form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
o 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
(State or other jurisdiction of
incorporation or organization)
4370 Peachtree Road, N.E.,
Atlanta, Georgia
(Address of principal executive offices)
|
58-1027114
(I.R.S. Employer
Identification No.)
30319
(Zip Code)
|
(404) 266-5500
(Registrant’s telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The total number of shares of the registrant's Common Stock, $1 par value, outstanding on August 8, 2011, was 22,226,964.
ATLANTIC AMERICAN CORPORATION
PART I. FINANCIAL INFORMATION
ATLANTIC AMERICAN CORPORATION
(Dollars in thousands, except par value)
ASSETS
|
|
Unaudited
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Cash and cash equivalents
|
|
$ |
24,652 |
|
|
$ |
28,325 |
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturities (cost: $186,215 and $171,882)
|
|
|
187,689 |
|
|
|
171,648 |
|
Common and non-redeemable preferred stocks (cost: $9,979 and $9,979)
|
|
|
8,994 |
|
|
|
8,524 |
|
Other invested assets (cost: $956 and $980)
|
|
|
956 |
|
|
|
980 |
|
Policy and student loans
|
|
|
2,201 |
|
|
|
2,200 |
|
Real estate
|
|
|
38 |
|
|
|
38 |
|
Investment in unconsolidated trusts
|
|
|
1,238 |
|
|
|
1,238 |
|
Total investments
|
|
|
201,116 |
|
|
|
184,628 |
|
Receivables:
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
14,277 |
|
|
|
14,301 |
|
Investment sales pending settlement
|
|
|
- |
|
|
|
15,438 |
|
Insurance premiums and other (net of allowance for doubtful accounts: $441 and $442)
|
|
|
7,491 |
|
|
|
7,051 |
|
Deferred income taxes, net
|
|
|
2,079 |
|
|
|
3,228 |
|
Deferred acquisition costs
|
|
|
21,919 |
|
|
|
21,239 |
|
Other assets
|
|
|
1,224 |
|
|
|
1,228 |
|
Goodwill
|
|
|
2,128 |
|
|
|
2,128 |
|
Total assets
|
|
$ |
274,886 |
|
|
$ |
277,566 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
Insurance reserves and policyholder funds:
|
|
|
|
|
|
|
Future policy benefits
|
|
$ |
61,746 |
|
|
$ |
60,811 |
|
Unearned premiums
|
|
|
19,567 |
|
|
|
21,170 |
|
Losses and claims
|
|
|
54,515 |
|
|
|
53,961 |
|
Other policy liabilities
|
|
|
1,575 |
|
|
|
1,960 |
|
Total policy liabilities
|
|
|
137,403 |
|
|
|
137,902 |
|
Accounts payable and accrued expenses
|
|
|
12,057 |
|
|
|
15,733 |
|
Junior subordinated debenture obligations
|
|
|
41,238 |
|
|
|
41,238 |
|
Total liabilities
|
|
|
190,698 |
|
|
|
194,873 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 70,000 shares issued and outstanding; $7,000 redemption value
|
|
|
70 |
|
|
|
70 |
|
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,373,900; shares outstanding: 22,231,540 and 22,257,035
|
|
|
22,374 |
|
|
|
22,374 |
|
Additional paid-in capital
|
|
|
57,129 |
|
|
|
57,129 |
|
Retained earnings
|
|
|
5,351 |
|
|
|
5,389 |
|
Accumulated other comprehensive loss
|
|
|
(520 |
) |
|
|
(2,107 |
) |
Treasury stock, at cost: 142,360 and 116,865 shares
|
|
|
(216 |
) |
|
|
(162 |
) |
Total shareholders’ equity
|
|
|
84,188 |
|
|
|
82,693 |
|
Total liabilities and shareholders’ equity
|
|
$ |
274,886 |
|
|
$ |
277,566 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ATLANTIC AMERICAN CORPORATION
(Unaudited; Dollars in thousands, except per share data)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$ |
26,197 |
|
|
$ |
24,387 |
|
|
$ |
51,619 |
|
|
$ |
47,745 |
|
Investment income
|
|
|
2,691 |
|
|
|
2,576 |
|
|
|
5,260 |
|
|
|
5,133 |
|
Realized investment gains, net
|
|
|
70 |
|
|
|
13 |
|
|
|
71 |
|
|
|
13 |
|
Other income
|
|
|
115 |
|
|
|
111 |
|
|
|
178 |
|
|
|
159 |
|
Total revenue
|
|
|
29,073 |
|
|
|
27,087 |
|
|
|
57,128 |
|
|
|
53,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
18,221 |
|
|
|
17,425 |
|
|
|
34,852 |
|
|
|
32,815 |
|
Commissions and underwriting expenses
|
|
|
7,545 |
|
|
|
6,827 |
|
|
|
15,446 |
|
|
|
13,967 |
|
Interest expense
|
|
|
647 |
|
|
|
653 |
|
|
|
1,287 |
|
|
|
1,295 |
|
Other
|
|
|
2,328 |
|
|
|
2,119 |
|
|
|
4,583 |
|
|
|
4,336 |
|
Total benefits and expenses
|
|
|
28,741 |
|
|
|
27,024 |
|
|
|
56,168 |
|
|
|
52,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
332 |
|
|
|
63 |
|
|
|
960 |
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
140 |
|
|
|
(13 |
) |
|
|
299 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
192 |
|
|
|
76 |
|
|
|
661 |
|
|
|
493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(127 |
) |
|
|
(127 |
) |
|
|
(254 |
) |
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$ |
65 |
|
|
$ |
(51 |
) |
|
$ |
407 |
|
|
$ |
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share (basic and diluted)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
.02 |
|
|
$ |
.01 |
|
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)
Six Months Ended June 30, 2011
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Total
|
|
Balance, December 31, 2010
|
|
$ |
70 |
|
|
$ |
22,374 |
|
|
$ |
57,129 |
|
|
$ |
5,389 |
|
|
$ |
(2,107 |
) |
|
$ |
(162 |
) |
|
$ |
82,693 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
661 |
|
|
|
- |
|
|
|
- |
|
|
|
661 |
|
Increase in unrealized investment gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,177 |
|
|
|
- |
|
|
|
2,177 |
|
Fair value adjustment to derivative financial instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
265 |
|
|
|
- |
|
|
|
265 |
|
Deferred income tax attributable to other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(855 |
) |
|
|
- |
|
|
|
(855 |
) |
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248 |
|
Dividends declared on common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(445 |
) |
|
|
- |
|
|
|
- |
|
|
|
(445 |
) |
Dividends accrued on preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(254 |
) |
|
|
- |
|
|
|
- |
|
|
|
(254 |
) |
Purchase of shares for treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(54 |
) |
|
|
(54 |
) |
Balance, June 30, 2011
|
|
$ |
70 |
|
|
$ |
22,374 |
|
|
$ |
57,129 |
|
|
$ |
5,351 |
|
|
$ |
(520 |
) |
|
$ |
(216 |
) |
|
$ |
84,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$ |
70 |
|
|
$ |
22,374 |
|
|
$ |
57,129 |
|
|
$ |
3,404 |
|
|
$ |
(5,405 |
) |
|
$ |
(102 |
) |
|
$ |
77,470 |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
493 |
|
|
|
- |
|
|
|
- |
|
|
|
493 |
|
Increase in unrealized investment gains
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,790 |
|
|
|
- |
|
|
|
9,790 |
|
Fair value adjustment to derivative financial instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(186 |
) |
|
|
- |
|
|
|
(186 |
) |
Deferred income tax attributable to other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,361 |
) |
|
|
- |
|
|
|
(3,361 |
) |
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,736 |
|
Dividends accrued on preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(254 |
) |
|
|
- |
|
|
|
- |
|
|
|
(254 |
) |
Purchase of shares for treasury
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14 |
) |
|
|
(14 |
) |
Balance, June 30, 2010
|
|
$ |
70 |
|
|
$ |
22,374 |
|
|
$ |
57,129 |
|
|
$ |
3,643 |
|
|
$ |
838 |
|
|
$ |
(116 |
) |
|
$ |
83,938 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$ |
661 |
|
|
$ |
493 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of deferred acquisition costs
|
|
|
5,384 |
|
|
|
4,843 |
|
Acquisition costs deferred
|
|
|
(6,064 |
) |
|
|
(5,619 |
) |
Realized investment gains
|
|
|
(71 |
) |
|
|
(13 |
) |
(Decrease) increase in insurance reserves
|
|
|
(499 |
) |
|
|
3,039 |
|
Depreciation and amortization
|
|
|
187 |
|
|
|
206 |
|
Deferred income tax expense
|
|
|
295 |
|
|
|
138 |
|
Increase in receivables, net
|
|
|
(416 |
) |
|
|
(151 |
) |
Decrease in other liabilities
|
|
|
(513 |
) |
|
|
(2,474 |
) |
Other, net
|
|
|
(7 |
) |
|
|
66 |
|
Net cash (used in) provided by operating activities
|
|
|
(1,043 |
) |
|
|
528 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from investments sold, called or matured
|
|
|
26,884 |
|
|
|
32,376 |
|
Investments purchased
|
|
|
(28,987 |
) |
|
|
(5,801 |
) |
Additions to property and equipment
|
|
|
(28 |
) |
|
|
(15 |
) |
Net cash (used in) provided by investing activities
|
|
|
(2,131 |
) |
|
|
26,560 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of dividends on common stock
|
|
|
(445 |
) |
|
|
- |
|
Purchase of shares for treasury
|
|
|
(54 |
) |
|
|
(14 |
) |
Net cash used in financing activities
|
|
|
(499 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,673 |
) |
|
|
27,074 |
|
Cash and cash equivalents at beginning of period
|
|
|
28,325 |
|
|
|
20,129 |
|
Cash and cash equivalents at end of period
|
|
$ |
24,652 |
|
|
$ |
47,203 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
1,293 |
|
|
$ |
1,295 |
|
Cash paid for income taxes
|
|
$ |
- |
|
|
$ |
- |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
June 30, 2011
(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”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying 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, 2010. The Company’s results of operations for the three month and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or for any other future period.
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.
Note 2. Recently Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires all nonowner changes in stockholders’ equity to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. If an entity elects the single continuous statement method of presentation, the entity is required to present the components of net income and total net
income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two separate statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and should include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive
income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. ASU 2011-05 does not change: the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income; the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is presented; and how earnings per share are calculated or presented. ASU 2011-05 should be applied retrospectively. For
public entities, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company expects to adopt ASU 2011-05 on January 1, 2012.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). This guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. While many of the amendments to GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements. ASU 2011-04 is to be applied
prospectively. For public entities, the new guidance is effective during the interim and annual periods beginning after December 15, 2011. Early adoption by public companies is not permitted. The Company expects to adopt the amendments in ASU 2011-04 on January 1, 2012 and does not expect the adoption to have a material impact on the Company’s financial condition or results of operations.
In October 2010, the FASB issued ASU No. 2010-26, Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (“ASU 2010-26”) which specifies which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. In accordance with ASU 2010-26, incremental direct costs of contract acquisition should be capitalized. Advertising costs should be included in deferred acquisition costs only if the capitalization criteria in the direct-response advertising guidance in Subtopic 340-20,
Other Assets and Deferred Costs – Capitalized Advertising Costs, are met. All other acquisition related costs, including costs incurred by the insurer in soliciting potential customers, market research, training, administration, unsuccessful acquisition or renewal efforts, and product development, should be expensed as incurred. If the initial application of ASU 2010-26 results in the capitalization of acquisition costs that had not been capitalized previously, the entity may elect not to capitalize those types of costs. ASU 2010-26 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. ASU 2010-26 should be applied prospectively upon adoption; although retrospective
application to all prior periods presented upon the date of adoption is also permitted, but not required. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company expects to adopt ASU 2010-26 on January 1, 2012 and does not expect the adoption to have a material impact on the Company’s financial condition or results of operations.
Note 3. Segment Information
The Company’s primary operating subsidiaries, American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company (“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. The following sets forth the revenue and income (loss) before tax for
each business unit for the three month and six month periods ended June 30, 2011 and 2010.
Revenues
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
American Southern
|
|
$ |
10,906 |
|
|
$ |
9,927 |
|
|
$ |
21,482 |
|
|
$ |
19,099 |
|
Bankers Fidelity
|
|
|
17,960 |
|
|
|
17,006 |
|
|
|
35,293 |
|
|
|
33,652 |
|
Corporate and Other
|
|
|
207 |
|
|
|
154 |
|
|
|
353 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
29,073 |
|
|
$ |
27,087 |
|
|
$ |
57,128 |
|
|
$ |
53,050 |
|
Income (loss) before income taxes
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
American Southern
|
|
$ |
1,189 |
|
|
$ |
633 |
|
|
$ |
2,517 |
|
|
$ |
1,872 |
|
Bankers Fidelity
|
|
|
548 |
|
|
|
343 |
|
|
|
1,433 |
|
|
|
1,247 |
|
Corporate and Other
|
|
|
(1,405 |
) |
|
|
(913 |
) |
|
|
(2,990 |
) |
|
|
(2,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
332 |
|
|
$ |
63 |
|
|
$ |
960 |
|
|
$ |
637 |
|
Note 4. Credit Arrangements
Bank Debt
At June 30, 2011, the Company had a revolving credit facility (the “Credit Agreement”) with Wells Fargo Bank, National Association, successor-in-interest by merger to Wachovia Bank, National Association (“Wells Fargo”), pursuant to which the Company is able to borrow or reborrow up to $5,000, subject to the terms and conditions thereof. The interest rate on amounts outstanding under the Credit Agreement is, at the option of the Company, equivalent to either (a) the base rate (which equals the higher of the Prime Rate or 0.5% above the Federal Funds Rate, each as defined) or (b) the London Interbank Offered Rate (“LIBOR”)
determined on an interest period of 1-month, 2-months, 3-months or 6-months, plus 2.00%. Interest on amounts outstanding is payable quarterly. The Credit Agreement requires the Company to comply with certain covenants, including, among others, ratios that relate funded debt to both total capitalization and earnings before interest, taxes, depreciation and amortization, as well as the maintenance of minimum levels of tangible net worth. The Company must also comply with limitations on capital expenditures, certain payments, additional debt obligations, equity repurchases and certain redemptions, as well as minimum risk-based capital levels. Upon the occurrence of an event of default, Wells Fargo may terminate the Credit Agreement and declare all amounts outstanding due and payable in full. During the six month period ended June 30,
2011, there was no balance outstanding under this Credit Agreement and the Company was in compliance with all terms of the Credit Agreement. On July 1, 2011, the Company and Wells Fargo entered into the fourth amendment to the Credit Agreement (the “Fourth Amendment”). The Fourth Amendment provides for the extension of the term of the Credit Agreement to August 31, 2011. The Company is in process of negotiating a further extension of the expiration of the Credit Agreement. While the Company currently believes that it will be able to timely enter into an extension to the Credit Agreement or a replacement credit facility, on substantially similar terms, no assurances thereof can be provided that any extension or replacement would be available to the Company on acceptable terms, or at all.
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 only those activities necessary or incidental thereto.
The financial structure of each of Atlantic American Statutory Trust I and II, as of June 30, 2011 was as follows:
|
|
Atlantic American
Statutory Trust I
|
|
|
Atlantic American
Statutory Trust II
|
|
JUNIOR SUBORDINATED DEBENTURES (1) (2)
|
|
|
|
|
|
|
Principal amount owed
|
|
$ |
18,042 |
|
|
$ |
23,196 |
|
Balance June 30, 2011
|
|
|
18,042 |
|
|
|
23,196 |
|
Balance December 31, 2010
|
|
|
18,042 |
|
|
|
23,196 |
|
Coupon rate
|
|
LIBOR + 4.00%
|
|
|
LIBOR + 4.10%
|
|
Interest payable
|
|
Quarterly
|
|
|
Quarterly
|
|
Maturity date
|
|
December 4, 2032
|
|
|
May 15, 2033
|
|
Redeemable by issuer
|
|
Yes
|
|
|
Yes
|
|
TRUST PREFERRED SECURITIES
|
|
|
|
|
|
|
|
|
Issuance date
|
|
December 4, 2002
|
|
|
May 15, 2003
|
|
Securities issued
|
|
|
17,500 |
|
|
|
22,500 |
|
Liquidation preference per security
|
|
$ |
1 |
|
|
$ |
1 |
|
Liquidation value
|
|
|
17,500 |
|
|
|
22,500 |
|
Coupon rate
|
|
LIBOR + 4.00%
|
|
|
LIBOR + 4.10%
|
|
Distribution payable
|
|
Quarterly
|
|
|
Quarterly
|
|
Distribution guaranteed by (3)
|
|
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)
|
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 5. Derivative Financial Instruments
On February 21, 2006, the Company entered into a zero cost interest rate collar with Wells Fargo to hedge future interest payments on a portion of the Junior Subordinated Debentures. The notional amount of the collar was $18,042 with an effective date of March 6, 2006. The collar has a LIBOR floor rate of 4.77% and a LIBOR cap rate of 5.85%, and adjusts quarterly on the 4th of each March, June, September and December through termination on March 4, 2013. The Company began making payments to Wells Fargo under the zero cost interest rate collar on June 4,
2008. As a result of interest rates remaining below the LIBOR floor rate of 4.77% through June 30, 2011, these payments to Wells Fargo under the zero cost interest rate collar have continued. While the Company may be exposed to counterparty risk should Wells Fargo fail to perform, based on the current level of interest rates, and coupled with the current macroeconomic outlook, the Company believes that its current counterparty risk exposure is minimal.
The estimated fair value and related carrying value of the Company’s interest rate collar at June 30, 2011 was a liability of approximately $1,288 with a corresponding decrease in accumulated other comprehensive income in shareholders’ equity, net of deferred tax.
Note 6. Reconciliation of Other Comprehensive Income (Loss)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments included in net income
|
|
$ |
70 |
|
|
$ |
13 |
|
|
$ |
71 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax unrealized gains on investments arising during period
|
|
$ |
3,470 |
|
|
$ |
5,232 |
|
|
$ |
2,248 |
|
|
$ |
9,803 |
|
Reclassification adjustment
|
|
|
(70 |
) |
|
|
(13 |
) |
|
|
(71 |
) |
|
|
(13 |
) |
Net pre-tax unrealized gains on investments recognized in other comprehensive income
|
|
|
3,400 |
|
|
|
5,219 |
|
|
|
2,177 |
|
|
|
9,790 |
|
Fair value adjustment to derivative financial instrument
|
|
|
74 |
|
|
|
(98 |
) |
|
|
265 |
|
|
|
(186 |
) |
Deferred income tax attributable to other comprehensive income
|
|
|
(1,216 |
) |
|
|
(1,792 |
) |
|
|
(855 |
) |
|
|
(3,361 |
) |
Change in accumulated other comprehensive income
|
|
|
2,258 |
|
|
|
3,329 |
|
|
|
1,587 |
|
|
|
6,243 |
|
Accumulated other comprehensive loss, beginning of period
|
|
|
(2,778 |
) |
|
|
(2,491 |
) |
|
|
(2,107 |
) |
|
|
(5,405 |
) |
Accumulated other comprehensive income (loss), end of period
|
|
$ |
(520 |
) |
|
$ |
838 |
|
|
$ |
(520 |
) |
|
$ |
838 |
|
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
June 30, 2011
|
|
|
|
Income
|
|
|
Shares
(In thousands)
|
|
|
Per Share Amount
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
192 |
|
|
|
22,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
|
65 |
|
|
|
22,238 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
$ |
65 |
|
|
|
22,406 |
|
|
$ |
- |
|
|
|
Three Months Ended
June 30, 2010
|
|
|
|
Income
|
|
|
Shares
(In thousands)
|
|
|
Per Share Amount
|
|
Basic and Diluted Loss Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
76 |
|
|
|
22,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders
|
|
$ |
(51 |
) |
|
|
22,286 |
|
|
$ |
- |
|
|
|
Six Months Ended
June 30, 2011
|
|
|
|
Income
|
|
|
Shares
(In thousands)
|
|
|
Per Share Amount
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
661 |
|
|
|
22,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
|
407 |
|
|
|
22,246 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
$ |
407 |
|
|
|
22,373 |
|
|
$ |
.02 |
|
|
|
Six Months Ended
June 30, 2010
|
|
|
|
Income
|
|
|
Shares
(In thousands)
|
|
|
Per Share Amount
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
493 |
|
|
|
22,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
|
239 |
|
|
|
22,288 |
|
|
$ |
.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shareholders
|
|
$ |
239 |
|
|
|
22,313 |
|
|
$ |
.01 |
|
The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings (loss) per common share calculation for all periods presented since its impact would have been antidilutive. All outstanding stock options were excluded from the loss per common share calculation for the three month period ended June 30, 2010 since their impact also 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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Federal income tax provision at statutory rate of 35%
|
|
$ |
116 |
|
|
$ |
22 |
|
|
$ |
336 |
|
|
$ |
223 |
|
Dividends-received deduction
|
|
|
(21 |
) |
|
|
(43 |
) |
|
|
(70 |
) |
|
|
(92 |
) |
Small life insurance company adjustment
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
25 |
|
|
|
8 |
|
|
|
33 |
|
|
|
13 |
|
Income tax expense (benefit)
|
|
$ |
140 |
|
|
$ |
(13 |
) |
|
$ |
299 |
|
|
$ |
144 |
|
The components of the income tax expense (benefit) were:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Current - Federal
|
|
$ |
(11 |
) |
|
$ |
6 |
|
|
$ |
4 |
|
|
$ |
6 |
|
Deferred - Federal
|
|
|
151 |
|
|
|
(19 |
) |
|
|
295 |
|
|
|
138 |
|
Total
|
|
$ |
140 |
|
|
$ |
(13 |
) |
|
$ |
299 |
|
|
$ |
144 |
|
The primary difference between the effective tax rate and the federal statutory income tax rate for the three month and six month periods ended June 30, 2011 and 2010, respectively, resulted from the dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change. The actual current year DRD can vary from the estimates based on, but not limited to, actual distributions from these investments as well as appropriate levels of taxable income.
Note 9. Commitments and Contingencies
From time to time, the Company is 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 business or financial condition of the Company.
Note 10. Investments
The following tables set forth the carrying value, gross unrealized gains, gross unrealized losses and amortized cost of the Company’s investments, aggregated by type and industry, as of June 30, 2011 and December 31, 2010.
Investments were comprised of the following:
|
|
June 30, 2011
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Amortized Cost
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
|
$ |
40,041 |
|
|
$ |
1,515 |
|
|
$ |
- |
|
|
$ |
38,526 |
|
Obligations of states and political subdivisions
|
|
|
21,906 |
|
|
|
370 |
|
|
|
299 |
|
|
|
21,835 |
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
21,658 |
|
|
|
1,340 |
|
|
|
317 |
|
|
|
20,635 |
|
Financial services
|
|
|
21,459 |
|
|
|
397 |
|
|
|
1,730 |
|
|
|
22,792 |
|
Media
|
|
|
2,503 |
|
|
|
150 |
|
|
|
- |
|
|
|
2,353 |
|
Other business – diversified
|
|
|
35,620 |
|
|
|
485 |
|
|
|
429 |
|
|
|
35,564 |
|
Other consumer – diversified
|
|
|
36,723 |
|
|
|
363 |
|
|
|
448 |
|
|
|
36,808 |
|
Total corporate securities
|
|
|
117,963 |
|
|
|
2,735 |
|
|
|
2,924 |
|
|
|
118,152 |
|
Redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
2,660 |
|
|
|
160 |
|
|
|
- |
|
|
|
2,500 |
|
Financial services
|
|
|
4,926 |
|
|
|
25 |
|
|
|
108 |
|
|
|
5,009 |
|
Other consumer – diversified
|
|
|
193 |
|
|
|
- |
|
|
|
- |
|
|
|
193 |
|
Total redeemable preferred stocks
|
|
|
7,779 |
|
|
|
185 |
|
|
|
108 |
|
|
|
7,702 |
|
Total fixed maturities
|
|
|
187,689 |
|
|
|
4,805 |
|
|
|
3,331 |
|
|
|
186,215 |
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and non-redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
1,117 |
|
|
|
153 |
|
|
|
- |
|
|
|
964 |
|
Financial services
|
|
|
5,532 |
|
|
|
803 |
|
|
|
60 |
|
|
|
4,789 |
|
Media
|
|
|
1,173 |
|
|
|
- |
|
|
|
2,025 |
|
|
|
3,198 |
|
Other business – diversified
|
|
|
116 |
|
|
|
69 |
|
|
|
- |
|
|
|
47 |
|
Other consumer – diversified
|
|
|
1,056 |
|
|
|
75 |
|
|
|
- |
|
|
|
981 |
|
Total equity securities
|
|
|
8,994 |
|
|
|
1,100 |
|
|
|
2,085 |
|
|
|
9,979 |
|
Other invested assets
|
|
|
956 |
|
|
|
- |
|
|
|
- |
|
|
|
956 |
|
Policy and student loans
|
|
|
2,201 |
|
|
|
- |
|
|
|
- |
|
|
|
2,201 |
|
Real estate
|
|
|
38 |
|
|
|
- |
|
|
|
- |
|
|
|
38 |
|
Investments in unconsolidated trusts
|
|
|
1,238 |
|
|
|
- |
|
|
|
- |
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$ |
201,116 |
|
|
$ |
5,905 |
|
|
$ |
5,416 |
|
|
$ |
200,627 |
|
|
|
December 31, 2010
|
|
|
|
Carrying
Value
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Amortized Cost
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies and authorities
|
|
$ |
46,630 |
|
|
$ |
1,454 |
|
|
$ |
52 |
|
|
$ |
45,228 |
|
Obligations of states and political subdivisions
|
|
|
21,007 |
|
|
|
32 |
|
|
|
876 |
|
|
|
21,851 |
|
Corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
23,010 |
|
|
|
1,079 |
|
|
|
355 |
|
|
|
22,286 |
|
Financial services
|
|
|
21,400 |
|
|
|
324 |
|
|
|
1,745 |
|
|
|
22,821 |
|
Media
|
|
|
2,506 |
|
|
|
153 |
|
|
|
- |
|
|
|
2,353 |
|
Other business – diversified
|
|
|
25,919 |
|
|
|
422 |
|
|
|
529 |
|
|
|
26,026 |
|
Other consumer – diversified
|
|
|
23,532 |
|
|
|
149 |
|
|
|
232 |
|
|
|
23,615 |
|
Total corporate securities
|
|
|
96,367 |
|
|
|
2,127 |
|
|
|
2,861 |
|
|
|
97,101 |
|
Redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
2,670 |
|
|
|
170 |
|
|
|
- |
|
|
|
2,500 |
|
Financial services
|
|
|
4,781 |
|
|
|
22 |
|
|
|
250 |
|
|
|
5,009 |
|
Other consumer – diversified
|
|
|
193 |
|
|
|
- |
|
|
|
- |
|
|
|
193 |
|
Total redeemable preferred stocks
|
|
|
7,644 |
|
|
|
192 |
|
|
|
250 |
|
|
|
7,702 |
|
Total fixed maturities
|
|
|
171,648 |
|
|
|
3,805 |
|
|
|
4,039 |
|
|
|
171,882 |
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and non-redeemable preferred stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities and telecom
|
|
|
1,073 |
|
|
|
109 |
|
|
|
- |
|
|
|
964 |
|
Financial services
|
|
|
5,461 |
|
|
|
754 |
|
|
|
82 |
|
|
|
4,789 |
|
Media
|
|
|
885 |
|
|
|
- |
|
|
|
2,313 |
|
|
|
3,198 |
|
Other business – diversified
|
|
|
120 |
|
|
|
73 |
|
|
|
- |
|
|
|
47 |
|
Other consumer – diversified
|
|
|
985 |
|
|
|
4 |
|
|
|
- |
|
|
|
981 |
|
Total equity securities
|
|
|
8,524 |
|
|
|
940 |
|
|
|
2,395 |
|
|
|
9,979 |
|
Other invested assets
|
|
|
980 |
|
|
|
- |
|
|
|
- |
|
|
|
980 |
|
Policy and student loans
|
|
|
2,200 |
|
|
|
- |
|
|
|
- |
|
|
|
2,200 |
|
Real estate
|
|
|
38 |
|
|
|
- |
|
|
|
- |
|
|
|
38 |
|
Investments in unconsolidated trusts
|
|
|
1,238 |
|
|
|
- |
|
|
|
- |
|
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$ |
184,628 |
|
|
$ |
4,745 |
|
|
$ |
6,434 |
|
|
$ |
186,317 |
|
The amortized cost and carrying value of fixed maturities at June 30, 2011 by contractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
June 30, 2011
|
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
Due in one year or less
|
|
$ |
4,100 |
|
|
$ |
4,025 |
|
Due after one year through five years
|
|
|
7,185 |
|
|
|
6,671 |
|
Due after five years through ten years
|
|
|
22,657 |
|
|
|
21,781 |
|
Due after ten years
|
|
|
152,685 |
|
|
|
152,744 |
|
Varying maturities
|
|
|
1,062 |
|
|
|
994 |
|
Totals
|
|
$ |
187,689 |
|
|
$ |
186,215 |
|
The following table sets forth the carrying value, amortized cost, and net unrealized gains or losses of the Company’s investments aggregated by industry as of June 30, 2011 and December 31, 2010.
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
(Losses)
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
(Losses)
|
|
U.S. Treasury securities and U.S. Government agencies
|
|
$ |
40,041 |
|
|
$ |
38,526 |
|
|
$ |
1,515 |
|
|
$ |
46,630 |
|
|
$ |
45,228 |
|
|
$ |
1,402 |
|
Obligations of states and political subdivisions
|
|
|
21,906 |
|
|
|
21,835 |
|
|
|
71 |
|
|
|
21,007 |
|
|
|
21,851 |
|
|
|
(844 |
) |
Utilities and telecom
|
|
|
25,435 |
|
|
|
24,099 |
|
|
|
1,336 |
|
|
|
26,753 |
|
|
|
25,750 |
|
|
|
1,003 |
|
Financial services
|
|
|
31,917 |
|
|
|
32,590 |
|
|
|
(673 |
) |
|
|
31,642 |
|
|
|
32,619 |
|
|
|
(977 |
) |
Media (1)
|
|
|
3,676 |
|
|
|
5,551 |
|
|
|
(1,875 |
) |
|
|
3,391 |
|
|
|
5,551 |
|
|
|
(2,160 |
) |
Other business – diversified
|
|
|
35,736 |
|
|
|
35,611 |
|
|
|
125 |
|
|
|
26,039 |
|
|
|
26,073 |
|
|
|
(34 |
) |
Other consumer – diversified
|
|
|
37,972 |
|
|
|
37,982 |
|
|
|
(10 |
) |
|
|
24,710 |
|
|
|
24,789 |
|
|
|
(79 |
) |
Other investments
|
|
|
4,433 |
|
|
|
4,433 |
|
|
|
- |
|
|
|
4,456 |
|
|
|
4,456 |
|
|
|
- |
|
Investments
|
|
$ |
201,116 |
|
|
$ |
200,627 |
|
|
$ |
489 |
|
|
$ |
184,628 |
|
|
$ |
186,317 |
|
|
$ |
(1,689 |
) |
|
(1)
|
Media includes related party investments in Gray Television, Inc. with an amortized cost basis of $3,198 and which had an aggregate carrying value of $1,173 and $885 at June 30, 2011 and December 31, 2010, respectively.
|
The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010.
|
|
June 30, 2011
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair
Value
|
|
|
Unrealized Losses
|
|
Obligations of states and political subdivisions
|
|
$ |
9,844 |
|
|
$ |
299 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
9,844 |
|
|
$ |
299 |
|
Corporate securities
|
|
|
56,592 |
|
|
|
1,458 |
|
|
|
3,534 |
|
|
|
1,466 |
|
|
|
60,126 |
|
|
|
2,924 |
|
Redeemable preferred stocks
|
|
|
999 |
|
|
|
1 |
|
|
|
2,162 |
|
|
|
107 |
|
|
|
3,161 |
|
|
|
108 |
|
Equity securities
|
|
|
2,965 |
|
|
|
51 |
|
|
|
1,431 |
|
|
|
2,034 |
|
|
|
4,396 |
|
|
|
2,085 |
|
Total temporarily impaired securities
|
|
$ |
70,400 |
|
|
$ |
1,809 |
|
|
$ |
7,127 |
|
|
$ |
3,607 |
|
|
$ |
77,527 |
|
|
$ |
5,416 |
|
|
|
December 31, 2010
|
|
|
|
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
|
|
$ |
5,490 |
|
|
$ |
52 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,490 |
|
|
$ |
52 |
|
Obligations of states and political subdivisions
|
|
|
18,919 |
|
|
|
876 |
|
|
|
- |
|
|
|
- |
|
|
|
18,919 |
|
|
|
876 |
|
Corporate securities
|
|
|
40,426 |
|
|
|
1,263 |
|
|
|
3,402 |
|
|
|
1,598 |
|
|
|
43,828 |
|
|
|
2,861 |
|
Redeemable preferred stocks
|
|
|
2,188 |
|
|
|
53 |
|
|
|
2,072 |
|
|
|
197 |
|
|
|
4,260 |
|
|
|
250 |
|
Equity securities
|
|
|
972 |
|
|
|
28 |
|
|
|
3,114 |
|
|
|
2,367 |
|
|
|
4,086 |
|
|
|
2,395 |
|
Total temporarily impaired securities
|
|
$ |
67,995 |
|
|
$ |
2,272 |
|
|
$ |
8,588 |
|
|
$ |
4,162 |
|
|
$ |
76,583 |
|
|
$ |
6,434 |
|
The evaluation for an other than temporary impairment 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 these securities until price recovery, the nature of the investment
and the prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of the investment 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.
As of June 30, 2011, securities in an unrealized loss position primarily included certain of the Company’s investments in fixed maturities and common and non-redeemable preferred stocks within the financial services and media sectors. Investments in the media sector include related party investments in Gray Television, Inc., which had unrealized losses of $2,025 as of June 30, 2011. 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, the Company has deemed these securities to be temporarily impaired as of June 30, 2011.
The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure 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 Level 1 financial instruments include cash equivalents 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 Level 2 financial instruments include significantly all of its fixed maturities, which consist of U.S. Treasury securities and U.S. Government securities, municipal bonds, and certain corporate fixed maturity securities, as well as its non-redeemable preferred stocks. In determining Level 2 fair value measurements, the Company utilizes various external pricing sources.
|
Level 3
|
Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). The Company’s Level 3 financial instruments include certain fixed maturity securities and a zero cost interest rate collar. Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. As of June 30, 2011, the value of the Company’s fixed maturities valued using Level 3 criteria was $1,787 and the value of the zero cost interest rate collar was a liability of $1,288 (See Note 5). The use of different criteria or assumptions regarding data may have yielded different valuations.
|
As of June 30, 2011, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
|
Quoted Prices
in Active
Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$ |
- |
|
|
$ |
185,902 |
|
|
$ |
1,787 |
|
|
$ |
187,689 |
|
Equity securities
|
|
|
3,655 |
|
|
|
5,339 |
|
|
|
- |
|
|
|
8,994 |
|
Cash equivalents
|
|
|
24,192 |
|
|
|
- |
|
|
|
- |
|
|
|
24,192 |
|
Total
|
|
$ |
27,847 |
|
|
$ |
191,241 |
|
|
$ |
1,787 |
|
|
$ |
220,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,288 |
|
|
$ |
1,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
|
Quoted Prices in Active Markets
for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$ |
- |
|
|
$ |
169,705 |
|
|
$ |
1,943 |
|
|
$ |
171,648 |
|
Equity securities
|
|
|
3,273 |
|
|
|
5,251 |
|
|
|
- |
|
|
|
8,524 |
|
Cash equivalents
|
|
|
27,630 |
|
|
|
- |
|
|
|
- |
|
|
|
27,630 |
|
Total
|
|
$ |
30,903 |
|
|
$ |
174,956 |
|
|
$ |
1,943 |
|
|
$ |
207,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,553 |
|
|
$ |
1,553 |
|
The following is a roll-forward of the financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month and six month periods ended June 30, 2011.
|
|
Fixed Maturities
|
|
|
Derivative (Liability)
|
|
Balance, December 31, 2010
|
|
$ |
1,943 |
|
|
$ |
(1,553 |
) |
Total unrealized gains (losses) included in total comprehensive income
|
|
|
(197 |
) |
|
|
191 |
|
Balance, March 31, 2011
|
|
$ |
1,746 |
|
|
$ |
(1,362 |
) |
Total unrealized gains included in total comprehensive income
|
|
|
41 |
|
|
|
74 |
|
Balance, June 30, 2011
|
|
$ |
1,787 |
|
|
$ |
(1,288 |
) |
The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at a reasonably estimated rate of interest. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable. As the derivative is an interest rate collar, changes in valuation are more closely correlated with changes in interest rates and, accordingly, values
are estimated using projected cash flows at current interest rates discounted at a reasonably estimated rate of interest. Fair value quotations are also obtained and considered, as applicable, from the counterparty to the transaction.
Item 2.
AND RESULTS OF OPERATIONS
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”) for the three month and six month periods ended June 30, 2011. This discussion should be read in conjunction with the 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, 2010.
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 (“Bankers Fidelity”). Each operating company is managed separately, offers different products and is evaluated on its individual performance.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and, in management’s belief, conform to general practices within the insurance industry. The following is an explanation of the Company’s critical accounting policies and the resultant estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. Atlantic American does not expect that changes in the estimates determined using these policies
will have a material effect on the Company’s financial condition or liquidity, although changes could have a material effect on its consolidated results of operations.
Unpaid loss and loss adjustment expenses comprised 29% of the Company’s total liabilities at June 30, 2011. This liability includes estimates for: 1) unpaid losses on claims reported prior to June 30, 2011, 2) future development on those reported claims, 3) unpaid ultimate losses on claims incurred prior to June 30, 2011 but not yet reported and 4) unpaid loss adjustment expenses for reported and unreported claims incurred prior to June 30, 2011. Quantification of loss estimates for each of these components involves a significant degree of judgment and estimates may vary, materially, from period to period. Estimated
unpaid losses on reported claims are developed based on historical experience with similar claims by the Company. Development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to June 30, 2011 but not yet reported, and estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis. The Company’s actuaries develop ranges of estimated development on reported and unreported claims as well as loss adjustment expenses using various methods, including the paid-loss development method, the reported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method. Any single method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affecting the
business environment and the Company’s administrative policies. Further, a variety of external factors, such as legislative changes, medical cost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses. The Company’s approach is to select an estimate of ultimate losses based on comparing results of a variety of reserving methods, as opposed to total reliance on any single method. Unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business, and when current results differ from the original assumptions used to develop such estimates, the amount of the Company’s recorded liability for unpaid loss and loss adjustment expenses is adjusted. In the event the Company’s actual reported losses in any period are
materially in excess of the previously estimated amounts, such losses, to the extent reinsurance coverage does not exist, could have a material adverse effect on the Company’s results of operations.
Future policy benefits comprised 32% of the Company’s total liabilities at June 30, 2011. These liabilities relate primarily to life insurance products and are based upon assumed future investment yields, mortality rates, and withdrawal rates after giving effect to possible risks of adverse deviation. The assumed mortality and withdrawal rates are based upon the Company’s experience. If actual results differ from the initial assumptions, the amount of the Company’s recorded liability could require adjustment.
Deferred acquisition costs comprised 8% of the Company’s total assets at June 30, 2011. Deferred acquisition costs are commissions, premium taxes, and other costs that vary with and are primarily related to the acquisition of new and renewal business and are generally deferred and amortized. The deferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner. Traditional life insurance and long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used
in computing the related liability for policy benefit reserves. The deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over the effective period of the related insurance policies. Deferred policy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty and short-duration health insurance). Assessments of recoverability for property and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year’s projected losses related to the unearned premiums. Projected loss estimates for a current block of business for which unearned premiums remain to be
earned may vary significantly from the indicated losses incurred in any previous calendar year.
Receivables are amounts due from reinsurers, insureds and agents, and any sales of investment securities not yet settled, and comprised 8% of the Company’s total assets at June 30, 2011. Insured and agent balances are evaluated periodically for collectibility. Annually, the Company performs an analysis of the creditworthiness of the Company’s reinsurers using various data sources. Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise could result in uncollectible amounts and losses to the Company. Allowances for uncollectible
amounts are established, as and when a loss has been determined probable, against the related receivable. Losses are recognized when determined on a specific account basis and a general provision for loss is made based on the Company’s historical experience.
Cash and investments comprised 82% of the Company’s total assets at June 30, 2011. Substantially all of the Company’s investments are in bonds and common and preferred stocks, the values of which are subject to significant market fluctuations. The Company carries all investments as available for sale and, accordingly, at their estimated fair values. The Company owns certain fixed maturity securities that do not have publicly quoted values, but had an estimated fair value as determined by management of $1.8 million at June 30, 2011. Such values inherently
involve a greater degree of judgment and uncertainty and therefore ultimately greater price volatility. On occasion, the value of an investment may decline to a value below its amortized purchase price and remain at such value for an extended period of time. When an investment’s indicated fair value has declined below its cost basis for a period of time, the Company evaluates such investment for an other than temporary impairment. The evaluation for an other than temporary impairment 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 these securities until price recovery, the nature of the investment and the prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of the investment 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. If an other than temporary impairment is deemed to exist, then the Company will write down the amortized cost basis of the investment to its estimated fair value. While such write down will not impact the reported value of the investment in the Company’s balance sheet,
it will be reflected as a realized investment loss in the Company’s consolidated statements of operations.
The Company determines the fair values of certain financial instruments based on the fair market hierarchy established in Accounting Standards Codification (“ASC”) 820-10-20, Fair Value Measurements and Disclosures (“ASC 820-10-20”). The fair values for fixed maturity and equity securities are largely determined by either independent methods prescribed by the National Association of Insurance Commissioners, which do not differ materially from nationally quoted market prices, when available, or independent broker quotations. See Note 10 of the accompanying notes to
condensed consolidated financial statements with respect to assets and liabilities carried at fair value and information about the inputs used to value those financial instruments, by hierarchy level, in accordance with ASC 820-10-20.
Deferred income taxes comprised 1% of the Company’s total assets at June 30, 2011. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for tax purposes. These deferred income taxes are measured by applying currently enacted tax laws and rates. Valuation allowances are recognized to reduce the deferred tax asset to the amount that is deemed more likely than not to be realized. In assessing the likelihood of realization, management considers
estimates of future taxable income and tax planning strategies.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards applicable to the Company, see Note 2 of the accompanying notes to the consolidated financial statements.
OVERALL CORPORATE RESULTS
On a consolidated basis, the Company had net income of $0.2 million, or nil per diluted share, for the three month period ended June 30, 2011, compared to net income of $0.1 million, or nil per diluted share, for the three month period ended June 30, 2010. The Company had net income of $0.7 million, or $0.02 per diluted share, for the six month period ended June 30, 2011, compared to net income of $0.5 million, or $0.01 per diluted share, for the six month period ended June 30, 2010. The increase in net income in the three month and six month periods ended June 30, 2011 was primarily due to an increase in premium revenue, investment income and realized gains, while maintaining a relatively consistent level of fixed
expenses. Premium revenue for the three month period ended June 30, 2011 increased $1.8 million, or 7.4%, to $26.2 million. For the six month period ended June 30, 2011, premium revenue increased $3.9 million, or 8.1%, to $51.6 million. The increase in premium revenue in the three month and six month periods ended June 30, 2011 was primarily attributable to increases in Medicare supplement and commercial automobile business. Partially offsetting the increase in premiums were declines in the life insurance and general liability premiums.
A more detailed analysis of the individual operating companies and other corporate activities is provided below.
American Southern
The following is a summary of American Southern’s premiums for the three month and six month periods ended June 30, 2011 and the comparable periods in 2010 (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums
|
|
$ |
12,247 |
|
|
$ |
12,859 |
|
|
$ |
19,817 |
|
|
$ |
20,953 |
|
Ceded premiums
|
|
|
(1,507 |
) |
|
|
(1,331 |
) |
|
|
(2,974 |
) |
|
|
(2,640 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$ |
10,740 |
|
|
$ |
11,528 |
|
|
$ |
16,843 |
|
|
$ |
18,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$ |
9,731 |
|
|
$ |
8,789 |
|
|
$ |
19,164 |
|
|
$ |
16,846 |
|
Gross written premiums at American Southern decreased $0.6 million, or 4.8%, during the three month period ended June 30, 2011, and $1.1 million, or 5.4%, during the six month period ended June 30, 2011, from the comparable periods in 2010. The decrease in gross written premiums during the three month and six month periods ended June 30, 2011 was primarily attributable to the change in the policy term of one of the company’s state contracts. The contract was originally renewed at the beginning of the 2010 second quarter. Subsequent thereto in the 2010 fourth quarter, the initial contract was cancelled after a six month period and
re-written with a new annual policy term incepting in October 2010. Consequently, the annualized gross written premiums from this contract were not included in the three month and six month periods ended June 30, 2011 but were included in the 2010 comparable periods, thereby contributing to the decrease in the 2011 written premiums. The change in the policy term of this state contract did not impact earned premiums. Also contributing to the decrease in gross written premiums during the three month and six month periods ended June 30, 2011 was the continued decline in the general liability line of business resulting from continued weakness in the construction industry. However, partially offsetting the decrease in gross written premiums was a significant increase in commercial automobile business and increased writings of performance
bonds.
Ceded premiums increased $0.2 million, or 13.2%, during the three month period ended June 30, 2011, and $0.3 million, or 12.7%, during the six month period ended June 30, 2011, over the comparable periods in 2010. The increase in ceded premiums during the three month and six month periods ended June 30, 2011 was primarily due to the increase in the related earned premiums. As American Southern’s premiums are determined and ceded as a percentage of earned premiums, an increase in ceded premiums occurs when earned premiums increase. Also contributing to the increase in ceded premiums was an increase in commercial automobile earned premiums which have higher contractual cession
rates than other lines of business.
The following presents American Southern’s net earned premiums by line of business for the three month and six month periods ended June 30, 2011 and the comparable periods in 2010 (in thousands):