compared to net income of $0.9$4.2 million, or $0.04$0.19 per diluted share, for the three month period ended September 30, 2018.  The Company had net loss of $1.7 million, or $0.10 per diluted share, for the nine month period ended September 30, 2019, compared to net loss of $0.9 million, or $0.06 per diluted share, for the nine month period ended September 30, 2018.March 31, 2019. Premium revenue for the three month period ended September 30, 2019March 31, 2020 increased $2.4$0.8 million, or 5.8%1.7%, to $45.0 million from $42.6 million in the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, premium revenue increased $7.7 million, or 6.0%, to $135.3 million from $127.6 million in the comparable period in 2018.$45.6 million. The increase in premium revenue was primarily attributable to an increase in Medicare supplement business in the life and health operations, coupled with an increase in the automobile physical damage line of business in the property and casualty operations. Operating loss increased $1.8decreased $0.6 million in the three month period ended September 30, 2019 from the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, the operating loss increased $2.9 millionMarch 31, 2020 over the comparable period in 2018.of 2019. The increasedecrease in operating loss was primarily due to unfavorablefavorable loss experience in the life and health operations.

A more detailed analysis of the individual operating segments and other corporate activities follows.

American Southern

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 and the comparable periodsperiod in 2018:2019:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
 (Dollars in thousands)  (Dollars in thousands) 
Gross written premiums 
$
9,953
  
$
9,250
  
$
50,228
  
$
44,592
  
$
9,618
  
$
7,694
 
Ceded premiums  
(1,403
)
  
(1,238
)
  
(4,091
)
  
(3,669
)
  
(1,394
)
  
(1,375
)
Net written premiums 
$
8,550
  
$
8,012
  
$
46,137
  
$
40,923
  
$
8,224
  
$
6,319
 
Net earned premiums 
$
14,475
  
$
13,050
  
$
43,035
  
$
39,299
  
$
14,922
  
$
13,806
 
Net loss and loss adjustment expenses 
9,440
  
10,672
  
28,346
  
28,544
   
9,534
   
9,043
 
Underwriting expenses  
4,696
   
2,331
   
13,386
   
9,737
 
Commissions and underwriting expenses
  
4,814
   
4,210
 
Underwriting income 
$
339
  
$
47
  
$
1,303
  
$
1,018
  
$
574
  
$
553
 
Loss ratio 
65.2
%
 
81.8
%
 
65.9
%
 
72.6
%
  
63.9
%
  
65.5
%
Expense ratio  
32.4
   
17.9
   
31.1
   
24.8
   
32.3
   
30.5
 
Combined ratio  
97.6
%
  
99.7
%
  
97.0
%
  
97.4
%
  
96.2
%
  
96.0
%

Gross written premiums at American Southern increased $0.7$1.9 million, or 7.6%25.0%, during the three month period ended September 30, 2019 and $5.6 million, or 12.6%, during the nine month period ended September 30, 2019,March 31, 2020 from the comparable periodsperiod in 2018.2019. The increase in gross written premiums was primarily attributable to an increase in premiums written in the automobile physical damage line of business due to increased writings from certain agencies and a new agency that started in the second half of 2018. Partially offsetting the increase in gross written premiums was a decline in premiums written in the surety line of business as a result of2019 and increased competition.writings from certain existing agencies.

Ceded premiums increased $0.2 million, or 13.3%,slightly during the three month period ended September 30, 2019 and $0.4 million, or 11.5%, during the nine month period ended September 30, 2019,March 31, 2020 from the comparable periodsperiod in 2018. The increase in ceded premiums in 2019 was due primarily to an increase in earned premiums in certain accounts within the automobile physical damage and general liability lines of business, which are subject to reinsurance.

The following presents American Southern’s net earned premiums by line of business for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 and the comparable periodsperiod in 2018:2019:

 
Three Months Ended
March 31,
 
 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  2020 2019 
 2019  2018  2019  2018  (In thousands) 
 (In thousands)      
Automobile liability 
$
7,585
  
$
6,878
  
$
22,422
  
$
21,123
  
$
7,140
  
$
7,024
 
Automobile physical damage 
3,597
  
3,013
  
10,998
  
8,365
   
4,548
   
3,602
 
General liability 
884
  
678
  
2,487
  
2,131
   
851
   
784
 
Surety 
1,552
  
1,729
  
4,847
  
5,441
   
1,605
   
1,687
 
Other lines  
857
   
752
   
2,281
   
2,239
   
778
   
709
 
Total 
$
14,475
  
$
13,050
  
$
43,035
  
$
39,299
  
$
14,922
  
$
13,806
 

Net earned premiums increased $1.4$1.1 million, or 10.9%8.1%, during the three month period ended September 30, 2019, and increased $3.7 million, or 9.5%, during the nine month period ended September 30, overMarch 31, 2020 from the comparable periodsperiod in 2018.2019. The increase in net earned premiums was primarily attributable to an increase in automobile physical damage coverage resulting from additional writings from a new agencythe addition of an automobile account as previously mentioned. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

The performance of an insurance company is often measured by its combined ratio. The combined ratio represents the percentage of losses, loss adjustment expenses and other expenses that are incurred for each dollar of premium earned by the Company.company. A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss. The combined ratio is divided into two components, the loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

Net loss and loss adjustment expenses at American Southern decreased $1.2increased $0.5 million, or 11.5%5.4%, during the three month period ended September 30, 2019, and $0.2 million, or 0.7%, during the nine month period ended September 30, 2019, overMarch 31, 2020 from the comparable periodsperiod in 2018.2019. As a percentage of net earned premiums, net loss and loss adjustment expenses were 65.2%63.9% in the three month period ended September 30, 2019,March 31, 2020, compared to 81.8%65.5% in the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, this ratio decreased to 65.9% from 72.6% in the comparable period in 2018.March 31, 2019. The decrease in the loss ratio was primarily due to a decrease in the severity of claims in the automobile liability line of business during the three month and nine month periodsperiod ended September 30, 2019 was primarily due to more favorable loss experience as a result of a decline in the severity of losses in the surety line of business.  Also contributing toMarch 31, 2020. Partially offsetting the decrease in the loss ratio during the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 was a lower amount of claimsless favorable loss experience in the automobile physical damage line of business.business due to an increase in frequency of claims from the new agency.

UnderwritingCommissions and underwriting expenses increased $2.4$0.6 million, or 101.5%14.3%, during the three month period ended September 30, 2019, and $3.6 million, or 37.5%, during the nine month period ended September 30, 2019, overMarch 31, 2020 from the comparable periodsperiod in 2018.2019. As a percentage of net earned premiums, underwriting expenses were 32.4%32.3% in the three month period ended September 30, 2019,March 31, 2020, compared to 17.9%30.5% in the three month period ended September 30, 2018. For the nine month period ended September 30, 2019, this ratio increased to 31.1% from 24.8% in the comparable period in 2018.March 31, 2019. The increase in the expense ratio during the three month and nine month periods ended September 30, 2019 was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease.  During the three month and nine month periodsperiod ended September 30, 2019,March 31, 2020, variable commissions at American Southern increased $2.0$0.1 million and $2.6 million, respectively, from the comparable periodsperiod in 20182019 due to more favorable loss experience in the surety line of business.  Also contributingfrom accounts subject to the increase in the expense ratio were increases in fixed commissions and various underwriting expenses.variable commissions.

Bankers Fidelity

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 and the comparable periodsperiod in 2018:2019:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
 2019  2018  2019  2018  2020 2019 
 (Dollars in thousands)      
Medicare supplement 
$
44,810
  
$
41,123
  
$
133,680
  
$
120,550
  
$
44,315
  
$
44,329
 
Other health products 
1,953
  
2,139
  
5,839
  
5,729
   
2,184
   
1,990
 
Life insurance  
2,075
   
2,306
   
6,371
   
6,879
   
2,257
   
2,142
 
Gross earned premiums 
48,838
  
45,568
  
145,890
  
133,158
   
48,756
   
48,461
 
Ceded premiums  
(18,308
)
  
(16,061
)
  
(53,669
)
  
(44,853
)
  
(18,128
)
  
(17,485
)
Net earned premiums  
30,530
   
29,507
   
92,221
   
88,305
   
30,628
   
30,976
 
Insurance benefits and losses 
25,279
  
22,415
  
75,831
  
69,934
   
24,049
   
26,264
 
Underwriting expenses  
8,365
   
8,270
   
25,927
   
24,779
 
Commissions and underwriting expenses
  
9,604
   
8,608
 
Total expenses  
33,644
   
30,685
   
101,758
   
94,713
   
33,653
   
34,872
 
Underwriting loss 
$
(3,114
)
 
$
(1,178
)
 
$
(9,537
)
 
$
(6,408
)
 
$
(3,025
)
 
$
(3,896
)
Loss ratio 
82.8
%
 
76.0
%
 
82.2
%
 
79.2
%
  
78.5
%
  
84.8
%
Expense ratio  
27.4
   
28.0
   
28.1
   
28.1
   
31.4
   
27.8
 
Combined ratio  
110.2
%
  
104.0
%
  
110.3
%
  
107.3
%
  
109.9
%
  
112.6
%

Net earned premium revenue at Bankers Fidelity increased $1.0decreased $0.3 million, or 3.5%1.1%, during the three month period ended September 30, 2019, and $3.9 million, or 4.4%, during the nine month period ended September 30, 2019,March 31, 2020 over the comparable periodsperiod in 2018.2019. Gross earned premiums from the Medicare supplement line of business increased $3.7 million, or 9.0%,decreased slightly during the three month period ended September 30, 2019, and $13.1 million, or 10.9%, during the nine month period ended September 30, 2019,March 31, 2020, due primarily to successful executionnon-renewals exceeding the level of new business generating strategies with both new and existing agents.writings. Other health product premiums decreasedincreased $0.2 million, or 8.7%9.7%, during the three monthsame comparable period, ended September 30, 2019, and increased $0.1 million, or 1.9%, during the nine month period ended September 30, 2019, from the comparable periods in 2018. The increase in other health product premiums during the nine month period ended September 30, 2019 was primarily as a result of new sales of the company’s hospital indemnity and group health products. Gross earned premiums from the life insurance line of business decreased $0.2increased $0.1 million, or 10.0%5.4%, during the three month period ended September 30, 2019, and $0.5 million, or 7.4%, during the nine month period ended September 30, 2019March 31, 2020 from the comparable periodsperiod in 20182019 due to an increase in the group life products premium. Partially offsetting the increase in gross earned premiums from the life insurance line was a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new sales activity.individual life sales. Premiums ceded increased $2.2$0.6 million, or 14.0%3.7%, during the three month period ended September 30, 2019 and $8.8 million, or 19.7%, during the nine month period ended September 30, 2019,March 31, 2020 over the comparable periodsperiod in 2018.2019. The increase in ceded premiums for the three month and nine month periodsperiod ended September 30, 2019March 31, 2020 was due to an increase in Medicare supplement premiums subject to reinsurance.

Benefits and losses increased $2.9decreased $2.2 million, or 12.8%8.4%, during the three month period ended September 30, 2019, and $5.9 million, or 8.4%, during the nine month period ended September 30, 2019,March 31, 2020 over the comparable periodsperiod in 2018.2019. As a percentage of net earned premiums, benefits and losses were 82.8%78.5% in the three month period ended September 30, 2019,March 31, 2020, compared to 76.0%84.8% in the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, this ratio increased to 82.2% from 79.2% in the comparable period in 2018.March 31, 2019. The increasedecrease in the loss ratio for the three month and nine month periodsperiod ended September 30,March 31, 2020 over the comparable period in 2019, was primarily attributable to unfavorablefavorable loss experience in the Medicare supplement line of business.  Throughout 2018 and continuing into the nine month period ended September 30, 2019, Bankers Fidelity experienced a higher than expected level of claims in the Medicare supplement line of business which had an unfavorable effect on the Company’s loss patterns and increased the resultant loss ratio.

Underwriting
-22-
Commissions and underwriting expenses increased $0.1$1.0 million, or 1.1%11.6%, during the three month period ended September 30, 2019, and $1.1 million, or 4.6%, during the nine month period ended September 30, 2019, overMarch 31, 2020 from the comparable periodsperiod in 2018.2019. As a percentage of net earned premiums, underwriting expenses were 27.4%31.4% in the three month period ended September 30, 2019,March 31, 2020, compared to 28.0%27.8% in the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, this ratio remained unchanged from the comparable period in 2018 at 28.1%.March 31, 2019. The slight changeincrease in the expense ratio for the three month period ended September 30, 2019March 31, 2020 was primarily due to a slight improvementthe amortization of deferred acquisition costs (“DAC”) exceeding the level of additions to DAC.  The increase in commissionthe net amortization of DAC during 2020 is primarily due to non-renewals exceeding the level of new business writings in the Medicare supplement line of business, as previously mentioned.  Also contributing to the increase in the expense ratio was an increase in expenses as a percentagerelated to servicing the Medicare supplement line of net earned premiums.business.

-26-
NET INVESTMENT INCOME AND REALIZED GAINS (LOSSES)Net Investment Income and Realized Gains

Investment income decreased slightly$0.3 million, or 12.6%, during the three month period ended September 30, 2019, and $0.3 million, or 3.9%, during the nine month period ended September 30, 2019,March 31, 2020 over the comparable periodsperiod in 2018.2019. The decrease in investment income during the ninethree month period ended September 30, 2019March 31, 2020 was primarily attributable to a decrease in the equity in earnings from investments in real estate partnerships of $0.2 million over the comparable period in 2018.2019.

The Company had net realized investment lossesgains of $0.4$0.2 million during the three month period ended September 30, 2019,March 31, 2020, compared to net realized investment gains of $0.5$1.4 million duringin the three month period ended September 30, 2018.March 31, 2019. The Company had net realized investment gains of $1.6 million during the nine month period ended September 30, 2019, compared to net realized investment gains of $0.8 million during the nine month period ended September 30, 2018. Duringin the three month period ended September 30, 2019, management engaged a new investment advisor to manageMarch 31, 2020 resulted from the disposition of several of the Company’s investment portfolio.  In conjunction with such engagement, management reevaluated the Company’s investment allocations and as a result of the rebalancing of the portfolio, certain securities were sold at a realized loss.investments in fixed maturities. The net realized investment gains duringin the ninethree month period ended September 30,March 31, 2019 resulted primarily from the disposition of certainseveral of the Company’s investments in equity and fixed maturities.securities. Management continually evaluates the Company’s investment portfolio and makes adjustments for impairments and/or divests investments as may be determined to be appropriate.

UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIESUnrealized Gains (Losses) on Equity Securities

On January 1, 2018 the Company adopted ASU No. 2016-01, which requires, among other things, investmentsInvestments in equity securities to beare measured at fair value at the end of the reporting period, with any changes in fair value reported in net income. As a result ofincome during the adoption of ASU No. 2016-01, theperiod, with certain exceptions. The Company recognized net unrealized gainslosses on equity securities still held of $1.0$8.5 million during the three month period ended September 30, 2019March 31, 2020 and unrealized gains on equity securities still held of $1.1$6.5 million during the three month period ended September 30, 2018.  The Company recognized net unrealized gains on equity securities still held of $2.1 million during the nine month period ended September 30, 2019 and unrealized gains on equity securities still held of $0.8 million during the nine month period ended September 30, 2018.March 31, 2019.  Changes in unrealized gains on equity securities for the applicable periods are primarily the result of fluctuations in the market values of the Company’s equity investments.

INTEREST EXPENSE

Interest expense remained relatively consistent  The increase in the number and value of securities in an unrealized loss position during the three month period ended September 30, 2019,March 31, 2020, was primarily attributable to the volatility and increasedweakening of the financial markets  as a result of COVID-19.

Interest Expense

Interest expense decreased $0.1 million, or 8.5%12.8%, during the ninethree month period ended September 30, 2019,March 31, 2020 over the comparable periodsperiod in 2018.2019. Changes in interest expense were primarily due to changes in the London Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) are directly related to LIBOR.

OTHER EXPENSES

Other expenses (commissions, underwriting expenses,Liquidity and other expenses) increased $2.6 million, or 21.9%, during the three month period ended September 30, 2019, and $4.5 million, or 12.0%, during the nine month period ended September 30, 2019, from the comparable periods in 2018. The increase in other expenses was primarily attributable to a $2.0 million and $2.6 million increase in the three month and nine month periods ended September 30, 2019, respectively, in the variable commission accrual in the property and casualty operations.  Also contributing to the increase in other expenses were increased costs associated with the growth of the Medicare supplement line of business. On a consolidated basis, as a percentage of earned premiums, other expenses increased to 31.6% in the three month period ended September 30, 2019 from 27.5% in the three month period ended September 30, 2018.  For the nine month period ended September 30, 2019, this ratio increased to 31.2% from 29.5% in the comparable period in 2018. The increase in the expense ratio during the three month and nine month periods ended September 30, 2019 was primarily attributable to the increase costs associated with the growth in Medicare supplement line of business and variable commissions, as discussed previously.

LIQUIDITY AND CAPITAL RESOURCESCapital Resources

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements. Current and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges. The Company’s primary sources of cash are written premiums, investment income and proceeds from the sale and maturity of its invested assets. The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed.

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At September 30, 2019,March 31, 2020, the Parent had approximately $16.7$4.5 million of unrestricted cash and investments.

The Parent’s insurance subsidiaries reported a statutory net lossincome of $4.2$0.2 million for the ninethree month period ended September 30, 2019,March 31, 2020, compared to statutory net loss of $1.0$0.7 million for the ninethree month period ended September 30, 2018.March 31, 2019. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At September 30, 2019,March 31, 2020, American Southern had $42.4$42.0 million of statutory surplus and Bankers Fidelity had $24.1$27.5 million of statutory surplus. In 2019,2020, dividend payments by the Parent’s insurance subsidiaries in excess of $4.3$4.6 million would require prior approval. Through September 30, 2019,March 31, 2020, the Parent received dividends of $3.6$0.9 million from its subsidiaries.

The Parent provides certain administrative and other services to each of its insurance subsidiaries. The amounts charged to and paid by the subsidiaries include reimbursements for various shared services and other expenses incurred directly on behalf of the subsidiaries by the Parent. In addition, there is in place a formal tax-sharing agreement between the Parent and its insurance subsidiaries. As a result of the Parent’s tax loss, it is anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. At September 30, 2019,March 31, 2020, the effective interest rate was 6.57%5.56%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. As of September 30, 2019,March 31, 2020, the Company has not made such an election.

The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from potential future financing arrangements.

At September 30, 2019,March 31, 2020, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. At September 30, 2019,March 31, 2020, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3$0.1 million.

Cash and cash equivalents increaseddecreased from $12.6$12.9 million at December 31, 20182019 to $36.0$8.3 million at September 30, 2019.March 31, 2020. The increasedecrease in cash and cash equivalents during the ninethree month period ended September 30, 2019March 31, 2020 was primarily attributable to $31.5net cash used in operating activities of $10.5 million, of netpartially offset by a $6.0 million increase resulting from investment sales and maturity of securities exceeding purchases of securities, partially offset by net cash used in operating activities of $7.6 million.securities.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatory authorities, which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources or operations.

Expected Impact of COVID-19 on the Company’s Financial Condition and Results of Operations

The duration and impact of the COVID-19 pandemic is unknown at this time and it is not possible for us to reliably estimate the impact on the financial condition, operating results or liquidity of the Company and its operating subsidiaries in future periods.  However, we do not currently expect a significant decline in liquidity or operating results as a result of the disruption caused by the ongoing COVID-19 pandemic.  To date, the most significant impact of COVID-19 on the Company’s financial position is a decline in fair value of the Company’s fixed maturity and equity investments due to the weakened and volatile financial markets.  At this time, the Company believes the decline in market values are temporary in nature.

We expect that earned premiums could be adversely impacted by a weakened economy leading to a slowdown in new sales and reduced retention of insureds.  Additionally, a number of states have issued bulletins that either encourage or require premium leniency such as extension of grace periods or moratoriums on cancellation of policies for non-payment.  The Company does not expect a significant reduction or delay in payments and continues to monitor state required actions as they develop. 

OFF-BALANCE SHEET ARRANGEMENTSFor the Company’s property and casualty operations, the majority of premium revenue is derived from automobile liability and automobile physical damage lines of business written on a multi-year contract basis with state and local governments.  Although we cannot predict with certainty at this time, we do not expect a significant level of cancellations or non-renewals of our property and casualty contracts in the short term but recognize that a prolonged economic slowdown could adversely affect future results.

Benefits and losses in our property and casualty operations could be adversely impacted as a result of disruption caused by the COVID-19 pandemic.  However, due to the nature of our primary product lines, the impact is not currently expected to be material.  Additionally, we expect to see a reduction in frequency and severity of claims in the automobile lines of business as fewer miles are driven and less people are on the roads.  As a result, we do not currently expect a material adverse effect on operating results or liquidity in the property and casualty operations.

The Company disclosed its off-balance sheet arrangementsmajority of premium revenue in our life and health operations are derived from the 2018 Annual Report.senior market segment of the population, or those individuals age sixty-five and up, who maintain Medicare supplement and to a lesser extent, whole life insurance policies with the Company.  We expect that earned premiums could be adversely impacted by the rise in unemployment and economic slowdown, which could lead to a decline in new sales and reduced retention of insureds.  As of September 30, 2019, there have been no material changes to these off-balance sheet arrangements outsidea result, we currently anticipate that the ordinary course of business.life and health operations may experience a marginal decline in earned premiums although the actual impact cannot be predicted with certainty at this time.

CONTRACTUAL OBLIGATIONS

Unforeseen infectious diseases that impact large portions of a population can have an adverse impact on mortality and morbidity, and resultant benefits and losses incurred by the Company’s life and health operations.  Accordingly, the Company does anticipate incurring higher costs, potentially similar to prior influenza seasons, as it relates to life insurance claims.  However, with much of the country sheltering in place over an extended period, the Company expects a decrease in non-medically necessary services being performed with many of the services deferred until a later date when these procedures are allowed to take place.  Additionally, the Company expects there will be some routine medical services that are deferred indefinitely.  As a smaller reporting company,result, and although the actual impact cannot be predicted with certainty at this time, the Company has elected to comply with certain scaled disclosure reporting obligations,does not expect significant adverse development in total benefits and therefore is not providing the table of contractual obligations required by Item 303 of Regulation S-K.losses incurred in its life and health operations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the intentional acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and may not be detected. An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and references certain information that constitutes forward-looking statements as that term is defined in the federal securities laws. Statements, to the extent they are not statements of historical facts, should be considered forward-looking statements, and are subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s current assessments of various risks and uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions of the federal securities laws. The Company’s actual results could differ materially from the results anticipated in these forward-looking statements as a result of such risks and uncertainties, including those identified in filings made by the Company from time to time with the Securities and Exchange Commission. In addition, other risks and uncertainties not known by us, or that we currently determine to not be material, may materially adversely affect our financial condition, results of operations or cash flows. The Company undertakes no obligation to update any forward-looking statement as a result of subsequent developments, changes in underlying assumptions or facts, or otherwise.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 31, 2016, the Board of Directors of the Company approved a plan that allows for the repurchase of up to 750,000 shares of the Company’s common stock (the “Repurchase Plan”) on the open market or in privately negotiated transactions, as determined by an authorized officer of the Company. Any such repurchases couldcan be made from time to time in accordance with applicable securities laws and other requirements. The Company suspended the Repurchase Plan in May 2019 in connection with ending the relationship with the registered broker under the Repurchase Plan.  The Company expects to evaluate the implementation of a replacement plan in the future.

Other than pursuant to the Repurchase Plan, no purchases of common stock of the Company were made by or on behalf of the Company during the periods described below.

The table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthly basis during the three month period ended September 30, 2019.March 31, 2020.

Period
 
Total Number
of Shares
Purchased
  
Average
Price Paid
per Share
  
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
  
Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Plans or
Programs
 
July
January 1 – JulyJanuary 31, 20192020
  
-
  
$
-
   
-
   
325,129
 
August
February 1 – August 31, 2019February 29, 2020
  
-
   
-
   
-
   
325,129
 
September
March 1 – September 30, 2019March 31, 2020
  
-
   
-
   
-
   
325,129
 
Total  
-
  
$
-
   
-
     

Item 6. Exhibits

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INS101. INS
XBRL Instance Document.
  
101.SCH101. SCH
XBRL Taxonomy Extension Schema.
  
101.CAL101. CAL
XBRL Taxonomy Extension Calculation Linkbase.
  
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
  
101.LAB
XBRL Taxonomy Extension Label Linkbase.
  
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ATLANTIC AMERICAN CORPORATION

(Registrant)




Date: November 12, 2019May 11, 2020
By:
/s/ J. Ross Franklin



J. Ross Franklin


Vice President and Chief Financial Officer


(Principal Financial and Accounting Officer)


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