ATLANTIC AMERICAN CORPORATION
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
December 31, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-3722
ATLANTIC AMERICAN
CORPORATION
(Exact name of registrant as
specified in its charter)
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Georgia
(State or other jurisdiction
of
incorporation or organization)
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58-1027114
(I.R.S. employer
identification no.)
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4370 Peachtree Road, N.E.,
Atlanta, Georgia
(Address of principal
executive offices)
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30319
(Zip code)
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(Registrants telephone number, including area code)
(404) 266-5500
Securities registered pursuant to section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $1.00 par value
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
10-K or any
amendment to this
Form 10-K. o
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated
Filer o
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Accelerated
Filer o
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Non-Accelerated
Filer o
(Do not check if a smaller reporting company)
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Smaller Reporting
Company þ
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting and nonvoting common stock
held by non-affiliates of the registrant as of June 30,
2007, the last business day of the registrants most
recently completed second fiscal quarter, was $21,010,869. On
March 14, 2008 there were 21,843,062 shares of the
registrants common stock, par value $1.00 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrants Proxy Statement for
the 2008 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission within 120 days of the
registrants fiscal year end, have been incorporated by
reference in Items 10, 11, 12, 13 and 14 of Part III
of this
Form 10-K.
PART I
The
Company
Atlantic American Corporation, a Georgia corporation
incorporated in 1968 (the Parent or
Company), is a holding company that operates through
its subsidiaries in well-defined specialty markets within the
life and health and property and casualty insurance industries.
Atlantic Americans principal operating subsidiaries are
American Southern Insurance Company and American Safety
Insurance Company (collectively known as American
Southern) and Bankers Fidelity Life Insurance Company
(Bankers Fidelity). Each subsidiary is managed
separately based upon the geographic location or the type of
products offered and is evaluated on its individual performance.
The Companys strategy is to focus on well-defined
geographic, demographic
and/or
product niches within the insurance market place. Each of the
Companys subsidiaries operates with relative autonomy,
which is designed to allow for quick reaction to market
opportunities.
The Parent has no significant business operations of its own and
relies on fees, dividends and other distributions from its
insurance companies as the principal source of cash flow to meet
its obligations. Additional information regarding the cash flow
and liquidity needs of the Parent may be found in the Liquidity
and Capital Resources section of Managements Discussion
and Analysis of Financial Condition and Results of Operations
below.
In December 2007, the Company entered into an agreement for the
sale of its regional property and casualty
operations, comprised of Association Casualty Insurance Company
and Association Risk Management General Agency, Inc.
(collectively known as Association Casualty) and
Georgia Casualty & Surety Company (Georgia
Casualty), to Columbia Mutual Insurance Company.
Accordingly, the assets, liabilities and results of operations
of the regional property and casualty operations have been
reflected by the Company as discontinued operations. The sale is
expected to be completed on or about March 31, 2008.
Property
and Casualty Operations
American Southern comprises the Companys property and
casualty operations and its primary products are as follows:
Business Automobile Insurance policies provide
bodily injury
and/or
property damage liability coverage, uninsured motorist coverage
and physical damage coverage to commercial accounts.
General Liability Insurance policies cover bodily
injury and property damage liability for both premises and
completed operations exposures for general classes of business.
Property Insurance policies provide for payment of
losses on personal property caused by fire or other multiple
perils.
Personal Automobile Insurance policies provide
bodily injury
and/or
property damage liability coverage, uninsured motorists coverage
and physical damage coverage to individuals.
Surety Bonds are contracts under which one party,
the insurance company issuing the surety bond, guarantees to a
third party that the primary party will fulfill an obligation in
accordance with a contractual agreement. This obligation may
involve meeting a contractual commitment, paying a debt or
performing certain duties.
American Southern provides tailored business automobile and
long-haul physical damage insurance coverage, on a multi-year
contract basis, to state governments, local municipalities and
other large motor pools and fleets (block accounts)
that can be specifically rated and underwritten. The size of the
block accounts insured by American Southern are such that
individual class experience generally can be determined, which
allows for customized policy terms and rates. American Southern
is licensed to do business in 31 states. While the majority
of American Southerns premiums are derived from auto
liability and auto physical damage, American Southern also
offers personal property, inland marine, and general liability
coverages. Additionally,
2
American Southern directly provides surety bond coverage for
school bus transportation and subdivision construction, as well
as performance and payment bonds. During 2007, American Southern
experienced decreased premium writings in the surety line of
business, specifically pay for performance bonds and subdivision
construction bonds, due to the general economic slowdown,
particularly in housing. As described in more detail below, the
reduction in these bonds reduced premium revenue but enhanced
the overall profitability of the surety business in 2007.
The following table summarizes, for the periods indicated, the
allocation of American Southerns net earned premiums from
each of its principal product lines:
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Year Ended December 31,
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2007
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2006
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2005
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2004
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2003
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(In thousands)
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Automobile liability
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$
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10,936
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$
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16,163
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$
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16,723
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$
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18,944
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$
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17,947
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Automobile physical damage
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8,105
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9,698
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11,002
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11,187
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9,451
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General liability
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10,349
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11,394
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11,767
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10,102
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5,777
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Property
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3,005
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3,187
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3,692
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3,862
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3,819
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Surety
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9,180
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10,218
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8,263
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3,967
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364
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Total
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$
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41,575
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$
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50,660
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$
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51,447
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$
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48,062
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$
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37,358
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Life
and Health Operations
Bankers Fidelity comprises the life and health operations of the
Company and offers a variety of life and supplemental health
products with a focus on the senior markets. Products offered by
Bankers Fidelity include ordinary and term life insurance,
Medicare supplement, cancer, and other supplemental health
insurance products. Health business, primarily Medicare
supplement insurance, accounted for 81.1% of Bankers
Fidelitys net earned premiums in 2007 while life
insurance, including both whole and term life insurance
policies, accounted for the balance. In terms of the number of
policies written in 2007, 23.4% were life insurance policies and
76.6% were health insurance policies.
The following table summarizes, for the periods indicated, the
allocation of Bankers Fidelitys net earned premiums from
each of its principal product lines followed by a brief
description of the principal products:
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Year Ended December 31,
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2007
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2006
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2005
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2004
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2003
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(In thousands)
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Life insurance
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$
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10,615
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$
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10,960
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$
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11,600
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$
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12,934
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$
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13,541
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Medicare supplement
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41,786
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44,919
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51,414
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49,575
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46,190
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Other accident and health
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3,848
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3,041
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2,890
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2,933
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2,952
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Total health insurance
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45,634
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47,960
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54,304
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52,508
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49,142
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Total
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$
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56,249
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$
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58,920
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$
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65,904
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$
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65,442
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$
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62,683
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Life Insurance products include non-participating
individual term and whole life insurance policies with a variety
of riders and options. Policy premiums are dependent upon a
number of factors, including selected riders or options.
Medicare Supplement Insurance includes 7 of the 12
standardized Medicare supplement policies created under the
Omnibus Budget Reconciliation Act of 1990 (OBRA
1990), which are designed to provide insurance coverage
for certain expenses not covered by the Medicare program,
including copayments and deductibles.
Other Accident and Health Insurance coverages
include several policies providing for the payment of benefits
in connection with the treatment of diagnosed cancer, as well as
a number of other policies including facility care, accident
expense, hospital/surgical and disability.
3
Marketing
Property
and Casualty Operations
A portion of American Southerns business is marketed
through a small number of specialized, experienced independent
agents. American Southerns agent selection process is
actively managed by internal marketing personnel with active
oversight from management. Senior management carefully reviews
all new programs prior to implementation. Most of American
Southerns agents are paid an up-front commission with the
potential for additional commissions by participating in a
profit sharing arrangement that is directly linked to the
profitability of the business generated. American Southern also
solicits business from governmental entities. As an experienced
writer for certain governmental programs, the company actively
pursues this market on a direct basis. Much of this business is
priced by means of competitive bid situations and there can be
no assurance that the company can retain such business at the
time of a specific contract renewal.
Life
and Health Operations
Bankers Fidelity markets its policies through commissioned,
independent agents. In general, Bankers Fidelity enters
contractual arrangements with various general agents responsible
for marketing and other activities, who also, in turn, contract
with independent agents. The standard agreements set forth the
commission arrangements and are terminable by either party upon
notice. General agents receive an override commission on sales
made by agents contracted by them. Management believes utilizing
experienced agents, as well as independent general agents who
recruit and train their own agents, is cost effective. All
independent agents are compensated solely on a commission basis.
Using independent agents also enables Bankers Fidelity to expand
or contract its sales force without incurring significant
additional expense.
Bankers Fidelity has implemented a selective agent qualification
process and had 1,699 licensed agents as of December 31,
2007. The agents concentrate their sales activities in either
the accident and health or life insurance product lines,
although the company is currently promoting greater cross
selling initiatives through property and casualty agencies,
association groups and worksite marketing agencies. During 2007,
approximately 484 agents wrote policies on behalf of Bankers
Fidelity.
Bankers Fidelity utilizes multiple distribution sales channels
including agency business, which is centered around a lead
generation plan that rewards qualified agents with leads in
accordance with monthly production goals. In addition, a
protected territory is established for each qualified agent,
which entitles them to all leads produced within that territory.
The territories are zip code or county based and encompass
sufficient geographic territory to produce a minimum senior
population of 25,000. Bankers Fidelity also recruits at a
general agent level as well as at a managing general agent level
in an effort to use more than one distribution channel to lower
expenses.
The Company believes these lead generation systems solve an
agents most important dilemma
prospecting and allows Bankers Fidelity to build
long-term relationships with agents who view Bankers Fidelity as
their primary company. In addition, management believes that
Bankers Fidelitys product line is less sensitive to
competitor pricing and commissions because of the perceived
value of the protected territory and the lead generation plan.
In protected geographical areas, production per agent compares
favorably to unprotected areas served by the general brokerage
division.
Products of Bankers Fidelity compete directly with products
offered by other insurance companies, and agents may represent
several insurance companies. Bankers Fidelity, in an effort to
further motivate agents to market its products, offers the
following agency services: a unique lead system, competitive
products and commission structures, efficient claims service,
prompt payment of commissions that immediately vest, simplified
policy issue procedures, periodic sales incentive programs and,
as described above, protected sales territories determined based
on specific counties
and/or zip
codes.
4
Underwriting
Property
and Casualty Operations
American Southern specializes in underwriting various risks that
are sufficiently large enough to establish separate class
experience, relying upon the underwriting expertise of its
agents.
During the course of the policy year, extensive use is made of
risk management representatives to assist commercial
underwriters in identifying and correcting potential loss
exposures and to pre-inspect a majority of the new underwritten
accounts. The results of each insured are reviewed on a
stand-alone basis periodically. When the results are below
expectations, management takes appropriate corrective action
which may include adjusting rates, reviewing underwriting
standards, reducing commissions paid to agents,
and/or
altering or declining to renew accounts at expiration.
Life
and Health Operations
Bankers Fidelity issues a variety of products for both life and
health insurance markets, which include senior life products
typically with small face amounts of between $1,000 and $30,000,
and Medicare supplement. The majority of its products are
Yes or No applications that are
underwritten on a non-medical basis. Bankers Fidelity offers
products to all age groups; however, its primary focus is the
senior market. For life products other than the senior market,
Bankers Fidelity may require medical information such as medical
examinations subject to age and face amount based on published
guidelines. Approximately 95% of the net premiums earned for
both life and health insurance sold during 2007 were derived
from insurance written below Bankers Fidelitys medical
limits. For the senior market, Bankers Fidelity issues products
primarily on an accept-or-reject basis with face amounts up to
$30,000 for
ages 45-70,
$20,000 for
ages 71-80
and $10,000 for
ages 81-85.
Bankers Fidelity retains a maximum amount of $50,000 with
respect to any individual life policy (see
Reinsurance).
Applications for insurance are reviewed to determine the face
amount, age, and medical history. Depending upon information
obtained from the insured, the Medical Information Bureau
(M.I.B.) report, paramedical testing,
and/or
medical records, special testing may be ordered. If deemed
necessary, Bankers Fidelity may use investigative services to
supplement and substantiate information. For certain limited
coverages, Bankers Fidelity has adopted simplified policy issue
procedures by which an application containing a variety of
Yes/No health related questions is submitted. For these plans, a
M.I.B. report is ordered, however, paramedical testing and
medical records are not ordered in most cases. All applications
for individuals age 60 and above are verified by telephone
interview.
Policyholder
and Claims Services
The Company believes that prompt, efficient policyholder and
claims services are essential to its continued success in
marketing its insurance products (see Competition).
Additionally, the Company believes that its insureds are
particularly sensitive to claims processing time and to the
accessibility of qualified staff to answer inquiries.
Accordingly, the Companys policyholder and claims services
seek to offer expeditious disposition of service requests by
providing toll-free access for all customers,
24-hour
claim reporting services, and direct computer links with some of
its largest accounts. The Company also utilizes a
state-of-the-art automatic call distribution system to ensure
that inbound calls to customer service support groups are
processed efficiently. Operational data generated from this
system allows management to further refine ongoing client
service programs and service representative training modules.
The Company supports a Customer Awareness Program as the basis
for its customer service philosophy. All personnel are required
to attend customer service classes. Customer service hours of
operation have been expanded in all service areas to serve
customers and agents in all domestic time zones.
Property
and Casualty Operations
American Southern controls its claims costs by utilizing an
in-house staff of claims supervisors to investigate, verify,
negotiate and settle claims. Upon notification of an occurrence
purportedly giving rise to a
5
claim, a claim file is established. The claims department then
conducts a preliminary investigation, determines whether an
insurable event has occurred and, if so, updates the file for
the findings and any required reserve adjustments. Frequently,
independent adjusters and appraisers are utilized to service
claims which require
on-site
inspections.
Life
and Health Operations
Insureds may obtain claim forms by calling the claims department
customer service group or through Bankers Fidelitys
website. To shorten claim processing time, a letter detailing
all supporting documents that are required to complete a claim
for a particular policy is sent to the customer along with the
correct claim form. With respect to life policies, the claim is
entered into Bankers Fidelitys claims system when the
proper documentation is received. Properly documented claims are
generally paid within three to nine business days of receipt.
With regard to Medicare supplement policies, the claim is either
directly billed to Bankers Fidelity by the provider or sent
electronically through a Medicare clearing house.
Reserves
The following table sets forth information concerning the
Companys reserves for losses and claims and reserves for
loss adjustment expenses (LAE) for the periods
indicated:
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2007
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2006
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2005
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Balance at January 1
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$
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55,291
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$
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53,817
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$
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53,025
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Less: Reinsurance recoverables
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(12,266
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(12,829
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(12,857
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Net balance at January 1
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43,025
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40,988
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40,168
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Incurred related to:
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Current year
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65,274
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73,167
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76,626
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Prior years(1)
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(11,517
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(9,926
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(8,370
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Total incurred
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53,757
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63,241
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68,256
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Paid related to:
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Current year
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41,687
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46,355
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50,922
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Prior years
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16,395
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14,849
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16,514
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Total paid
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58,082
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61,204
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67,436
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Net balance at December 31
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38,700
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43,025
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40,988
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Plus: Reinsurance recoverables
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13,004
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12,266
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12,829
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Balance at December 31
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$
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51,704
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$
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55,291
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$
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53,817
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(1) |
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See Note 4 of Notes to Consolidated Financial Statements. |
Reserves are set by line of business within each of the
subsidiaries and a single line of business may be written in one
or more of the subsidiaries. Individual case reserves are
established by a claims processor on each individual claim and
are periodically reviewed and adjusted as new information
becomes known during the course of handling a claim. Lines of
business for which loss data (e.g. paid losses and case
reserves) emerge over a long period of time are referred to as
long-tail lines of business. Lines of business for which loss
data emerge more quickly are referred to as short-tail lines of
business. The Companys long-tail line of business
generally includes general liability while the short-tail lines
of business generally include property and automobile coverages.
The Companys actuaries regularly review reserves for both
current and prior accident years using the most current claims
data. These regular reviews incorporate a variety of actuarial
methods (discussed below in Critical Accounting Policies) and
judgments and involve a disciplined analysis. For most lines of
business, certain actuarial methods and specific assumptions are
deemed more appropriate based on the current
6
circumstances affecting that line of business. These selections
incorporate input from claims personnel and operating management
on reported loss cost trends and other factors that could affect
the reserve estimates.
For long-tail lines of business, the emergence of paid losses
and case reserves is less credible in the early periods, and
accordingly may not be indicative of ultimate losses. For these
lines, methods which incorporate a development pattern
assumption are given less weight in calculating incurred but not
reported (IBNR) reserves for the early periods of
loss emergence because such a low percentage of ultimate losses
are reported in that time frame. Accordingly, for any given
accident year, the rate at which losses on long-tail lines of
business emerge in the early periods is generally not as
reliable an indication of the ultimate loss costs as it would be
for shorter-tail lines of business. The estimation of reserves
for these lines of business in the early periods of loss
emergence is therefore largely influenced by statistical
analysis and application of prior accident years loss
ratios after considering changes to earned pricing, loss costs,
mix of business, ceded reinsurance and other factors that are
expected to affect the estimated ultimate losses. For later
periods of loss emergence, methods which incorporate a
development pattern assumption are given more weight in
estimating ultimate losses.
For short-tail lines of business, the emergence of paid loss and
case reserves is more credible and likely indicative of ultimate
losses. The method used to set reserves for these lines is based
upon utilization of a historical development pattern for
reported losses. IBNR reserves for the current year are set as
the difference between the estimated fully developed ultimate
losses for each year, less the established, related case
reserves and cumulative related payments. IBNR reserves for
prior accident years are similarly determined, again relying on
an indicated, historical development pattern for reported losses.
Based on the results of regular reserve estimate reviews, the
Company will determine the appropriate reserve adjustment, if
any, to record. If necessary, recorded reserve estimates are
changed after consideration of numerous factors, including, but
not limited to, the magnitude of the difference between the
actuarial indication and the recorded reserves, improvement or
deterioration of actuarial indication in the period, the
maturity of the accident year, trends observed over the recent
past and the level of volatility within a particular line of
business. In general, changes are made more quickly to recognize
changes in estimates to ultimate losses in mature accident years
and less volatile lines of business.
Estimating case reserves and ultimate losses involves various
considerations which differ according to the line of business.
In addition, changes in state legislative and regulatory
environments may impact loss estimates. General liability claims
may have a long pattern of loss emergence. Given the broad
nature of potential general liability coverages, investigative
time periods may be extended and coverage questions may exist.
Such uncertainties create greater imprecision in estimating
required levels of loss reserves. The property and automobile
lines of business generally have less variable reserve estimates
than other lines. This is largely due to the coverages having
relatively shorter periods of loss emergence. Estimates,
however, can still vary due to a number of factors, including
interpretations of frequency and severity trends. Severity
trends can be impacted by changes in internal claim handling and
reserving practices in addition to changes in the external
environment. These changes in claim practices increase the
uncertainty in the interpretation of case reserve data, which
increases the uncertainty in recorded reserve levels.
Components of the Companys reserves for losses and claims
by product line at December 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case
|
|
|
IBNR
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Business automobile
|
|
$
|
9,759
|
|
|
$
|
8,802
|
|
|
$
|
18,561
|
|
Personal automobile/physical damage
|
|
|
1,911
|
|
|
|
659
|
|
|
|
2,570
|
|
General & other liability
|
|
|
4,483
|
|
|
|
10,984
|
|
|
|
15,467
|
|
Other lines (including life)
|
|
|
2,667
|
|
|
|
4,455
|
|
|
|
7,122
|
|
Medicare supplement
|
|
|
176
|
|
|
|
5,376
|
|
|
|
5,552
|
|
Unallocated loss adjustment reserves
|
|
|
|
|
|
|
2,432
|
|
|
|
2,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves for losses and claims
|
|
$
|
18,996
|
|
|
$
|
32,708
|
|
|
$
|
51,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
The Companys policy is to record reserves for losses and
claims in amounts which approximate actuarial best estimates of
ultimate values. Actuarial best estimates do not necessarily
represent the midpoint value determined using the various
actuarial methods; however, such estimates will fall between the
estimated low and high end reserve values. The range of
estimates developed in connection with the December 31,
2007 review indicated that reserves could be as much as 16.0%
lower or as much as 6.7% higher. In the opinion of management,
recorded reserves represent the best estimate of outstanding
losses, although significant judgments are made in the
derivation of reserve estimates and revisions to such estimates
will be made in future periods. Any such revisions could be
material, and may materially adversely affect the Companys
financial condition and results of operations.
Property
and Casualty Operations
American Southern maintains loss reserves representing estimates
of amounts necessary for payment of losses and LAE and are not
discounted. IBNR reserves are also maintained for future
development. These loss reserves are estimates, based on known
facts and circumstances at a given point in time, of amounts the
insurer expects to pay on incurred claims. All balances are
reviewed periodically by both internal and external qualified
actuaries. Reserves for LAE are intended to cover the ultimate
costs of settling claims, including investigation and defense of
lawsuits resulting from such claims. Loss reserves for reported
claims are based on a
case-by-case
evaluation of the type of claim involved, the circumstances
surrounding the claim, and the policy provisions relating to the
type of loss along with anticipated future development. The LAE
for claims reported and claims not reported is based on
historical statistical data and anticipated future development.
Inflation and other factors which may affect claim payments are
implicitly reflected in the reserving process through analysis
and consideration of cost trends and reviews of historical
reserve results.
American Southern establishes reserves for claims based upon:
(a) managements estimate of ultimate liability and
claims adjusters evaluations for unpaid claims reported
prior to the close of the accounting period, (b) estimates
of IBNR claims based on past experience, and (c) estimates
of LAE. The estimated liability is periodically reviewed and
updated, and changes to the estimated liability are recorded in
the statement of operations in the year in which such changes
become known.
The following table sets forth the development of reserves for
unpaid losses and claims determined using generally accepted
accounting principles of American Southerns insurance
lines from 1997 through 2007. Specifically excluded from the
table are the life and health divisions claims reserves,
which are included in the consolidated loss and claims reserves.
The top line of the table represents the estimated cumulative
amount of losses and LAE for claims arising in all prior years
that were unpaid at the balance sheet date for each of the
indicated periods, including an estimate of IBNR losses at the
applicable date. The amounts represent initial reserve estimates
at the respective balance sheet dates for the current and all
prior years. The next portion of the table shows the cumulative
amounts paid with respect to claims in each succeeding year. The
lower portion of the table shows the re-estimated amounts of
previously recorded reserves based on experience as of the end
of each succeeding year.
The reserve estimates are modified as more information becomes
known about the frequency and severity of claims for individual
years. The cumulative redundancy or deficiency for
each year represents the aggregate change in such years
estimates through the end of 2007. In evaluating this
information, it should be noted that the amount of the
redundancy or deficiency for any year represents the cumulative
amount of the changes from initial reserve estimates for such
year. Operations for any year may be affected, favorably or
unfavorably, by the amount of the change in the estimate for
such years; however, because such analysis is based on the
reserves for unpaid losses and claims, before consideration of
reinsurance, the total indicated redundancies
and/or
deficiencies may not ultimately be reflected in the
Companys net income. Further, conditions and trends that
have affected development of the reserves in the past may not
necessarily occur in the future and there could be future events
or actions that would impact future development which have not
existed in the past. Accordingly, it is impossible to accurately
predict future redundancies or deficiencies based on the data in
the following table.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
1997
|
|
|
|
(In thousands)
|
|
|
Reserve for losses and LAE
|
|
$
|
43,994
|
|
|
$
|
45,655
|
|
|
$
|
43,593
|
|
|
$
|
42,310
|
|
|
$
|
39,042
|
|
|
$
|
44,428
|
|
|
$
|
46,242
|
|
|
$
|
48,350
|
|
|
$
|
48,764
|
|
|
$
|
46,972
|
|
|
$
|
47,843
|
|
Cumulative paid as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later
|
|
|
|
|
|
|
18,010
|
|
|
|
14,254
|
|
|
|
16,521
|
|
|
|
13,772
|
|
|
|
15,825
|
|
|
|
18,093
|
|
|
|
20,682
|
|
|
|
18,267
|
|
|
|
14,643
|
|
|
|
16,983
|
|
Two years later
|
|
|
|
|
|
|
|
|
|
|
23,967
|
|
|
|
24,217
|
|
|
|
22,202
|
|
|
|
23,933
|
|
|
|
26,194
|
|
|
|
31,687
|
|
|
|
30,143
|
|
|
|
25,802
|
|
|
|
24,600
|
|
Three years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,775
|
|
|
|
26,673
|
|
|
|
28,487
|
|
|
|
31,257
|
|
|
|
35,865
|
|
|
|
37,938
|
|
|
|
31,491
|
|
|
|
30,690
|
|
Four years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,645
|
|
|
|
31,398
|
|
|
|
33,683
|
|
|
|
37,223
|
|
|
|
39,972
|
|
|
|
34,987
|
|
|
|
33,767
|
|
Five years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,820
|
|
|
|
35,134
|
|
|
|
38,616
|
|
|
|
40,816
|
|
|
|
36,064
|
|
|
|
34,898
|
|
Six years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,610
|
|
|
|
39,166
|
|
|
|
42,006
|
|
|
|
36,464
|
|
|
|
35,092
|
|
Seven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,538
|
|
|
|
42,079
|
|
|
|
37,528
|
|
|
|
35,348
|
|
Eight years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,352
|
|
|
|
37,595
|
|
|
|
36,332
|
|
Nine years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,868
|
|
|
|
36,380
|
|
Ten years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,620
|
|
Ultimate losses and LAE reestimated as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
43,994
|
|
|
|
45,655
|
|
|
|
43,593
|
|
|
|
42,310
|
|
|
|
39,042
|
|
|
|
44,428
|
|
|
|
46,242
|
|
|
|
48,350
|
|
|
|
48,764
|
|
|
|
46,972
|
|
|
|
47,843
|
|
One year later
|
|
|
|
|
|
|
35,590
|
|
|
|
34,897
|
|
|
|
37,280
|
|
|
|
35,706
|
|
|
|
42,235
|
|
|
|
39,628
|
|
|
|
46,778
|
|
|
|
45,866
|
|
|
|
41,834
|
|
|
|
43,689
|
|
Two years later
|
|
|
|
|
|
|
|
|
|
|
32,929
|
|
|
|
34,108
|
|
|
|
34,779
|
|
|
|
40,099
|
|
|
|
40,249
|
|
|
|
43,104
|
|
|
|
46,065
|
|
|
|
40,502
|
|
|
|
39,369
|
|
Three years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,338
|
|
|
|
31,710
|
|
|
|
39,260
|
|
|
|
38,877
|
|
|
|
42,208
|
|
|
|
44,800
|
|
|
|
41,175
|
|
|
|
38,536
|
|
Four years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,224
|
|
|
|
37,163
|
|
|
|
39,339
|
|
|
|
41,503
|
|
|
|
43,792
|
|
|
|
40,295
|
|
|
|
38,884
|
|
Five years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,133
|
|
|
|
39,067
|
|
|
|
41,490
|
|
|
|
43,775
|
|
|
|
39,621
|
|
|
|
38,822
|
|
Six years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,484
|
|
|
|
41,600
|
|
|
|
43,674
|
|
|
|
39,518
|
|
|
|
38,367
|
|
Seven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,822
|
|
|
|
43,738
|
|
|
|
39,453
|
|
|
|
38,426
|
|
Eight years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,884
|
|
|
|
39,524
|
|
|
|
38,303
|
|
Nine years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,710
|
|
|
|
38,348
|
|
Ten years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,494
|
|
Cumulative redundancy (deficiency)
|
|
|
|
|
|
$
|
10,065
|
|
|
$
|
10,664
|
|
|
$
|
8,972
|
|
|
$
|
7,818
|
|
|
$
|
7,295
|
|
|
$
|
6,758
|
|
|
$
|
6,528
|
|
|
$
|
4,880
|
|
|
$
|
7,262
|
|
|
$
|
9,349
|
|
|
|
|
|
|
|
|
22.0
|
%
|
|
|
24.5
|
%
|
|
|
21.2
|
%
|
|
|
20.0
|
%
|
|
|
16.4
|
%
|
|
|
14.6
|
%
|
|
|
13.5
|
%
|
|
|
10.0
|
%
|
|
|
15.5
|
%
|
|
|
19.5
|
%
|
Note: Because this analysis is based on reserves for unpaid
losses and claims, before consideration of reinsurance, the
total indicated redundancies
and/or
deficiencies may not ultimately be reflected in the
Companys net income.
9
Life
and Health Operations
Bankers Fidelity establishes liabilities for future policy
benefits to meet projected future obligations under outstanding
policies. These reserves are calculated to satisfy policy and
contract obligations as they mature. The amount of reserves for
insurance policies is calculated using assumptions for interest
rates, mortality and morbidity rates, expenses, and withdrawals.
Reserves are adjusted periodically based on published actuarial
tables with modification to reflect actual experience. See
Note 4 of Notes to Consolidated Financial Statements.
Reinsurance
The Companys insurance subsidiaries may purchase
reinsurance from unaffiliated insurers and reinsurers to reduce
their potential liability on individual risks and to protect
against catastrophic losses. In a reinsurance transaction, an
insurance company transfers, or cedes, a portion or
all of its exposure on insurance policies to a reinsurer. The
reinsurer assumes the exposure in return for a portion of the
premiums. The ceding of insurance does not legally discharge the
insurer from primary liability for the full amount of policies
written by it, and the ceding company incurs a loss if the
reinsurer fails to meet its obligations under the reinsurance
agreement.
Property
and Casualty Operations
American Southerns basic reinsurance treaties generally
cover all claims in excess of $150,000 per occurrence. Limits
per occurrence within the reinsurance treaties are as follows:
Fire, inland marine, commercial automobile physical
damage $125,000 excess of $50,000 retention; and
automobile liability and general liability excess
coverage of $2.0 million less retentions that may vary from
$100,000 to $150,000 depending on the account. American Southern
maintains a property catastrophe treaty with a $6.6 million
limit excess of $400,000 retention. American Southern also
issues individual surety bonds with face amounts generally up to
$1.5 million, and limited to $5.0 million per account,
that are not subject to reinsurance.
Life
and Health Operations
Bankers Fidelity has entered into reinsurance contracts ceding
the excess of its retention to several primary reinsurers.
Maximum retention by Bankers Fidelity on any one individual in
the case of life insurance policies is $50,000. At
December 31, 2007, $36.5 million of the
$272.3 million of life insurance in force at Bankers
Fidelity was reinsured, generally under yearly renewable term
agreements. Certain prior year reinsurance agreements remain in
force although they no longer provide reinsurance for new
business.
Competition
Competition is based on many factors including premiums charged,
terms and conditions of coverage, service provided, financial
ratings assigned by independent rating agencies, claims
services, reputation, perceived financial strength and the
experience of the organization in the line of business being
written.
Property
and Casualty Operations
The businesses in which American Southern engages are highly
competitive. The principal areas of competition are pricing and
service. Many competing property and casualty companies, which
have been in business longer than American Southern, offer more
diversified lines of insurance and have substantially greater
financial resources. Management believes, however, that the
policies it sells are competitive with those providing similar
benefits offered by other insurers doing business in the states
in which American Southern operates. American Southern attempts
to develop strong relationships with its existing agents and,
consequently, is generally privy to new programs with existing
agents.
10
Life
and Health Operations
The life and health insurance business also remains highly
competitive and includes a large number of insurance companies,
many of which have substantially greater financial resources
than Bankers Fidelity or the Company. Bankers Fidelity focuses
on four core products in the senior market: Medicare supplement,
hospital indemnity, small face amount life insurance and
short-term nursing home coverage. Bankers Fidelity believes that
its primary competitors in this market are Continental Life,
Standard Life & Accident, Lincoln Heritage Life,
United American, American Pioneer and Blue
Cross / Blue Shield. Bankers Fidelity competes with
these as well as other insurers on the basis of premium rates,
policy benefits and service to policyholders. Bankers Fidelity
also competes with other insurers to attract and retain the
allegiance of its independent agents through commission
arrangements, accessibility and marketing assistance, lead
programs, reputation, and market expertise. In order to better
compete, Bankers Fidelity utilizes a proprietary lead generation
program to attract and retain independent agents. Bankers
Fidelity has expanded into other markets through cross-selling
strategies with the companys property and casualty
affiliations, offering turn-key marketing programs to facilitate
business through these relationships. Bankers Fidelity continues
to expand in niche markets through long-term relationships with
a select number of independent marketing organizations including
worksite marketing, credit union business and association
endorsements. Bankers Fidelity has a track record of competing
in its chosen markets through long-standing relationships with
independent agents and marketing agencies by providing
proprietary marketing initiatives and outstanding service to
distribution and policyholders. Bankers Fidelity believes that
it competes effectively on the bases of policy benefits,
services and market expertise.
Ratings
Ratings of insurance companies are not designed for investors
and do not constitute recommendations to buy, sell, or hold any
security. Ratings are important measures within the insurance
industry, and improved ratings should have a favorable impact on
the ability of a company to compete in the marketplace.
Each year A.M. Best Company, Inc.
(A.M. Best) publishes Bests Insurance
Reports, which includes assessments and ratings of all insurance
companies. A.M. Bests ratings, which may be revised
quarterly, fall into fifteen categories ranging from A++
(Superior) to F (in liquidation). A.M. Bests ratings
are based on a detailed analysis of the statutory financial
condition and operations of an insurance company compared to the
industry in general.
American Southern. American Southern and its
wholly-owned subsidiary, American Safety Insurance Company, are
each currently rated A− (Excellent) by
A.M. Best.
Bankers Fidelity. Bankers Fidelity is
currently rated B++ (Very Good) by A.M. Best.
Regulation
In common with all domestic insurance companies, the
Companys insurance subsidiaries are subject to regulation
and supervision in the jurisdictions in which they do business.
Statutes typically delegate regulatory, supervisory, and
administrative powers to state insurance commissioners. The
method of such regulation varies, but regulation relates
generally to the licensing of insurers and their agents, the
nature of and limitations on investments, approval of policy
forms, reserve requirements, the standards of solvency to be met
and maintained, deposits of securities for the benefit of
policyholders, and periodic examinations of insurers and trade
practices, among other things. The Companys products
generally are subject to rate regulation by state insurance
commissions, which require that certain minimum loss ratios be
maintained. Certain states also have insurance holding company
laws which require registration and periodic reporting by
insurance companies controlled by other corporations licensed to
transact business within their respective jurisdictions. The
Companys insurance subsidiaries are subject to such
legislation and are registered as controlled insurers in those
jurisdictions in which such registration is required. Such laws
vary from state to state, but typically require periodic
disclosure concerning the corporation which controls the
registered insurers and all subsidiaries of such corporations,
as well as prior notice to, or approval by, the state insurance
commissioners of
11
intercorporate transfers of assets (including payments of
dividends by the insurance subsidiaries in excess of specified
amounts) within the holding company system.
Most states require that rate schedules and other information be
filed with the states insurance regulatory authority,
either directly or through a rating organization with which the
insurer is affiliated. The regulatory authority may disapprove a
rate filing if it determines that the rates are inadequate,
excessive, or discriminatory. The Company has historically
experienced no significant regulatory resistance to its
applications for rate adjustments; however, the Company cannot
provide any assurance that it will not receive any objections to
its applications in the future.
A state may require that acceptable securities be deposited for
the protection either of policyholders located in those states
or of all policyholders. As of December 31, 2007,
securities with an amortized cost of $10.6 million were on
deposit either directly with various state authorities or with
third parties pursuant to various custodial agreements on behalf
of the Companys insurance subsidiaries.
Virtually all of the states in which the Companys
insurance subsidiaries are licensed to transact business require
participation in their respective guaranty funds designed to
cover claims against insolvent insurers. Insurers authorized to
transact business in these jurisdictions are generally subject
to assessments of up to 4% of annual direct premiums written in
that jurisdiction to pay such claims, if any. The likelihood and
amount of any future assessments cannot be estimated until an
insolvency has occurred.
NAIC
Ratios
The National Association of Insurance Commissioners (the
NAIC) was established to, among other things,
provide guidelines to assess the financial strength of insurance
companies for state regulatory purposes. The NAIC conducts
annual reviews of the financial data of insurance companies
primarily through the application of 13 financial ratios
prepared on a statutory basis. The annual statements are
submitted to state insurance departments to assist them in
monitoring insurance companies in their state and to set forth a
desirable range in which companies should fall in each such
ratio.
The NAIC suggests that insurance companies which fall outside of
the usual range in four or more financial ratios are
those most likely to require analysis by state regulators.
However, according to the NAIC, it may not be unusual for a
financially sound company to have several ratios outside the
usual range, and in normal years the NAIC expects
15% of the companies it tests to be outside the
usual range in four or more categories.
For the year ended December 31, 2007, both American
Southern and Bankers Fidelity were within the NAIC
usual range for all 13 financial ratios.
Risk-Based
Capital
Risk-based capital (RBC) is used by rating agencies
and regulators as an early warning tool to identify weakly
capitalized companies for the purpose of initiating further
regulatory action. The RBC calculation determines the amount of
adjusted capital needed by a company to avoid regulatory action.
Authorized Control
Level Risk-Based
Capital (ACL) is calculated, and if a
companys adjusted capital is 200% or lower than ACL, it is
subject to regulatory action. At December 31, 2007, the
Companys insurance subsidiaries exceeded the RBC
regulatory levels.
12
Investments
Investment income represents a significant portion of the
Companys total income. Insurance company investments are
subject to state insurance laws and regulations which limit the
concentration and types of investments. The following table
provides information on the Companys investments as of the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and authorities
|
|
$
|
127,073
|
|
|
|
63.1
|
%
|
|
$
|
117,127
|
|
|
|
55.9
|
%
|
|
$
|
95,085
|
|
|
|
48.7
|
%
|
States, municipalities and political subdivisions
|
|
|
412
|
|
|
|
0.2
|
|
|
|
414
|
|
|
|
0.2
|
|
|
|
422
|
|
|
|
0.2
|
|
Public utilities
|
|
|
|
|
|
|
0.0
|
|
|
|
|
|
|
|
0.0
|
|
|
|
|
|
|
|
0.0
|
|
All other corporate bonds
|
|
|
29,628
|
|
|
|
14.7
|
|
|
|
33,792
|
|
|
|
16.2
|
|
|
|
33,578
|
|
|
|
17.2
|
|
Redeemable preferred stock
|
|
|
10,714
|
|
|
|
5.3
|
|
|
|
12,949
|
|
|
|
6.2
|
|
|
|
18,154
|
|
|
|
9.3
|
|
Certificates of deposit
|
|
|
100
|
|
|
|
0.0
|
|
|
|
100
|
|
|
|
0.0
|
|
|
|
100
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities(1)
|
|
|
167,927
|
|
|
|
83.3
|
|
|
|
164,382
|
|
|
|
78.5
|
|
|
|
147,339
|
|
|
|
75.5
|
|
Common and non-redeemable preferred stocks(2)
|
|
|
5,335
|
|
|
|
2.7
|
|
|
|
22,476
|
|
|
|
10.7
|
|
|
|
24,580
|
|
|
|
12.6
|
|
Mortgage, policy and student loans(3)
|
|
|
1,958
|
|
|
|
1.0
|
|
|
|
3,328
|
|
|
|
1.6
|
|
|
|
4,018
|
|
|
|
2.1
|
|
Other invested assets(4)
|
|
|
1,563
|
|
|
|
0.8
|
|
|
|
1,735
|
|
|
|
0.8
|
|
|
|
2,076
|
|
|
|
1.1
|
|
Real estate
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
Investments in unconsolidated trusts
|
|
|
1,238
|
|
|
|
0.6
|
|
|
|
1,238
|
|
|
|
0.6
|
|
|
|
1,238
|
|
|
|
0.6
|
|
Short-term investments(5)
|
|
|
23,432
|
|
|
|
11.6
|
|
|
|
16,191
|
|
|
|
7.8
|
|
|
|
15,744
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
201,491
|
|
|
|
100.0
|
%
|
|
$
|
209,388
|
|
|
|
100.0
|
%
|
|
$
|
195,033
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fixed maturity securities are carried on the balance sheet at
estimated fair value. Total cost of fixed maturity securities
was $168.7 million as of December 31, 2007,
$163.1 million as of December 31, 2006, and
$144.6 million as of December 31, 2005. |
|
(2) |
|
Equity securities are carried on the balance sheet at estimated
fair value. Certain non-redeemable preferred stocks do not have
publicly quoted values, and are carried at estimated fair value
as determined by management. Total cost of equity securities was
$5.4 million as of December 31, 2007,
$7.5 million as of December 31, 2006, and
$9.0 million as of December 31, 2005. |
|
(3) |
|
Mortgage, policy and student loans are valued at historical cost. |
|
(4) |
|
Investments in other invested assets which are traded are valued
at estimated fair value and the others are accounted for using
the equity method. Total cost of other invested assets was
$1.6 million as of December 31, 2007,
$1.8 million as of December 31, 2006, and
$2.1 million as of December 31, 2005. |
|
(5) |
|
Short-term investments are valued at cost, which approximates
market value at the measurement date. |
Results of the Companys investment portfolio for periods
shown were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Average investments(1)
|
|
$
|
199,614
|
|
|
$
|
199,236
|
|
|
$
|
188,351
|
|
Net investment income
|
|
|
11,603
|
|
|
|
11,822
|
|
|
|
10,702
|
|
Average yield on investments
|
|
|
5.81
|
%
|
|
|
5.93
|
%
|
|
|
5.68
|
%
|
Realized investment gains (losses), net(2)
|
|
|
12,627
|
|
|
|
3,084
|
|
|
|
(7,303
|
)
|
13
|
|
|
(1) |
|
Calculated as the average of the balances at the beginning of
the year and at the end of each of the succeeding four quarters. |
|
(2) |
|
Includes a $7.2 million impairment charge in 2005 related
to the write-down in the value of certain automotive sector
fixed maturity investments. See Note 3 of Notes to
Consolidated Financial Statements. |
Managements investment strategy is an increased investment
in short and medium maturity bonds and common and preferred
stocks.
Employees
The Company and its subsidiaries employed 146 people at
December 31, 2007 which excludes 74 people in
discontinued operations.
Financial
Information By Industry Segment
The Companys primary insurance subsidiaries operate with
relative autonomy and each company is evaluated on its
individual performance. American Southern operates in the
Property and Casualty insurance market, while Bankers Fidelity
operates in the Life and Health insurance market. Each segment
derives revenue from the collection of premiums, as well as from
investment income. Substantially all revenue other than that in
the corporate and other segment is from external sources. See
Note 15 of Notes to Consolidated Financial Statements.
Available
Information
The Company files annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to those reports and other information with the
Securities and Exchange Commission (the SEC). The
public can read and obtain copies of those materials by visiting
the SECs Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy and
information statements and other information regarding issuers
like Atlantic American that file electronically with the SEC.
The address of the SECs web site is
http://www.sec.gov.
In addition, as soon as reasonably practicable after such
materials are filed with or furnished to the SEC by the Company,
the Company makes copies available to the public, free of
charge, on or through its web site at
http://www.atlam.com.
Neither the Companys website, nor the information
appearing on the website, is included, incorporated into, or a
part of, this report.
Executive
Officers of the Registrant
The table below and the information following the table set
forth, for each executive officer of the Company as of
March 1, 2008, his name, age, positions with the Company
and business experience for the past five years, as well as any
prior service with the Company (based upon information supplied
by each of them).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director or
|
|
Name
|
|
Age
|
|
|
Positions with the Company
|
|
Officer Since
|
|
|
J. Mack Robinson
|
|
|
84
|
|
|
Chairman of the Board
|
|
|
1974
|
|
Hilton H. Howell, Jr.
|
|
|
45
|
|
|
Director, President & CEO
|
|
|
1992
|
|
John G. Sample, Jr.
|
|
|
51
|
|
|
Senior Vice President & CFO
|
|
|
2002
|
|
Officers are elected annually and serve at the discretion of the
Board of Directors.
Mr. Robinson has served as a Director and Chairman
of the Board since 1974 and served as President and Chief
Executive Officer of the Company from September 1988 to May
1995. In addition, Mr. Robinson is a director of Gray
Television, Inc.
Mr. Howell has been President and Chief Executive
Officer of the Company since May 1995, and prior thereto served
as Executive Vice President of the Company from October 1992 to
May 1995. He has been a
14
Director of the Company since October 1992. Mr. Howell is
the
son-in-law
of Mr. Robinson. He is also a director of Triple Crown
Media, Inc. and Gray Television, Inc.
Mr. Sample has served as Senior Vice President and
Chief Financial Officer of the Company since July 2002. He also
serves in the following capacities at subsidiaries of the
Company: Director of Georgia Casualty, Director of Association
Casualty, and Director of Bankers Fidelity. Prior to joining the
Company in July 2002, he had been a partner of Arthur Andersen
LLP since 1990. He is also a director of 1st Franklin
Financial Corporation.
Forward-Looking
Statements
Certain of the statements contained herein are forward-looking
statements. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and include estimates and
assumptions related to, among other things, economic,
competitive and legislative developments. The forward-looking
statements are subject to changes and uncertainties which are,
in many instances, beyond the Companys control and have
been made based upon managements current expectations and
beliefs concerning future developments and their potential
effect upon the Company. There can be no assurance that future
developments will be in accordance with managements
expectations or that the effect of future developments on the
Company will be those anticipated by management. Actual results
could differ materially from those expected by the Company,
depending on the outcome of various factors. These factors
include, among others, those discussed in the Risk
Factors section which follows and: unanticipated increases
in the rate, number and amounts of claims outstanding; the
possible occurrence of terrorist attacks; the level of
performance of reinsurance companies under reinsurance contracts
and the availability, pricing and adequacy of reinsurance to
protect the Company against losses; changes in the stock
markets, interest rates or other financial markets, including
the potential effect on the Companys statutory capital
levels; the uncertain effect on the Company of regulatory and
market-driven changes in practices relating to the payment of
incentive compensation to brokers, agents and other producers;
the incidence and severity of catastrophes, both natural and
man-made; stronger than anticipated competitive activity;
unfavorable judicial or legislative developments; the potential
effect of regulatory developments, including those which could
increase the Companys business costs and required capital
levels; the possibility of general economic and business
conditions that are less favorable than anticipated; the
Companys ability to distribute its products through
distribution channels, both current and future; the uncertain
effect of emerging claim and coverage issues; and the effect of
assessments and other surcharges for guaranty funds and
second-injury trust funds and other mandatory pooling
arrangements. Many of such factors are beyond the Companys
ability to control or predict. As a result, the Companys
actual financial condition, results of operations and stock
price could differ materially from those expressed in any
forward-looking statements made by the Company. Undue reliance
should not be placed upon forward-looking statements contained
herein. The Company does not intend to publicly update any
forward-looking statements that may be made from time to time
by, or on behalf of, the Company.
There are numerous factors, many beyond our control, which could
have a significant or material adverse effect on our business,
financial condition, operating results or liquidity. Any factor
discussed below or elsewhere in this report could by itself or,
together with one or more other factors, cause results to differ
significantly from our expectations. Further, there may be
significant additional risks which management has not considered
which could have a significant or material adverse effect on the
business, financial condition, operating results or liquidity of
the Company.
We
operate in a highly competitive environment.
The life and health and property and casualty insurance
businesses are highly competitive. We compete with large
national insurance companies, locally-based specialty carriers
and alternative risk transfer entities whose activities are
directed to limited markets. Competitors include companies that
have substantially greater resources than we do, as well as
mutual companies and similar companies not subject to the
expenses and
15
limitations imposed on publicly-held companies. Competition is
based on many factors including premiums charged, terms and
conditions of coverage, service provided, financial ratings
assigned by independent rating agencies, claims services,
reputation, perceived financial strength and the experience of
the organization in the line of business being written.
Increased competition could adversely affect our ability to
attract and retain business at current premium levels and reduce
the profits that would otherwise arise from operations.
We
operate in a highly regulated environment.
Our insurance businesses are subject to extensive regulations by
state insurance authorities in each state in which they operate.
Regulation is intended for the benefit of the policyholders
rather than shareholders. In addition to limiting the amount of
dividend and other payments that can be made to us by our
insurance subsidiaries, regulatory authorities have broad
administrative and supervisory authority relating to: licensing
requirements, trade practices, capital and surplus requirements,
investment practices and rates charged to our customers.
Regulatory authorities may also impose conditions on terms of
business or rate increases that we may desire to enhance our
operating results. In addition, we may incur significant costs
in complying with regulatory requests, initiatives
and/or
requirements. Regulatory authorities generally also regulate
insurance holding companies in a variety of matters such as
placing limits on acquisitions, changes of control and the terms
of any affiliate transactions.
Our
revenues may fluctuate with insurance market conditions for
similar products.
We derive a significant portion of our insurance premium revenue
from Medicare supplement and relatively large commercial
property and casualty insurance policies. While we have in the
recent past been partially successful in implementing premium
increases which help improve our operating results, we believe
that competition from alternative government sponsored products
and pricing decisions from larger insurers will, at least in the
short term, result in more moderate pricing increases, if not
decreases in certain situations. Should our competitors become
less disciplined in their pricing, or more permissive in their
terms, we may lose customers who base their purchasing decisions
primarily on price because our policy is to price coverage
commensurate with the underlying risk. We cannot predict
whether, when or how market conditions will change, or the
manner in which, or the extent to which any such changes may
adversely impact the results of our operations.
Our
revenues and profitability may fluctuate with interest rates and
investment results.
We generally rely on the positive performance of our investment
portfolio to offset insurance losses and to contribute to our
profitability. As our investment portfolio is primarily
comprised of interest-earning assets, prevailing economic
conditions, particularly changes in market interest rates, may
significantly affect our operating results. Changes in interest
rates also can affect the value of our interest-earning assets,
which are principally comprised of fixed rate investment
securities. Generally, the values of fixed-rate investment
securities fluctuate inversely with changes in interest rates.
Interest rate fluctuations could adversely affect our
shareholders equity, income
and/or cash
flows. Further, to the extent fixed rate investment securities
consist of investments in other than government or government
agency securities, changing credit risk profiles may
significantly affect our operating results. The Company
generally carries investment securities at fair value; however,
if the value of an investment security declines below its cost
or amortized cost, and the decline is considered to be other
than temporary, a realized loss is recorded to reduce the
carrying value of the investment to its estimated fair value.
Realized losses are reflected as a reduction in investment
results and revenues and could adversely impact our results of
operations.
Our
operating results may be affected if incurred losses differ from
our loss reserve estimates.
Varying periods of time often elapse between the occurrence of
an insured loss, the reporting of the loss by the insured and
the ultimate settlement of that loss. The financial statement
recognition of unpaid incurred losses is made through a
provision for incurred losses with corresponding loss reserves
established. The loss reserves represent the estimate of amounts
needed to pay incurred losses and related loss adjustment
expense as of the balance sheet date. The process of estimating
loss reserves is a complex undertaking and involves
16
significant variables and judgments. Consideration is given to
numerous factors including, but not limited to: historical data;
trends in claim frequency and severity; changes in operations;
emerging economic, social, regulatory and legal trends and
inflation. Further, estimating loss reserves assumes that past
experience, adjusted for the effect of current developments and
anticipated trends, is an appropriate, but not always
necessarily accurate, basis for predicting future settlements.
There is no precise method for evaluating the impact of any
specific factor on the adequacy of loss reserves, and ultimate
settlements will differ from initial and regularly updated
estimates. To the extent loss reserves prove to be inadequate in
the future, increases in loss reserves would be necessitated
with a corresponding charge to earnings in the period the
reserves are increased, which could have a material adverse
impact on our financial condition and results of operations.
Rapidly
changing benefit costs could have a material impact on our
operations.
A significant portion of the Companys insurance policies
provide coverage for some portion of medical benefits
and/or
repair/replacement of damaged property such as buildings and
automobiles. Historical inflationary increases in those costs
are considered when developing premium rates; however, on
occasion, future cost increases exceed those initially
estimated. In the medical field, scientific breakthroughs
and/or new
technology can result in unanticipated increasing medical costs.
In property repair/replacement, a significant geographically
concentrated demand for labor and supplies, particularly as a
result of catastrophic disasters, may result in significantly
increased costs. Rapidly changing costs of settling claims in
excess of those originally anticipated, due to scientific
breakthrough, new technology
and/or
catastrophic events could have a material adverse impact on our
results of operations.
If
market conditions cause reinsurance to be more costly or
unavailable, we may be required to assume increased risk or
reduce the level of our underwriting commitments.
As part of our enterprise risk management strategy, we purchase
reinsurance for significant amounts of risk underwritten by our
insurance company subsidiaries. Market conditions beyond our
control determine the availability and cost of the reinsurance,
which may affect the level of our business and profitability. We
may be unable to maintain current reinsurance coverage or to
obtain other reinsurance coverage in adequate amounts and at
comparable rates in the future. If we are unable to renew our
expiring coverage or to obtain new reinsurance coverage, either
our net exposure to risk would increase, or if we were unwilling
to assume additional risk, we would have to reduce the amount of
our underwritten risk.
We
cannot guarantee that our reinsurers will pay in a timely
fashion, if at all, and, as a result, we could experience
losses.
We transfer some of our risks to reinsurance companies in
exchange for part of the premium we receive in connection with
the risk. Although reinsurance makes the reinsurer liable to us
to the extent the risk is transferred, it does not relieve us of
our liability to our policyholders. If reinsurers fail to pay us
or fail to pay on a timely basis, our financial results would be
adversely affected.
The
guaranty fund assessments that we are required to pay to state
guaranty associations may increase and our results of operations
and financial condition could suffer as a result.
A majority of the states in which we operate have separate
insurance guaranty fund laws which require certain admitted
insurance companies doing business within their respective
jurisdictions to be a member of their guaranty associations.
These associations are organized to pay covered claims, as
defined, under insurance policies issued by insolvent insurance
companies. Most guaranty association laws enable the
associations to make assessments against member insurers to
obtain funds to pay covered claims after a member insurer
becomes insolvent. These associations levy assessments, up to
prescribed limits, on all member insurers in a particular state
on the basis of the proportionate share of the premiums written
by member insurers in the covered lines of business in that
state. Maximum assessments permitted by law in any one year are
generally subject to 4% of annual premiums written by a member
in that state. Some states permit member insurers to recover
assessments paid through surcharges on policyholders or through
full or partial premium tax offsets, while other states permit
recovery of assessments through the rate filing process.
17
Our policy is to accrue an estimated annual assessment based on
the most recent prior years experience. There is a
significant degree of uncertainty in estimating the liabilities
relating to an insolvent insurer due to inadequate financial
data with respect to the estate of the insolvent company as
supplied by the guaranty funds.
The
unpredictability of court decisions could have a material impact
on our operations.
From time to time we are party to legal proceedings that may
arise from disputes over our insurance coverage. The financial
position of our insurance subsidiaries may be affected by court
decisions that expand insurance coverage beyond the intention of
the insurer at the time it originally issued an insurance
policy. In addition, a significant jury award, or series of
awards, against one or more of our insureds could require us to
pay large sums of money in excess of our reserve amounts.
The
passage of tort reform or other legislation, and the subsequent
review of such laws by the courts, could have a material impact
on our operations.
Tort reforms generally restrict the ability of a plaintiff to
recover damages by, among other limitations, eliminating certain
claims that may be heard in a court, limiting the amount or
types of damages, changing statutes of limitations or the period
of time to make a claim, and limited venue or court selection. A
number of states in which we do business have enacted, or are
considering, tort reform legislation. Proposed federal tort
reform legislation has failed to win Congressional approval to
date. While the effects of tort reform would appear to be
beneficial to our business generally, there can be no assurance
that such reforms will be effective or ultimately upheld by the
courts in the various states. Further, if tort reforms are
effective, it could effectively increase the level of
competition for us in the markets in which we compete. In
addition, there can be no assurance that the benefits of tort
reform will not be accompanied by legislation or regulatory
actions that may be detrimental to our business. Furthermore,
insurance regulators might require premium rate limitations and
expanded coverage requirements as well as other requirements in
anticipation of the expected benefits of tort reform which may
or may not be actually realized.
Catastrophic
events could have a material adverse effect on our business,
consolidated operating results, financial condition and/or
liquidity.
The Companys primary objective in managing risk is to
obtain diversification in the types and locations of business
written. In the property and casualty operations, evaluations
are made with respect to the probable maximum loss
that may result from natural catastrophic events. There are
however, catastrophic events which may occur, the effects of
which cannot be reasonably estimated. In various Asian and
European countries there have been confirmed cases of Avian
Influenza. Individuals, primarily in Asia, have contracted the
Avian Influenza and although there are no cases which have been
reported in the United States, should such influenza or similar
influenzas reach the United States and begin spreading via human
transmission, the impact on our life and health subsidiary is
undeterminable. The Company does not insure
high-profile individuals
and/or
locations and believes the risk of loss from future catastrophic
terrorist activities is remote. Each of these or other
catastrophic events, individually
and/or
collectively could ultimately however have a material adverse
effect on our business, consolidated operating results,
financial condition
and/or
liquidity.
If we
are unable to maintain favorable financial strength ratings, it
may be more difficult for us to write new business or renew our
existing business.
Our principal operating subsidiaries hold favorable financial
strength ratings from A.M. Best, an independent insurance
rating agency. Financial strength ratings are used by our agents
and customers as an important means of assessing the financial
strength and quality of various insurers. If our financial
position, or that of any of our individual subsidiaries, were to
deteriorate, we may not maintain our existing financial strength
ratings from the rating agency. A downgrade or withdrawal of any
such rating could limit or prevent us from writing
and/or
renewing desirable business which would materially adversely
impact our financial condition and results of operations.
18
Our
business could be adversely affected by the loss of independent
agents.
We depend in part on the services of independent agents and
brokers in the marketing of our insurance products. We face
competition from other insurance companies for the services and
allegiance of independent agents and brokers. These agents and
brokers may choose to direct business to competing insurance
companies or may direct less desirable risks to us.
Our
business could be adversely affected by the loss of one or more
key employees.
We are heavily dependent upon our senior management and the loss
of services of any of our senior executives could adversely
affect our business. Our success has been, and will continue to
be, dependent on our ability to retain the services of existing
key employees and to attract and retain additional qualified
personnel in the future. The loss of the services of key
employees or senior management, or the inability to identify,
hire and retain other highly qualified personnel in the future,
could adversely affect the quality and profitability of our
business operations.
We are
a holding company and are dependent on dividends and other
payments from our operating subsidiaries, which are subject to
dividend restrictions.
We are a holding company whose principal source of funds is cash
dividends and other permitted payments from operating
subsidiaries. If our subsidiaries are unable to make payments to
us, or are able to pay only limited amounts, we may be unable to
make payments on our indebtedness. The payment of dividends by
these operating subsidiaries is subject to restrictions set
forth in the insurance laws and regulations of their respective
states of domicile.
A
majority of our common stock is held directly and indirectly by
one family.
The Chairman of the Board of Directors of our Company and his
family, directly and indirectly, own slightly less than 2/3 of
the outstanding common stock of the Company. Accordingly, on
significantly all matters requiring a majority or greater
shareholder vote, our Chairman and his family effectively
control the vote. Such ownership effectively precludes any other
shareholder from acquiring any number of shares in an attempt to
exercise any degree of control over the Company. Further, as a
result of the significant ownership, the level of float of the
Companys stock on the NASDAQ market is minimal.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
Leased Properties. The Company leases space
for its principal offices and for some of its insurance
operations in an office building located in Atlanta, Georgia,
from Delta Life Insurance Company under a lease which continues
until either party provides written notice of cancellation at
least twelve months in advance of the actual termination date.
The lease, which incepted on November 1, 2007, provides for
rent adjustments on every fifth anniversary of the term
commencement date. Under the current terms of the lease, the
Company occupies approximately 65,489 square feet of office
space. Delta Life Insurance Company, the owner of the building,
is controlled by J. Mack Robinson, Chairman of the Board of
Directors and the largest shareholder of the Company. The terms
of the lease are believed by Company management to be comparable
to terms which could be obtained by the Company from unrelated
parties for comparable rental property.
American Southern leases space for its office in a building
located in Atlanta, Georgia. The lease term expires
January 31, 2010. Under the terms of the lease, American
Southern occupies approximately 17,014 square feet.
Self Insurance Administrators, Inc. (SIA), a
non-insurance subsidiary of the Company, leases space for its
office in a building located in Duluth, Georgia. The lease term
expired March 31, 2008 and SIA was
19
moved into available space at the Companys primary home
office. Under the terms of the lease, SIA occupied
2,266 square feet.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, the Company and its subsidiaries are involved
in various claims and lawsuits arising in the ordinary course of
business, both as a liability insurer defending third-party
claims brought against insureds and as an insurer defending
coverage claims brought against it. The Company accounts for
such exposures through the establishment of loss and loss
adjustment expense reserves. Subject to the uncertainties
inherent in litigation, management expects that the ultimate
liability, if any, with respect to such ordinary-course claims
litigation, after consideration of provisions made for probable
losses and costs of defense, will not be material to the
Companys consolidated financial condition, although the
results of such litigation could be material to the consolidated
results of operations for any given period.
|
|
Item 4.
|
Submission
Of Matters To A Vote Of Security Holders
|
There were no matters submitted to a vote of the Companys
shareholders during the quarter ended December 31, 2007.
PART II
|
|
Item 5.
|
Market
For Registrants Common Equity, Related Shareholder Matters
And Issuer Purchases of Equity Securities
|
The Companys common stock is quoted on the Nasdaq Global
Market (Symbol: AAME). As of March 14, 2008, there were
4,124 shareholders of record. The following table sets
forth, for the periods indicated, the high and low sale prices
of the Companys common stock as reported on the Nasdaq
Global Market.
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
1st quarter
|
|
$
|
4.04
|
|
|
$
|
2.90
|
|
2nd quarter
|
|
|
5.44
|
|
|
|
3.46
|
|
3rd quarter
|
|
|
4.15
|
|
|
|
2.40
|
|
4th quarter
|
|
|
2.96
|
|
|
|
1.11
|
|
2006
|
|
|
|
|
|
|
|
|
1st quarter
|
|
$
|
3.00
|
|
|
$
|
2.52
|
|
2nd quarter
|
|
|
3.45
|
|
|
|
2.69
|
|
3rd quarter
|
|
|
3.15
|
|
|
|
2.25
|
|
4th quarter
|
|
|
3.86
|
|
|
|
2.24
|
|
The Company has not paid dividends to its common shareholders
since the fourth quarter of 1988. The Company has elected to
retain its earnings to grow its business and does not anticipate
paying cash dividends on its common stock in the foreseeable
future. Payment of dividends in the future will be at the
discretion of the Companys Board of Directors and will
depend upon the financial condition, capital requirements,
earnings of the Company, any restrictions contained in any
agreements by which the Company is bound, as well as other
factors as the Board of Directors may deem relevant. The
Companys primary sources of cash for the payment of
dividends are dividends from its subsidiaries. Under the
insurance codes of the state of jurisdiction under which each
insurance subsidiary operates, dividend payments to the Company
by its insurance subsidiaries, without the prior approval of the
Insurance Commissioner of the applicable state, are limited to
the greater of 10% of statutory surplus or statutory net income
of such subsidiary before recognizing realized investment gains.
At December 31, 2007, American Southern had
$38.2 million of statutory surplus and Bankers Fidelity had
$33.8 million of statutory surplus.
20
Equity
Compensation Plan Information
The following table sets forth, as of December 31, 2007,
the number of securities outstanding under the Companys
equity compensation plans, the weighted average exercise price
of such securities and the number of securities remaining
available for grant under these plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
Number of
|
|
|
|
|
|
for future issuance
|
|
|
|
securities to be
|
|
|
|
|
|
under equity
|
|
|
|
issued upon
|
|
|
Weighted-average
|
|
|
compensation plans
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
(excluding
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
securities
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
reflected in the
|
|
Plan Category
|
|
and rights
|
|
|
and rights
|
|
|
first column)
|
|
|
Equity compensation plans approved by security holders
|
|
|
624,000
|
|
|
$
|
1.42
|
|
|
|
2,479,594
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
624,000
|
|
|
$
|
1.42
|
|
|
|
2,479,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All the Companys equity compensation plans have been
approved by the Companys shareholders. |
Issuer
Purchases of Equity Securities
On May 2, 1995, the Board of Directors of the Company
approved an initial plan that allowed for the repurchase of
shares of the Companys common stock (the Repurchase
Plan). As amended since its original adoption, the
Repurchase Plan currently allows for repurchases of up to an
aggregate of 2.0 million shares of the Companys
common stock on the open market or in privately negotiated
transactions, as determined by an authorized officer of the
Company. Such purchases can be made from time to time in
accordance with applicable securities laws and other
requirements. As of December 31, 2007, a maximum of
554,194 shares of common stock may yet be purchased under
this plan.
No purchases of common stock of the Company were made by or on
behalf of the Company during the three months ended
December 31, 2007.
21
Performance
Graph
The graph below compares the cumulative total return to
shareholders on the Companys common stock for the period
from December 31, 2002 through December 31, 2007, with
(i) the Russell 2000 Index, (ii) the Nasdaq Insurance
Index, and (iii) a previously selected peer group of
insurance companies (the Insurance Peer Group).
Assumes $100 invested at the close of trading in 12/2002 in
Atlantic American common stock, the Russell 2000 Index, the
NASDAQ Insurance Index and the Insurance Peer Group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
Atlantic American Corporation
|
|
|
|
100.00
|
|
|
|
|
184.05
|
|
|
|
|
190.18
|
|
|
|
|
165.64
|
|
|
|
|
181.60
|
|
|
|
|
85.89
|
|
Russell 2000 Index
|
|
|
|
100.00
|
|
|
|
|
145.37
|
|
|
|
|
170.08
|
|
|
|
|
175.73
|
|
|
|
|
205.60
|
|
|
|
|
199.96
|
|
NASDAQ Insurance Index
|
|
|
|
100.00
|
|
|
|
|
103.61
|
|
|
|
|
124.11
|
|
|
|
|
135.59
|
|
|
|
|
152.01
|
|
|
|
|
150.81
|
|
Insurance Peer Group
|
|
|
|
100.00
|
|
|
|
|
116.82
|
|
|
|
|
169.35
|
|
|
|
|
218.09
|
|
|
|
|
284.04
|
|
|
|
|
314.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factual
material is obtained from sources believed to be reliable, but
the publisher is not responsible for any errors or omissions
contained herein.
|
Source:
Value Line, Inc. and Nasdaq
|
Insurance Peer Group includes: American Safety Insurance Group
Ltd., Donegal Insurance Group J, National Security Group, Inc.,
Meadowbrook Insurance Group, Inc., Horace Mann Educators Corp.,
Unico American Corp. and Covanta Holding Group.
22
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share data)
|
|
|
Insurance premiums
|
|
$
|
97,824
|
|
|
$
|
109,580
|
|
|
$
|
117,351
|
|
|
$
|
113,504
|
|
|
$
|
100,041
|
|
Investment income
|
|
|
11,722
|
|
|
|
11,926
|
|
|
|
10,828
|
|
|
|
10,071
|
|
|
|
9,789
|
|
Other income
|
|
|
799
|
|
|
|
768
|
|
|
|
1,105
|
|
|
|
1,049
|
|
|
|
776
|
|
Realized investment gains (losses), net(1)
|
|
|
12,627
|
|
|
|
3,084
|
|
|
|
(7,303
|
)
|
|
|
1,154
|
|
|
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
122,972
|
|
|
|
125,358
|
|
|
|
121,981
|
|
|
|
125,778
|
|
|
|
111,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
58,701
|
|
|
|
65,460
|
|
|
|
71,201
|
|
|
|
70,622
|
|
|
|
64,840
|
|
Other expenses
|
|
|
45,173
|
|
|
|
50,274
|
|
|
|
51,394
|
|
|
|
47,466
|
|
|
|
40,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
103,874
|
|
|
|
115,734
|
|
|
|
122,595
|
|
|
|
118,088
|
|
|
|
105,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
19,098
|
|
|
|
9,624
|
|
|
|
(614
|
)
|
|
|
7,690
|
|
|
|
6,022
|
|
Income tax expense (benefit)
|
|
|
7,513
|
|
|
|
2,458
|
|
|
|
(1,746
|
)
|
|
|
(149
|
)
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
11,585
|
|
|
|
7,166
|
|
|
|
1,132
|
|
|
|
7,839
|
|
|
|
6,476
|
|
(Loss) income from discontinued operations, net of tax(2)
|
|
|
(4,333
|
)
|
|
|
1,770
|
|
|
|
(4,307
|
)
|
|
|
(2,822
|
)
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,252
|
|
|
$
|
8,936
|
|
|
$
|
(3,175
|
)
|
|
$
|
5,017
|
|
|
$
|
6,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.46
|
|
|
$
|
.27
|
|
|
$
|
|
|
|
$
|
.31
|
|
|
$
|
.24
|
|
(Loss) income from discontinued operations
|
|
|
(.20
|
)
|
|
|
.09
|
|
|
|
(.21
|
)
|
|
|
(.13
|
)
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.26
|
|
|
$
|
.36
|
|
|
$
|
(.21
|
)
|
|
$
|
.18
|
|
|
$
|
.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.45
|
|
|
$
|
.27
|
|
|
$
|
|
|
|
$
|
.31
|
|
|
$
|
.23
|
|
(Loss) income from discontinued operations
|
|
|
(.20
|
)
|
|
|
.06
|
|
|
|
(.21
|
)
|
|
|
(.13
|
)
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.25
|
|
|
$
|
.33
|
|
|
$
|
(.21
|
)
|
|
$
|
.18
|
|
|
$
|
.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share(3)
|
|
$
|
2.98
|
|
|
$
|
3.30
|
|
|
$
|
3.00
|
|
|
$
|
3.42
|
|
|
$
|
3.30
|
|
Common shares outstanding
|
|
|
21,817
|
|
|
|
21,481
|
|
|
|
21,383
|
|
|
|
21,213
|
|
|
|
21,199
|
|
Total assets
|
|
$
|
458,254
|
|
|
$
|
459,152
|
|
|
$
|
461,366
|
|
|
$
|
471,274
|
|
|
$
|
442,609
|
|
Total long-term debt
|
|
$
|
52,988
|
|
|
$
|
52,988
|
|
|
$
|
49,738
|
|
|
$
|
51,488
|
|
|
$
|
53,238
|
|
Total debt
|
|
$
|
53,988
|
|
|
$
|
53,988
|
|
|
$
|
51,488
|
|
|
$
|
53,238
|
|
|
$
|
56,238
|
|
Total shareholders equity
|
|
$
|
87,794
|
|
|
$
|
94,188
|
|
|
$
|
80,453
|
|
|
$
|
88,960
|
|
|
$
|
86,893
|
|
|
|
|
(1) |
|
Includes a $7,198 impairment charge in 2005 for automotive
sector fixed maturity investments. See Note 3 of Notes to
Consolidated Financial Statements. |
|
(2) |
|
See Note 2 of Notes to Consolidated Financial Statements. |
|
(3) |
|
Excludes goodwill. |
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following is managements discussion and analysis of
the financial condition and results of operations of Atlantic
American Corporation (Atlantic American or the
Parent) and its subsidiaries (collectively, the
Company) for each of the three years in the period
ended December 31, 2007. This discussion should be read in
conjunction with the consolidated financial statements and notes
thereto included elsewhere herein.
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.
In December 2007, the Company entered into an agreement for the
sale of its regional property and casualty operations,
Association Casualty Insurance Company and Association Risk
Management General Agency, Inc. (together known as
Association Casualty) and Georgia
Casualty & Surety Company (Georgia
Casualty) to Columbia Mutual Insurance Company. The sale
is expected to be completed on or about March 31, 2008. In
accordance with generally accepted accounting principles, the
consolidated financial statements reflect the assets,
liabilities and operating results of the regional property and
casualty operations as discontinued operations. Accordingly,
unless otherwise noted, amounts and analyses contained herein
reflect the continuing operations of the Company and exclude the
regional property and casualty operations. References to income
and loss from operations are identified as continuing operations
or discontinued operations, while references to net income or
net loss reflect the consolidated net results of both continuing
and discontinued operations.
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 managements belief,
conform to general practices within the insurance industry. The
following is an explanation of the Companys 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 managements
initial 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 Companys financial condition or liquidity, although
changes could have a material effect on its consolidated results
of operations.
Unpaid loss and loss adjustment expenses comprised 14% of
the Companys total liabilities at December 31, 2007.
This obligation includes estimates for: 1) unpaid losses on
claims reported prior to December 31, 2007,
2) development on those reported claims, 3) unpaid
ultimate losses on claims incurred prior to December 31,
2007 but not yet reported and 4) unpaid loss adjustment
expenses for reported and unreported claims incurred prior to
December 31, 2007. 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 December 31,
2007 but not yet reported, and estimates of unpaid loss
adjustment expenses, are developed based on the Companys
historical experience, using actuarial methods to assist in the
analysis. The Companys actuarial staff develops 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 Companys 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 Companys approach is to select an
estimate of ultimate losses based on comparing results of a
24
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 Companys
recorded liability for unpaid loss and loss adjustment expenses
is adjusted. In the event the Companys actual reported
losses in any period are materially in excess of the previous
estimated amounts, such losses, to the extent reinsurance
coverage does not exist, would have a material adverse effect on
the Companys results of operations.
Future policy benefits comprised 15% of the
Companys total liabilities at December 31, 2007.
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 Companys experience. If actual
results differ from the initial assumptions, the amount of the
Companys recorded liability could require adjustment.
Deferred acquisition costs comprised 4% of the
Companys total assets at December 31, 2007. 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
years 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 given
previous calendar year.
Receivables are amounts due from reinsurers, insureds and
agents and comprised 4% of the Companys total assets at
December 31, 2007. Insured and agent balances are evaluated
periodically for collectibility. Annually, the Company performs
an analysis of the credit worthiness of the Companys
reinsurers using various data sources. Failure of reinsurers to
meet their obligations due to insolvencies or disputes 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 Companys historical experience.
Cash and investments comprised 47% of the Companys
total assets at December 31, 2007. Substantially all
investments are in bonds and common and preferred stocks, 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
non-redeemable preferred stocks that do not have quoted values
and are carried at estimated fair values as determined by
management. 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 investments
indicated fair value has declined below its cost basis for a
period of time, primarily due to changes in credit risk, the
Company evaluates such investment for other than a temporary
impairment. If other than a 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 does not impact the reported value of the investment in the
Companys balance sheet, it is reflected as a realized
investment loss in the Companys consolidated statements of
operations.
Deferred income taxes comprised approximately 1% of the
Companys total assets at December 31, 2007. 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
25
deferred income taxes are measured by applying currently enacted
tax laws and rates. Valuation allowances are recognized to
reduce the deferred tax assets to the amount that is more likely
than not to be realized. In assessing the likelihood of
realization, management considers estimates of future taxable
income and tax planning strategies.
Refer to Note 1 of Notes to Consolidated Financial
Statements for details regarding the Companys
significant accounting policies.
Overall
Corporate Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
|
|
|
|
American Southern
|
|
$
|
47,046
|
|
|
$
|
56,593
|
|
|
$
|
52,925
|
|
Life and Health:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
|
74,658
|
|
|
|
67,443
|
|
|
|
68,255
|
|
Corporate and Other
|
|
|
1,268
|
|
|
|
1,322
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
122,972
|
|
|
$
|
125,358
|
|
|
$
|
121,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty:
|
|
|
|
|
|
|
|
|
|
|
|
|
American Southern
|
|
$
|
9,462
|
|
|
$
|
10,625
|
|
|
$
|
4,765
|
|
Life and Health:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
|
16,105
|
|
|
|
6,754
|
|
|
|
2,208
|
|
Corporate and Other
|
|
|
(6,469
|
)
|
|
|
(7,755
|
)
|
|
|
(7,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
19,098
|
|
|
$
|
9,624
|
|
|
$
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations, net of tax
|
|
$
|
(4,333
|
)
|
|
$
|
1,770
|
|
|
$
|
(4,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,252
|
|
|
$
|
8,936
|
|
|
$
|
(3,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a consolidated basis, the Company had net income of
$7.3 million, or $0.25 per diluted share, in 2007, compared
to net income of $8.9 million, or $0.33 per diluted share,
in 2006 and a net loss of $3.2 million, or $0.21 per
diluted share, in 2005. Income from continuing operations was
$11.6 million in 2007, compared with $7.2 million in
2006 and $1.1 million in 2005; while the loss from
discontinued operations was $4.3 million in 2007 as
compared to income from discontinued operations of
$1.8 million in 2006 and a loss from discontinued
operations of $4.3 million in 2005. Income from continuing
operations before income taxes was $19.1 million in 2007
compared with $9.6 million in 2006 and a loss of
$0.6 million in 2005. The significant increase in income
from continuing operations before income taxes was due to
realized investment gains which totaled $12.6 million in
2007 as compared with $3.1 million in 2006. In 2007, the
Company disposed of a significant holding in Wachovia
Corporation which resulted in realized investment gains totaling
$12.9 million; whereas in 2005, the Company recognized a
$7.2 million impairment due to its automotive sector
holdings. Such variations between years in realized investment
gains significantly influence the reported income (loss) from
continuing operations before income taxes. Income from
continuing operations before income taxes and realized
investment gains was $6.5 million in both 2007 and 2006.
Income from continuing operations before income taxes and
realized investment losses in 2005 was $6.7 million. The
magnitude of realized investment gains and losses in any year
are a function of the timing of trades of investments relative
to the markets themselves as well as the recognition of any
impairments on investments.
26
Total revenue was $123.0 million in 2007 as compared to
$125.4 million in 2006 and $122.0 million in 2005.
Insurance premiums decreased to $97.8 million in 2007 from
$109.6 million in 2006 and $117.4 million in 2005. The
continued softening in the property and casualty markets
combined with the significant market competition in the Medicare
supplement and Medicare advantage markets have resulted in
declining premiums in both of the Companys business
segments for the past two years. Premium declines have not been
as evident in the change in total revenue due to the magnitude
of the changes in realized investment gains between years.
Realized investment gains (losses) were a gain of
$12.6 million in 2007, a gain of $3.1 million in 2006
and a loss of $7.3 million in 2005.
Total expenses have decreased consistent with the related
premium decreases; although not directly proportionate.
Insurance benefits and losses and commissions and underwriting
expenses as a percentage of premiums were 93.4%, 93.0% and 93.2%
in 2007, 2006 and 2005, respectively.
The Companys property and casualty operations are
comprised of American Southern and the Companys life and
health operations consist of the operations of Bankers Fidelity.
A more detailed analysis of the individual operating entities
and other corporate activities is provided in the following
discussion.
Underwriting
Results
American
Southern
The following table summarizes, for the periods indicated,
American Southerns premiums, losses, expenses and
underwriting ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Gross written premiums
|
|
$
|
42,351
|
|
|
$
|
55,539
|
|
|
$
|
62,082
|
|
Ceded premiums
|
|
|
(6,379
|
)
|
|
|
(9,265
|
)
|
|
|
(9,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums
|
|
$
|
35,972
|
|
|
$
|
46,274
|
|
|
$
|
52,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$
|
41,575
|
|
|
$
|
50,660
|
|
|
$
|
51,447
|
|
Net losses and loss adjustment expenses
|
|
|
18,399
|
|
|
|
23,440
|
|
|
|
24,827
|
|
Underwriting expenses
|
|
|
19,185
|
|
|
|
22,528
|
|
|
|
23,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income
|
|
$
|
3,991
|
|
|
$
|
4,692
|
|
|
$
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
44.3
|
%
|
|
|
46.3
|
%
|
|
|
48.2
|
%
|
Expense ratio
|
|
|
46.1
|
|
|
|
44.4
|
|
|
|
45.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
90.4
|
%
|
|
|
90.7
|
%
|
|
|
93.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums at American Southern decreased
$13.2 million, or 23.7%, during 2007 as compared to 2006.
The decrease in gross written premiums was primarily
attributable to the loss of one program marketed through a
general agent which prior to 2007 had annualized gross written
premiums exceeding $10.0 million per annum. Loss of the
program resulted from a larger competitor offering a broader
coverage on a national basis to the insured.
Ceded premiums decreased $2.9 million, or 31.1%, during
2007 as compared to 2006. The decrease in ceded premiums was due
to the decline in the related earned premiums.
Gross written premiums at American Southern decreased
$6.5 million, or 10.5%, during 2006 as compared to 2005.
The decrease in gross written premiums was primarily due to the
cancellation of several commercial programs, including the
low-value dwelling property business in the second half of 2005
and the joint venture with AAA Carolinas to market automobile
insurance to club members, which was terminated on
October 1, 2005. Also contributing to the decrease in gross
written premiums was the termination of the
27
relationship with one of the companys agents who had
previously produced approximately $1.6 million in
annualized general liability business. Partially offsetting this
decrease in gross written premiums were increased business
writings in the surety line of business.
Ceded premiums increased $0.2 million, or 1.8%, during 2006
as compared to 2005. The increase in ceded premiums was due to
changes in certain provisions in the companys reinsurance
treaty agreements relating to certain accounts.
The following table summarizes, for the periods indicated,
American Southerns earned premiums by line of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Automobile liability
|
|
$
|
10,936
|
|
|
$
|
16,163
|
|
|
$
|
16,723
|
|
Automobile physical damage
|
|
|
8,105
|
|
|
|
9,698
|
|
|
|
11,002
|
|
General liability
|
|
|
10,349
|
|
|
|
11,394
|
|
|
|
11,767
|
|
Property
|
|
|
3,005
|
|
|
|
3,187
|
|
|
|
3,692
|
|
Surety
|
|
|
9,180
|
|
|
|
10,218
|
|
|
|
8,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earned premium
|
|
$
|
41,575
|
|
|
$
|
50,660
|
|
|
$
|
51,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums decreased $9.1 million, or 17.9% during
2007 from 2006 as compared to a decrease of $0.8 million,
or 1.5%, during 2006 from 2005 due primarily to the changes in
the written premiums for the respective years as discussed
previously. In 2007, American Southerns five largest
states in terms of premium revenue were Florida, Ohio, Georgia,
Alabama, and Indiana which accounted for 64% of gross written
premiums.
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. 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).
The combined ratio for American Southern decreased to 90.4% in
2007 from a combined ratio of 90.7% in 2006. The loss ratio
decreased to 44.3% in 2007 from 46.3% in 2006. The decrease in
the loss ratio was primarily attributable to the loss and
cancellation of several commercial programs. The expense ratio
increased to 46.1% in 2007 from 44.4% in 2006 due primarily to
slightly higher profit margins on the business with variable
commissions. Approximately 88% of American Southerns
business provides for contractual commission arrangements, which
compensate the companys agents in relation to the loss
ratios of the business they write. By structuring its business
in this manner, American Southern provides its agents with an
economic incentive to place profitable business with American
Southern. The combined ratio decreased to 90.7% in 2006 from
93.6% in 2005. The single largest component of the decrease was
the decreased loss ratio which decreased to 46.3% in 2006 from
48.2% in 2005. The decrease in the loss ratio was the result of
cancellation of several commercial programs including the
low-value dwelling property business, combined with favorable
loss experience in the commercial automobile line of business.
28
Bankers
Fidelity
The following summarizes, for the periods indicated, Bankers
Fidelitys premiums, losses and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Medicare supplement
|
|
$
|
41,786
|
|
|
$
|
44,919
|
|
|
$
|
51,414
|
|
Other health products
|
|
|
3,848
|
|
|
|
3,041
|
|
|
|
2,890
|
|
Life insurance
|
|
|
10,615
|
|
|
|
10,960
|
|
|
|
11,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earned premiums
|
|
|
56,249
|
|
|
|
58,920
|
|
|
|
65,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses
|
|
|
40,302
|
|
|
|
42,020
|
|
|
|
46,374
|
|
Underwriting expenses
|
|
|
18,251
|
|
|
|
18,669
|
|
|
|
19,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
58,553
|
|
|
|
60,689
|
|
|
|
66,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting loss
|
|
$
|
(2,304
|
)
|
|
$
|
(1,769
|
)
|
|
$
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium revenue at Bankers Fidelity decreased $2.7 million,
or 4.5%, during 2007 as compared to 2006. Premiums from the
Medicare supplement line of business decreased
$3.1 million, or 7.0%, in 2007 over 2006 and accounted for
74% of total 2007 earned premiums. In 2007, the companys
five key states in terms of premium revenue, Georgia,
Pennsylvania, Ohio, Utah and West Virginia, were consistent with
those in 2006 and accounted for approximately 55% of total
earned premiums for 2007. The Medicare supplement line of
business in these states decreased approximately
$2.4 million as compared to 2006. The general decline in
Medicare supplement premiums has resulted primarily from the
increase in competition not only from traditional insurance
company competitors but also the federal government as it
provides incentives directly and indirectly to seniors to exit
traditional Medicare programs and choose instead Medicare
Advantage and other similar plans which result in much different
economics to the insured. Premiums from the life insurance line
of business decreased $0.3 million, or 3.1%, during 2007
due to a decline in sales related activities. The other health
products premiums increased to $3.8 million in 2007 from
$3.0 million in 2006, or 26.5%, primarily as a result of
increased business activities with group
associations. Recently, Bankers Fidelity has begun
targeting group associations for additional sources
of new business.
Premium revenue at Bankers Fidelity decreased $7.0 million,
or 10.6%, during 2006 as compared to 2005. The most significant
decrease in premiums was in the Medicare supplement line of
business, where premiums decreased $6.5 million, or 12.6%,
due to the continued decline in new business levels and
non-renewal of certain policies that resulted from increased
competition, as discussed previously. In 2006, the
companys key five states collectively accounted for
approximately 56% of total earned premiums. The Medicare
supplement line of business in these states increased
approximately $0.1 million as compared to 2005. Premiums
from the life insurance line of business decreased
$0.6 million, or 5.5%, during 2006 due to a continued
decline in sales related activities.
Benefits and losses decreased $1.7 million, or 4.1%, during
2007 as compared to 2006 and $4.4 million, or 9.4% during
2006 as compared to 2005. As a percentage of earned premiums,
benefits and losses were 71.6% in 2007 compared to 71.3% in 2006
and 70.4% in 2005. The increasing loss ratio between years was
primarily due to the continued aging of the life business.
Underwriting expenses decreased $0.4 million, or 2.2%,
during 2007 as compared to 2006, and decreased
$1.0 million, or 5.1%, during 2006 as compared to 2005. The
decrease in underwriting expenses during 2007 and 2006 was
directly related to the decline in premium revenues. As a
percentage of earned premiums, these expenses were 32.4% in 2007
compared to 31.7% in 2006 and 29.8% in 2005. The increasing
expense ratio during 2007 and 2006 was primarily due to
increased costs on marketing initiatives related to product
diversification efforts.
The indicated underwriting loss of $2.3 million in 2007 as
compared to $1.8 million in 2006 and $0.1 million in
2005 is prior to considering investment income which is a
significant component in evaluating
29
profitability; particularly in the life insurance business.
Further increased marketing efforts, particularly in the past
two years, have resulted in underwriting expenses declining at a
slower rate than the related premiums and thus increasing the
indicated underwriting loss.
Investment
Income And Realized Gains
Investment income of $11.7 million decreased
$0.2 million, or 1.7%, during 2007 as compared to 2006 and
increased $1.1 million, or 10.1%, during 2006 as compared
to 2005. The decrease in investment income during 2007 was
primarily due to a large number of called securities in the last
six months of the year, the proceeds of which were reinvested at
lower rates. The increase in investment income between 2006 and
2005 was the result of a higher level of average invested assets
as well as a higher average yield on these investments.
The Company had net realized investment gains of
$12.6 million in 2007 and $3.1 million in 2006, and
net realized investment losses of $7.3 million in 2005. The
significant net realized investment gains in 2007 were primarily
the result of the disposition of the investment in equity
securities of Wachovia Corporation which resulted in a realized
investment gain of $12.9 million. The net realized
investment gains in 2006 were primarily due to the sale of a
portion of the Companys automotive sector investments
(bonds of General Motors, GMAC and Ford), a portion of the
Companys investment in equity securities of Wachovia
Corporation, and the sale of a real estate partnership interest,
all of which resulted in realized investment gains totaling
$3.1 million. During the years ended December 31, 2007
and 2005, the Company recorded investment impairments due to
other than temporary declines in values, which reduced reported
realized investment gains, related to the following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Corporate bonds
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
6,380
|
|
Redeemable preferred stocks
|
|
$
|
|
|
|
$
|
|
|
|
$
|
875
|
|
Other invested assets
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
While the impairments did not impact the carrying value of the
investments, they resulted in realized losses of
$0.2 million in 2007 and $7.3 million in 2005. The
impairment losses for 2005 were due primarily to the write down
of the value of General Motors, GMAC, and Ford fixed maturity
investments, all of which resulted in a charge of
$7.2 million. Management continually evaluates the
Companys investment portfolio and, as needed, makes
adjustments for impairments
and/or will
divest investments. See Note 3 of Notes to Consolidated
Financial Statements.
Interest
Expense
Interest expense of $4.2 million decreased
$0.4 million, or 9.7%, during 2007 as compared to 2006. The
decrease in interest expense during 2007 was due to active
management of the revolving nature of the Companys bank
credit facility (the Credit Agreement) with Wachovia
Bank, National Association (Wachovia). During each
quarter, using excess funds, the Company repaid a substantial
portion of its bank borrowings. At each quarter end, the Company
would then reborrow funds under the Credit Agreement such that
borrowed amounts were consistent at each quarter end. Such
periodic bank borrowings and repayments resulted in a reduction
in interest expense by reducing the average debt level
outstanding during 2007 as compared to 2006.
Interest expense of $4.6 million increased
$1.0 million, or 27.5%, during 2006 as compared to 2005.
The increase in interest expense during 2006 was due primarily
to an increase in interest rates. During 2006, the
Companys outstanding debt had a variable interest rate
tied to three-month London Interbank Offered Rate
(LIBOR), which increased throughout 2006. Also, on
February 28, 2006, the Company entered into a
$3.0 million term loan with Wachovia, which resulted in a
higher average debt level and increased interest expense during
2006 as compared to the prior year. In the fourth quarter of
2006, the Company entered into the Credit Agreement. Borrowings
under the Credit Agreement were used to repay the amounts
outstanding under the Companys prior term loans with
Wachovia.
30
Other
Expenses
Other expenses (commissions, underwriting expenses, and other
expenses) decreased $4.7 million, or 10.2%, in 2007 as
compared to 2006. The decrease in premium revenue that occurred
in 2007 resulted in a corresponding decrease in the related
commissions and underwriting expenses. As a percentage of earned
premiums, other expenses were 41.9% in 2007 as compared with
41.7% in 2006. The increase in other expenses as a percentage of
earned premiums resulted from the increased marketing costs
incurred in connection with continuing to diversify and grow the
book of business. Offsetting some of the increased marketing
costs were cost reductions which were implemented in the fourth
quarter of 2007, including reductions in compensation for
officers, the elimination of certain corporate positions and
other cost reduction initiatives.
Other expenses decreased $2.1 million, or 4.4%, in 2006 as
compared to 2005. The decrease in other expenses during 2006
again was primarily attributable to a reduction in commission
and underwriting expenses that resulted directly from a decline
in premium revenue. The decrease in premium revenue that
occurred in 2006 was primarily due to the non-renewal of
targeted classes of property business, lower sales activity, and
an increased level of price competition. On a consolidated
basis, as a percentage of earned premiums, other expenses
increased to 41.7% in 2006 from 40.7% in 2005. The increase in
the expense ratio during 2006 was primarily due to the lower
loss ratio in 2006 as compared to 2005. The majority of American
Southerns business is structured in a way that agents are
rewarded or penalized based upon the loss ratio of the business
they submit to the company. In periods where the loss ratio
decreases, commissions and underwriting expenses will increase
and conversely in periods where the loss ratio increases,
commissions and underwriting expenses should decrease.
Liquidity
And Capital 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
Companys primary sources of cash are written premiums,
investment income and the sale and maturity of invested assets.
The Company believes that, within each subsidiary, 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 expenses as needed.
Cash flows at the Parent are derived from dividends, management
fees, and tax sharing payments from the subsidiaries. The cash
needs of the Parent are for the payment of operating expenses,
the acquisition of capital assets and debt service requirements.
Dividend payments to the Parent by its insurance subsidiaries
are subject to annual limitations and are restricted to the
greater of 10% of statutory surplus or statutory earnings before
recognizing realized investment gains of the individual
insurance subsidiaries. At December 31, 2007, the
Parents insurance subsidiaries had statutory surplus of
$72.0 million.
The Parent provides certain administrative, purchasing and other
services to each of its subsidiaries. The amounts charged to and
paid by the subsidiaries were $5.0 million,
$4.9 million, and $4.9 million in 2007, 2006, and
2005, respectively. In addition, the Parent has a formal
tax-sharing agreement with each of its insurance subsidiaries. A
net total of $3.6 million, $4.1 million and
$3.9 million was paid to the Parent under the tax sharing
agreements in 2007, 2006, and 2005, respectively. Dividends were
paid to Atlantic American by its subsidiaries totaling
$5.6 million in 2007, $7.8 million in 2006, and
$11.9 million in 2005. As a result of the Parents tax
loss carryforwards, which totaled approximately
$3.6 million at December 31, 2007, it is anticipated
that the tax sharing agreements will continue to provide the
Parent with additional funds sufficient to meet its cash flow
obligations.
At December 31, 2007, the Companys $54.0 million
of borrowings consisted of $12.8 million of bank debt
pursuant to the Companys Credit Agreement with Wachovia
and an aggregate of $41.2 million of outstanding junior
subordinated deferrable interest debentures (Junior
Subordinated Debentures). The Credit Agreement provides
for a reducing revolving credit facility pursuant to which the
Company may, subject to
31
the terms and conditions thereof, initially borrow or reborrow
up to $15.0 million (the Commitment Amount). In
accordance with the terms of the Credit Agreement, the
Commitment Amount is incrementally reduced every six months
beginning on July 1, 2007 and had been reduced to
$14.0 million at December 31, 2007. 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 LIBOR
determined on an interest period of
1-month,
2-months,
3-months or
6-months,
plus an Applicable Margin (as defined), and was 7.25% at
December 31, 2007. The Applicable Margin varies based upon
the Companys leverage ratio (funded debt to total
capitalization, each as defined) and ranges from 1.75% to 2.50%.
Interest on amounts outstanding is payable quarterly. If not
sooner repaid in full, the Credit Agreement requires the Company
to repay $0.5 million in principal on each of June 30 and
December 31, 2008, $1.0 million and $1.5 million
in principal on June 30 and December 31, 2009,
respectively, with one final payment of $10.5 million in
principal at maturity on June 30, 2010. 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
redemptions, as well as minimum risk-based capital levels. Upon
the occurrence of an event of default, Wachovia may terminate
the Credit Agreement and declare all amounts outstanding under
the Credit Agreement due and payable in full.
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
$41.2 million of Junior Subordinated Debentures have a
maturity of thirty years from their original date of issuance,
are callable, in whole or in part, only at the option of the
Company five years after their respective dates of issue and
quarterly thereafter, and have an interest rate of three-month
LIBOR plus an applicable margin. The margin ranges from 4.00% to
4.10%. At December 31, 2007, the effective interest rate
was 8.03%. 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 trusts
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.
The Company intends to pay its obligations under the Credit
Agreement and the Junior Subordinated Debentures using dividend
and tax sharing payments from the operating subsidiaries, or
from potential future financing arrangements. In addition, the
Company believes that, if necessary, at maturity, the Credit
Agreement could be refinanced, although there can be no
assurance of the terms or conditions of such a refinancing, or
its availability.
During 2006, the Company entered into a zero cost rate collar
with Wachovia to hedge future interest payments on a portion of
the Junior Subordinated Debentures. The notional amount of the
collar was $18.0 million 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 estimated fair value and
related carrying value of the Companys rate collar at
December 31, 2007 was a liability of approximately
$0.7 million.
At December 31, 2007, the Company had two series of
preferred stock outstanding, substantially all of which is held
by affiliates of the Companys chairman and principal
shareholders. The outstanding shares of Series B Preferred
Stock (Series B Preferred Stock) have a stated
value of $100 per share; accrue annual dividends at a rate of
$9.00 per share and are cumulative; in certain circumstances may
be convertible into an aggregate of approximately
3,358,000 shares of common stock; and are redeemable solely
at the Companys option. The Series B Preferred Stock
is not currently convertible. At December 31, 2007, the
Company had accrued, but unpaid, dividends on the Series B
Preferred Stock totaling $14.5 million. The outstanding
shares of Series D Preferred Stock (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 Companys common stock at the option
32
of the board of directors of the Company) and are cumulative. In
certain circumstances the shares of Series D Preferred
Stock may be convertible into an aggregate of approximately
1,754,000 shares of the Companys 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 Companys option. The Series D Preferred Stock
is not currently convertible. During 2007, the Company issued
common stock in lieu of Series D Preferred Stock dividend
payments of $0.6 million. Accordingly, as of
December 31, 2007, the Company did not have any unpaid
dividends on the Series D Preferred Stock.
Net cash provided by operating activities totaled
$5.6 million in 2007, $6.8 million in 2006, and
$12.4 million in 2005. The decrease in operating cash flows
during each of 2007 and 2006 in comparison with the preceding
year was primarily attributable to the decrease in premiums
coupled with an increase in loss related payments to settle
prior years outstanding claims. Cash and short-term
investments increased to $36.9 million at December 31,
2007 from $17.6 million at December 31, 2006. The
increase in cash and short-term investments during 2007 was
primarily due to an increased level of investment maturities,
redemptions and calls exceeding normal purchasing activity. Cash
and short-term investments at December 31, 2007 of
$36.9 million are believed to be sufficient to meet the
Companys near-term needs.
The Company believes that the cash flows it receives from its
subsidiaries and, if needed, additional borrowings from banks
and affiliates of the Company 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 Companys liquidity, capital
resources or operations.
New
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) SFAS No. 141 (revised
2007), Business Combinations
(SFAS 141(R)). This statement replaces
SFAS No. 141, Business Combinations
(SFAS 141) and establishes the principles and
requirements for how the acquirer in a business combination:
(a) measures and recognizes the identifiable assets
acquired, liabilities assumed, and any noncontrolling interests
in the acquired entity, (b) measures and recognizes
positive goodwill acquired or a gain from bargain purchase
(negative goodwill), and (c) determines the disclosure
information that is decision-useful to users of financial
statements in evaluating the nature and financial effects of the
business combination. The statement further requires all
transaction costs for an acquisition to be expensed as incurred
rather than capitalized. In December 2007, the FASB also issued
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements
(SFAS 160). This statement amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements (ARB 51). Noncontrolling interest
refers to the minority interest portion of the equity of a
subsidiary that is not attributable directly or indirectly to a
parent. SFAS 160 establishes accounting and reporting
standards that require for-profit entities that prepare
consolidated financial statements to (a) present
noncontrolling interests as a component of equity, separate from
the parents equity, (b) separately present the amount
of consolidated net income attributable to noncontrolling
interests in the income statement, (c) consistently account
for changes in a parents ownership interests in a
subsidiary in which the parent entity has a controlling
financial interest as equity transactions, (d) require an
entity to measure at fair value its remaining interest in a
subsidiary that is deconsolidated, (e) require an entity to
provide sufficient disclosures that identify and clearly
distinguish between interests of the parent and interest of
noncontrolling owners. Both SFAS 141(R) and SFAS 160
are effective for fiscal years beginning on or after
December 15, 2008 with earlier adoption prohibited. The
Company does not believe that the adoption of either of the
standards will have a material impact on the Companys
financial position or results of operations; although if future
acquisitions are made, the prospective accounting will differ
from that of the past.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement
No. 115. This statement permits entities to choose,
at specified election dates, to measure eligible items at fair
value (i.e. the fair value option). Items eligible for the fair
value option include certain recognized financial assets and
liabilities, rights and
33
obligations under certain insurance contracts that are not
financial instruments, host financial instruments resulting from
the separation of an embedded nonfinancial derivative instrument
from a nonfinancial hybrid instrument, and certain commitments.
Business entities are required to report unrealized gains and
losses on items for which the fair value option has been elected
in net income. The fair value option: (a) may be applied
instrument by instrument, with certain exceptions; (b) is
irrevocable (unless a new election date occurs); and (c) is
applied only to entire instruments and not to portions of
instruments. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year that begins
after November 15, 2007, although early adoption is
permitted under certain conditions. The Company did not elect
the fair value option for any specific financial instruments or
other items.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value under accounting principles generally accepted in the
United States, and enhances disclosures about fair value
measurements. SFAS No. 157 provides guidance on
measuring fair value when required under existing accounting
standards and establishes a hierarchy that prioritizes the
inputs to valuation techniques. SFAS No. 157 is
effective for fiscal years beginning after November 15,
2007. The Company does not believe the adoption of this
statement will have a material impact on the Companys
financial position or results of operations.
In July 2006, the FASB issued Financial Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entitys
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes and prescribes a
recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken, or expected to be
taken, in a tax return. Additionally, FIN 48 provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006, with early adoption permitted. The
Company adopted the provisions of FIN 48 on January 1,
2007 and did not recognize any liability for unrecognized tax
benefits or adjust retained earnings. The Companys policy
is to classify interest and penalties related to unrecognized
tax benefits in income tax expense and, as of January 1,
2007, the Company had no accrued interest and penalties.
In September 2005, the AICPA issued Statement of Position
05-1,
Accounting by Insurance Enterprises for Deferred
Acquisition Costs (DAC) in Connection with
Modifications or Exchanges of Insurance Contracts
(SOP 05-1).
SOP 05-1
provides guidance on accounting by insurance enterprises for DAC
on internal replacements of insurance. An internal replacement
is a modification in product benefits, features, rights or
coverages that occurs by the exchange of a contract for a new
contract, or by amendment, endorsement, or rider to a contract,
or by the election of a feature or coverage within a contract.
Modifications that result in a replacement contract that is
substantially changed from the replaced contract should be
accounted for as an extinguishment of the replaced contract.
Unamortized DAC, unearned revenue liabilities and deferred sales
inducements from the replaced contract must be written-off.
Modifications that result in a contract that is substantially
unchanged from the replaced contract should be accounted for as
a continuation of the replaced contract.
SOP 05-1
is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006, with earlier adoption
encouraged. The Company adopted
SOP 05-1
on January 1, 2007. Adoption of this statement did not have
a material impact on the Companys financial position or
results of operations.
Impact Of
Inflation
Insurance premiums are established before the amount of losses
and loss adjustment expenses, or the extent to which inflation
may affect such losses and expenses, are known. Consequently,
the Company attempts, in establishing its premiums, to
anticipate the potential impact of inflation. If, for
competitive reasons, premiums cannot be increased to anticipate
inflation, this cost would be absorbed by the Company. Inflation
also affects the rate of investment return on the Companys
investment portfolio with a corresponding effect on investment
income.
34
Off-Balance
Sheet Arrangements
In the normal course of business, the Company has structured
borrowings that, in accordance with U.S. GAAP, are recorded
on the Companys balance sheet at an amount that differs
from the ultimate contractual obligation. See Note 7 of
Notes to Consolidated Financial Statements.
Contractual
Obligations
The following table discloses the amounts of payments due under
specified contractual obligations, aggregated by category of
contractual obligation, for specified time periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Bank debt payable
|
|
$
|
12,750
|
|
|
$
|
1,000
|
|
|
$
|
11,750
|
|
|
$
|
|
|
|
$
|
|
|
Junior Subordinated Debentures
|
|
|
41,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,238
|
|
Interest payable(1)
|
|
|
93,294
|
|
|
|
4,077
|
|
|
|
8,969
|
|
|
|
7,232
|
|
|
|
73,016
|
|
Operating leases
|
|
|
4,015
|
|
|
|
1,098
|
|
|
|
1,673
|
|
|
|
1,244
|
|
|
|
|
|
Purchase commitments(2)
|
|
|
9,676
|
|
|
|
9,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and claims(3)
|
|
|
51,704
|
|
|
|
30,192
|
|
|
|
16,568
|
|
|
|
3,751
|
|
|
|
1,193
|
|
Future policy benefits(4)
|
|
|
55,548
|
|
|
|
8,275
|
|
|
|
15,841
|
|
|
|
14,910
|
|
|
|
16,522
|
|
Unearned premiums(5)
|
|
|
13,474
|
|
|
|
6,045
|
|
|
|
2,883
|
|
|
|
1,220
|
|
|
|
3,326
|
|
Other policy liabilities
|
|
|
1,878
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
283,577
|
|
|
$
|
62,241
|
|
|
$
|
57,684
|
|
|
$
|
28,357
|
|
|
$
|
135,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest payable is based on interest rates as of
December 31, 2007 and assumes that all debt remains
outstanding until its stated contractual maturity. |
|
(2) |
|
Represents balances due for goods and/or services which have
been contractually committed as of December 31, 2007. To
the extent contracts provide for early termination with notice
but without penalty, only the amounts contractually due during
the notice period have been included. |
|
(3) |
|
Losses and claims include case reserves for reported claims and
reserves for claims incurred but not reported
(IBNR). While payments due on claim reserves are
considered contractual obligations because they relate to
insurance policies issued by the Company, the ultimate amount to
be paid to settle both case reserves and IBNR reserves is an
estimate, subject to significant uncertainty. The actual amount
to be paid is not determined until the Company reaches a
settlement with any applicable claimant. Final claim settlements
may vary significantly from the present estimates, particularly
since many claims will not be settled until well into the
future. In estimating the timing of future payments by year, the
Company has assumed that its historical payment patterns will
continue. However, the actual timing of future payments will
likely vary materially from these estimates due to, among other
things, changes in claim reporting and payment patterns and
large unanticipated settlements. Amounts reflected do not
include reinsurance amounts which may also be recoverable based
on the level of ultimate sustained loss. |
|
(4) |
|
Future policy benefits relate to life insurance policies on
which the Company is not currently making payments and will not
make future payments unless and until the occurrence of an
insurable event, such as a death or disability, or the
occurrence of a payment triggering event, such as a surrender of
a policy. Occurrence of any of these events is outside the
control of the Company and the payment estimates are based on
significant uncertainties such as mortality, morbidity,
expenses, persistency, investment returns, inflation and the
timing of payments. For regulatory purposes, the Company does
perform cash flow modeling of such liabilities, which is the
basis for the indicated disclosure; however, due to the
significance of the assumptions used, the amount presented could
materially differ from actual results. |
|
(5) |
|
Unearned premiums represent potential future revenue for the
Company; however, under certain circumstances, such premiums may
be refundable with cancellation of the underlying policy.
Significantly all unearned premiums will be earned within the
following twelve month period as the related future |
35
|
|
|
|
|
insurance protection is provided. Significantly all costs
related to such unearned premiums have already been incurred and
paid and are included in deferred acquisition costs; however,
future losses related to the unearned premiums have not been
recorded. The contractual obligations related to unearned
premiums reflected in the table represent the average loss ratio
applied to the year end unearned premium balances, with loss
payments projected in comparable proportions to the year end
loss and claims reserves. Projecting future losses is subject to
significant uncertainties and the projected payments will most
likely vary materially from these estimates as a result of
differences in future severity, frequency and other anticipated
and unanticipated factors. Amounts reflected do not take into
account reinsurance amounts which may be recoverable based on
the level of ultimate sustained loss. |
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate And Market Risk
Due to the nature of the Companys business, it is exposed
to both interest rate and market risk. Changes in interest
rates, which represent a significant risk factor affecting the
Company, may result in changes in the fair value of the
Companys investments, cash flows and interest income and
expense. To manage this risk, the Company generally invests in
U.S. Government agency fixed maturity securities and
monitors its level of investment in securities that are directly
linked to loans or mortgages.
The table below summarizes the estimated fair values that might
result from changes in interest rates applicable to the
Companys fixed maturity portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+200bp
|
|
|
+100bp
|
|
|
Fair value
|
|
|
−100bp
|
|
|
−200bp
|
|
|
|
(In thousands)
|
|
|
December 31, 2007
|
|
$
|
148,943
|
|
|
$
|
157,692
|
|
|
$
|
167,927
|
|
|
$
|
178,626
|
|
|
$
|
191,200
|
|
December 31, 2006
|
|
$
|
144,531
|
|
|
$
|
153,875
|
|
|
$
|
164,382
|
|
|
$
|
176,216
|
|
|
$
|
189,604
|
|
The Company is also subject to risk from changes in equity
prices. The table below summarizes the effect that a change in
equity prices would have on the value of the Companys
equity portfolio. At December 31, 2006, the Companys
investment in Wachovia Corporation was the Companys single
largest equity investment. The Company did not have any
similarly large holding at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+20%
|
|
|
+10%
|
|
|
Fair Value
|
|
|
−10%
|
|
|
−20%
|
|
|
|
(In thousands)
|
|
|
December 31, 2007 Total equity holdings
|
|
$
|
6,402
|
|
|
$
|
5,869
|
|
|
$
|
5,335
|
|
|
$
|
4,802
|
|
|
$
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Wachovia Corporation
|
|
$
|
20,474
|
|
|
$
|
18,768
|
|
|
$
|
17,062
|
|
|
$
|
15,356
|
|
|
$
|
13,650
|
|
Other equity holdings
|
|
|
6,497
|
|
|
|
5,956
|
|
|
|
5,414
|
|
|
|
4,872
|
|
|
|
4,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity holdings
|
|
$
|
26,971
|
|
|
$
|
24,724
|
|
|
$
|
22,476
|
|
|
$
|
20,228
|
|
|
$
|
17,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The interest rate on the Companys debt is variable and
based on LIBOR. The table below summarizes the effect that
changes in interest rates would have on the Companys
interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
Interest Expense
|
|
|
|
+200bp
|
|
|
+100bp
|
|
|
Debt
|
|
|
−100bp
|
|
|
−200bp
|
|
|
|
(In thousands)
|
|
|
December 31, 2007
|
|
$
|
1,055
|
|
|
$
|
528
|
|
|
$
|
53,988
|
|
|
$
|
(528
|
)
|
|
$
|
(1,055
|
)
|
December 31, 2006
|
|
$
|
1,055
|
|
|
$
|
528
|
|
|
$
|
53,988
|
|
|
$
|
(528
|
)
|
|
$
|
(1,055
|
)
|
On February 21, 2006, the Company entered into a zero cost
rate collar with Wachovia 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.
36
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
ATLANTIC AMERICAN CORPORATION
|
|
|
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Atlantic American Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of
Atlantic American Corporation and subsidiaries (the
Company) as of December 31, 2007 and 2006, and
the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. We have also
audited schedules II, III, IV and VI as of and for each of
the three years in the period ended December 31, 2007.
These consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Atlantic American Corporation and subsidiaries at
December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
BDO SEIDMAN LLP
Atlanta, Georgia
March 27, 2008
38
ATLANTIC
AMERICAN CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
ASSETS
|
Cash and cash equivalents, including short-term investments of
$23,432 and $16,191 in 2007 and 2006, respectively
|
|
$
|
36,909
|
|
|
$
|
17,606
|
|
Investments
|
|
|
178,059
|
|
|
|
193,197
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
13,004
|
|
|
|
12,266
|
|
Other, net of allowance for doubtful accounts of $728 and $752
in 2007 and 2006, respectively
|
|
|
6,912
|
|
|
|
14,267
|
|
Deferred income taxes, net
|
|
|
3,929
|
|
|
|
1,627
|
|
Deferred acquisition costs
|
|
|
18,830
|
|
|
|
20,218
|
|
Other assets
|
|
|
2,069
|
|
|
|
2,715
|
|
Goodwill
|
|
|
2,388
|
|
|
|
3,008
|
|
Assets of discontinued operations (Note 2)
|
|
|
196,154
|
|
|
|
194,248
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
458,254
|
|
|
$
|
459,152
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Insurance reserves and policyholder funds
|
|
$
|
128,078
|
|
|
$
|
134,316
|
|
Accounts payable and accrued expenses
|
|
|
36,047
|
|
|
|
33,200
|
|
Debt payable
|
|
|
53,988
|
|
|
|
53,988
|
|
Liabilities of discontinued operations (Note 2)
|
|
|
152,347
|
|
|
|
143,460
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
370,460
|
|
|
|
364,964
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par, 4,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
Series B preferred, 134,000 shares issued and
outstanding; $13,400 redemption value
|
|
|
134
|
|
|
|
134
|
|
Series D preferred, 70,000 shares issued and
outstanding; $7,000 redemption value
|
|
|
70
|
|
|
|
70
|
|
Common stock, $1 par, 50,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
21,816,999 shares issued in 2007 and 21,484,440 shares
issued in 2006 and 21,816,999 shares outstanding in 2007 and
21,481,413 shares outstanding in 2006
|
|
|
21,817
|
|
|
|
21,484
|
|
Additional paid-in capital
|
|
|
56,414
|
|
|
|
55,832
|
|
Retained earnings
|
|
|
10,530
|
|
|
|
4,969
|
|
Accumulated other comprehensive (loss) income
|
|
|
(1,171
|
)
|
|
|
11,707
|
|
Treasury stock, at cost, 3,027 shares in 2006
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
87,794
|
|
|
|
94,188
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
458,254
|
|
|
$
|
459,152
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
ATLANTIC
AMERICAN CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except
|
|
|
|
per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
97,824
|
|
|
$
|
109,580
|
|
|
$
|
117,351
|
|
Investment income
|
|
|
11,722
|
|
|
|
11,926
|
|
|
|
10,828
|
|
Realized investment gains (losses), net
|
|
|
12,627
|
|
|
|
3,084
|
|
|
|
(7,303
|
)
|
Other income
|
|
|
799
|
|
|
|
768
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
122,972
|
|
|
|
125,358
|
|
|
|
121,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
58,701
|
|
|
|
65,460
|
|
|
|
71,201
|
|
Commissions and underwriting expenses
|
|
|
32,663
|
|
|
|
36,404
|
|
|
|
38,221
|
|
Interest expense
|
|
|
4,160
|
|
|
|
4,605
|
|
|
|
3,611
|
|
Other
|
|
|
8,350
|
|
|
|
9,265
|
|
|
|
9,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
103,874
|
|
|
|
115,734
|
|
|
|
122,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes
|
|
|
19,098
|
|
|
|
9,624
|
|
|
|
(614
|
)
|
Income tax expense (benefit)
|
|
|
7,513
|
|
|
|
2,458
|
|
|
|
(1,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
11,585
|
|
|
|
7,166
|
|
|
|
1,132
|
|
(Loss) income from discontinued operations, net of tax
(Note 2)
|
|
|
(4,333
|
)
|
|
|
1,770
|
|
|
|
(4,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,252
|
|
|
|
8,936
|
|
|
|
(3,175
|
)
|
Preferred stock dividends
|
|
|
(1,691
|
)
|
|
|
(1,333
|
)
|
|
|
(1,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
5,561
|
|
|
$
|
7,603
|
|
|
$
|
(4,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.46
|
|
|
$
|
.27
|
|
|
$
|
|
|
(Loss) income from discontinued operations
|
|
|
(.20
|
)
|
|
|
.09
|
|
|
|
(.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
.26
|
|
|
$
|
.36
|
|
|
$
|
(.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.45
|
|
|
$
|
.27
|
|
|
$
|
|
|
(Loss) income from discontinued operations
|
|
|
(.20
|
)
|
|
|
.06
|
|
|
|
(.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
.25
|
|
|
$
|
.33
|
|
|
$
|
(.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
ATLANTIC
AMERICAN CORPORATION
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Income
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit)
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, December 31, 2004
|
|
$
|
134
|
|
|
$
|
21,412
|
|
|
$
|
50,347
|
|
|
$
|
462
|
|
|
$
|
17,207
|
|
|
$
|
(602
|
)
|
|
$
|
88,960
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,175
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,175
|
)
|
Decrease in unrealized investment gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,549
|
)
|
|
|
|
|
|
|
(6,549
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
|
|
|
|
(160
|
)
|
Deferred income tax attributable to other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,348
|
|
|
|
|
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,536
|
)
|
Dividends accrued on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,206
|
)
|
Deferred share compensation expense
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
240
|
|
|
|
(1
|
)
|
Restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Acquisition of 45,619 shares for treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Issuance of 194,026 shares for employee benefit plans and
stock options
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
344
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
134
|
|
|
|
21,412
|
|
|
|
48,925
|
|
|
|
(2,780
|
)
|
|
|
12,846
|
|
|
|
(84
|
)
|
|
|
80,453
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,936
|
|
|
|
|
|
|
|
|
|
|
|
8,936
|
|
Decrease in unrealized investment gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(660
|
)
|
|
|
|
|
|
|
(660
|
)
|
Fair value adjustment to derivative financial instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
|
|
|
|
(165
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
Deferred income tax attributable to other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,540
|
|
Minimum pension liability adjustment due to adoption of
SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(743
|
)
|
|
|
|
|
|
|
(743
|
)
|
Issuance of 70,000 shares of preferred stock
|
|
|
70
|
|
|
|
|
|
|
|
6,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Dividends accrued on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
(1,178
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,333
|
)
|
Deferred share compensation expense
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Restricted stock grants
|
|
|
|
|
|
|
22
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Acquisition of 25,774 shares for treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(70
|
)
|
Issuance of 102,009 shares for employee benefit plans and
stock options
|
|
|
|
|
|
|
50
|
|
|
|
84
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
146
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
204
|
|
|
$
|
21,484
|
|
|
$
|
55,832
|
|
|
$
|
4,969
|
|
|
$
|
11,707
|
|
|
$
|
(8
|
)
|
|
$
|
94,188
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,252
|
|
|
|
|
|
|
|
|
|
|
|
7,252
|
|
Decrease in unrealized investment gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,549
|
)
|
|
|
|
|
|
|
(19,549
|
)
|
Fair value adjustment to derivative financial instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
(575
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
312
|
|
Deferred income tax attributable to other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,934
|
|
|
|
|
|
|
|
6,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,626
|
)
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,691
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,691
|
)
|
Common stock issued in lieu of preferred stock dividend payments
|
|
|
|
|
|
|
227
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
Deferred share compensation expense
|
|
|
|
|
|
|
10
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Restricted stock grants
|
|
|
|
|
|
|
12
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Acquisition of 5,655 shares for treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
Issuance of 102,239 shares for employee benefit plans and
stock options
|
|
|
|
|
|
|
84
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
204
|
|
|
$
|
21,817
|
|
|
$
|
56,414
|
|
|
$
|
10,530
|
|
|
$
|
(1,171
|
)
|
|
$
|
|
|
|
$
|
87,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
41
ATLANTIC
AMERICAN CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,252
|
|
|
$
|
8,936
|
|
|
$
|
(3,175
|
)
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred acquisition costs
|
|
|
11,119
|
|
|
|
13,697
|
|
|
|
14,167
|
|
Acquisition costs deferred
|
|
|
(9,731
|
)
|
|
|
(11,764
|
)
|
|
|
(13,291
|
)
|
Realized investment (gains) losses, net
|
|
|
(12,627
|
)
|
|
|
(3,084
|
)
|
|
|
7,303
|
|
(Decrease) increase in insurance reserves and policyholder funds
|
|
|
(6,238
|
)
|
|
|
(3,497
|
)
|
|
|
3,460
|
|
Loss (income) from discontinued operations, net
|
|
|
4,333
|
|
|
|
(1,770
|
)
|
|
|
4,307
|
|
Compensation expense related to share awards
|
|
|
68
|
|
|
|
70
|
|
|
|
65
|
|
Depreciation and amortization
|
|
|
108
|
|
|
|
871
|
|
|
|
949
|
|
Deferred income tax expense (benefit)
|
|
|
3,711
|
|
|
|
981
|
|
|
|
(2,959
|
)
|
Decrease in receivables, net
|
|
|
5,067
|
|
|
|
778
|
|
|
|
801
|
|
Increase in other liabilities
|
|
|
1,507
|
|
|
|
1,429
|
|
|
|
784
|
|
Goodwill impairment
|
|
|
620
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
425
|
|
|
|
147
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing activities
|
|
|
5,614
|
|
|
|
6,794
|
|
|
|
12,422
|
|
Net cash used in discontinued activities
|
|
|
(5,629
|
)
|
|
|
(6,298
|
)
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(15
|
)
|
|
|
496
|
|
|
|
11,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from investments sold
|
|
|
22,538
|
|
|
|
18,384
|
|
|
|
28,715
|
|
Proceeds from investments matured, called or redeemed
|
|
|
69,653
|
|
|
|
24,827
|
|
|
|
33,414
|
|
Investments purchased
|
|
|
(78,988
|
)
|
|
|
(59,683
|
)
|
|
|
(66,038
|
)
|
Additions to property and equipment
|
|
|
(446
|
)
|
|
|
(286
|
)
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
12,757
|
|
|
|
(16,758
|
)
|
|
|
(4,553
|
)
|
Net cash provided by (used in) discontinued operations
|
|
|
12,301
|
|
|
|
(7,666
|
)
|
|
|
(4,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
25,058
|
|
|
|
(24,424
|
)
|
|
|
(8,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series D Preferred Stock
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
19
|
|
|
|
16
|
|
|
|
34
|
|
Purchase of treasury shares
|
|
|
(23
|
)
|
|
|
(70
|
)
|
|
|
(132
|
)
|
Proceeds from bank financing
|
|
|
36,000
|
|
|
|
15,750
|
|
|
|
|
|
Repayments of debt
|
|
|
(36,000
|
)
|
|
|
(13,250
|
)
|
|
|
(1,750
|
)
|
Financing of discontinued operations
|
|
|
936
|
|
|
|
(6,560
|
)
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
932
|
|
|
|
2,886
|
|
|
|
(6,048
|
)
|
Net cash (used in) provided by discontinued operations
|
|
|
(936
|
)
|
|
|
6,560
|
|
|
|
4,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(4
|
)
|
|
|
9,446
|
|
|
|
(1,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
25,039
|
|
|
|
(14,482
|
)
|
|
|
818
|
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
17,606
|
|
|
|
24,684
|
|
|
|
22,863
|
|
Discontinued operations
|
|
|
9,688
|
|
|
|
17,092
|
|
|
|
18,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,294
|
|
|
|
41,776
|
|
|
|
40,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
36,909
|
|
|
|
17,606
|
|
|
|
24,684
|
|
Discontinued operations
|
|
|
15,424
|
|
|
|
9,688
|
|
|
|
17,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,333
|
|
|
$
|
27,294
|
|
|
$
|
41,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,195
|
|
|
$
|
4,711
|
|
|
$
|
3,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
460
|
|
|
$
|
609
|
|
|
$
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received for income taxes
|
|
$
|
|
|
|
$
|
676
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
42
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands, except per share amounts)
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP)
which, as to insurance companies, differ from the statutory
accounting practices prescribed or permitted by regulatory
authorities. These financial statements include the accounts of
Atlantic American Corporation (Atlantic American or
the Parent) and its subsidiaries (collectively, the
Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
At December 31, 2007, the Parent owned five insurance
subsidiaries, Bankers Fidelity Life Insurance Company
(Bankers Fidelity), American Southern Insurance
Company and its wholly-owned subsidiary, American Safety
Insurance Company (together known as American
Southern), Association Casualty Insurance Company and
Georgia Casualty & Surety Company (Georgia
Casualty), in addition to two non-insurance subsidiaries,
Association Risk Management General Agency, Inc., and
Self-Insurance Administrators, Inc. (SIA, Inc.).
Association Casualty Insurance Company and Association Risk
Management General Agency, Inc. are together termed
Association Casualty. On December 26, 2007, the
Company entered into a Stock Purchase Agreement
(SPA) providing for the sale of all the outstanding
shares of stock of Association Casualty and Georgia Casualty to
Columbia Mutual Insurance Company (Columbia).
Accordingly, the assets, liabilities, and results of operations
of Association Casualty and Georgia Casualty have been reflected
by the Company as discontinued operations (Note 2).
Premium
Revenue and Cost Recognition
Life insurance premiums are recognized as revenues when due;
accident and health premiums are recognized over the premium
paying period and property and casualty insurance premiums are
recognized as revenue over the period of the contract in
proportion to the amount of insurance protection provided.
Benefits and expenses are accrued as incurred and are associated
with premiums as they are earned so as to result in recognition
of profits over the lives of the contracts. For traditional life
insurance and long-duration health insurance, this association
is accomplished by the provision of a future policy benefits
reserve and the deferral and subsequent amortization of the
costs of acquiring business, deferred policy acquisition
costs (principally commissions, premium taxes, and other
expenses of issuing policies). 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 policy benefits reserve. The Company provides for
insurance benefits and losses on accident, health, and
property-casualty claims based upon estimates of projected
ultimate losses. The deferred policy 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).
Goodwill
Goodwill represents the excess of cost over the fair value of
net assets acquired and is not amortized. The Company
periodically reviews its goodwill to determine if any adverse
conditions exist that could indicate impairment. Conditions that
could trigger impairment include, but are not limited to, a
significant change in business climate that could affect the
value of the related asset, an adverse action, or an assessment
by a regulator. During 2007, an impairment of $620 was
recognized. No impairment of the Companys recorded
goodwill was identified during 2006 or 2005.
43
Investments
The Companys investments in both fixed maturity
securities, which include bonds and redeemable preferred stocks,
and equity securities, which include common and non-redeemable
preferred stocks, are classified as
available-for-sale and, accordingly, are carried at
fair value with the after-tax difference from amortized cost, as
adjusted if applicable, reflected in shareholders equity
as a component of accumulated other comprehensive income. The
fair values for fixed maturity and equity securities are largely
determined by either independent methods prescribed by the
National Association of Insurance Commissioners
(NAIC), which do not differ materially from
nationally quoted market prices, when available, or independent
broker quotations. Certain non-redeemable preferred stocks that
do not have quoted values are carried at estimated fair value as
determined by management. With the exception of short-term
securities for which amortized cost is predominately used to
approximate fair value, security prices are first sought from
NAIC pricing services with the remaining unpriced securities
submitted to brokers for prices. Mortgage loans, policy and
student loans, and real estate are carried at historical cost.
Other invested assets are comprised of investments in limited
partnerships, limited liability companies, and real estate joint
ventures. Those which are publicly traded are carried at
estimated fair value and the others are accounted for using the
equity method. If the value of a common stock, preferred stock,
other invested asset, or publicly traded bond declines below its
cost or amortized cost, if applicable, and the decline is
considered to be other than temporary, a realized loss is
recorded to reduce the carrying value of the investment to its
estimated fair value, which becomes the new cost basis. In
evaluating impairment, the Company considers, among other
factors, the expected holding period, the nature of the
investment and the prospects for the company and its industry.
Premiums and discounts related to investments are amortized or
accreted over the life of the related investment as an
adjustment to yield using the effective interest method.
Dividends and interest income are recognized when earned or
declared. The cost of securities sold is based on specific
identification. Unrealized gains (losses) in the value of
invested assets are accounted for as a direct increase
(decrease) in accumulated other comprehensive income in
shareholders equity, net of deferred tax and, accordingly,
have no effect on net income.
Income
Taxes
Deferred income taxes represent the expected future tax
consequences when the reported amounts of assets and liabilities
are recovered or paid. They arise from differences between the
financial reporting and tax basis of assets and liabilities and
are adjusted for changes in tax laws and tax rates as those
changes are enacted. The provision for income taxes represents
the total amount of income taxes due related to the current
year, plus the change in deferred taxes during the year. A
valuation allowance is recognized if, based on managements
assessment of the relevant facts, it is more likely than not
that some portion of the deferred tax asset will not be realized.
Earnings
Per Common Share
Basic earnings per common share are based on the weighted
average number of common shares outstanding during each period.
Diluted earnings per common share are based on the weighted
average number of common shares outstanding during each period,
plus common shares calculated including stock options and share
awards outstanding using the treasury stock method and assumed
conversion of the Series B and Series D Preferred
Stock, if dilutive. Unless otherwise indicated, earnings per
common share amounts are presented on a diluted basis.
Stock
Options
On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123R) using the modified
prospective transition method. SFAS No. 123R replaces
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) and
supersedes Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees. The adoption of SFAS 123R did not have a
material impact on the Companys consolidated statements of
operations or net income (loss) per share. Prior to
January 1, 2006, stock options were reported under the
recognition and measurement principles of APB Opinion
No. 25 instead of the fair
44
value approach recommended in SFAS No. 123 as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. Accordingly, no
stock-based employee compensation expense attributable to stock
options was reflected in net income, as all stock options
granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. Pro forma net
income (loss) and net income (loss) per common share were
determined as if the Company had accounted for its employee
stock options under the fair value method of
SFAS No. 123. The fair value of these options was
determined at the date of grant using an options pricing model,
which requires the input of subjective assumptions, including
the volatility of the stock price. If the Company had applied
the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation in 2005, the Companys
net income (loss) and net income (loss) per share would not have
been materially different from that as reported.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash on hand and
investments in short-term, highly liquid securities which have
original maturities of three months or less from date of
purchase.
Impact
of Recently Issued Accounting Standards
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS 141(R)). This statement replaces
SFAS No. 141, Business Combinations
(SFAS 141) and establishes the principles and
requirements for how the acquirer in a business combination:
(a) measures and recognizes the identifiable assets
acquired, liabilities assumed, and any noncontrolling interests
in the acquired entity, (b) measures and recognizes
positive goodwill acquired or a gain from bargain purchase
(negative goodwill), and (c) determines the disclosure
information that is decision-useful to users of financial
statements in evaluating the nature and financial effects of the
business combination. The statement further requires all
transaction costs for an acquisition to be expensed as incurred
rather than capitalized. In December 2007, the FASB also issued
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements
(SFAS 160). This statement amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements (ARB 51). Noncontrolling interest
refers to the minority interest portion of the equity of a
subsidiary that is not attributable directly or indirectly to a
parent. SFAS 160 establishes accounting and reporting
standards that require for-profit entities that prepare
consolidated financial statements to (a) present
noncontrolling interests as a component of equity, separate from
the parents equity, (b) separately present the amount
of consolidated net income attributable to noncontrolling
interests in the income statement, (c) consistently account
for changes in a parents ownership interests in a
subsidiary in which the parent entity has a controlling
financial interest as equity transactions, (d) require an
entity to measure at fair value its remaining interest in a
subsidiary that is deconsolidated, (e) require an entity to
provide sufficient disclosures that identify and clearly
distinguish between interests of the parent and interest of
noncontrolling owners. Both SFAS 141(R) and SFAS 160
are effective for fiscal years beginning on or after
December 15, 2008 with earlier adoption prohibited. The
Company does not believe that the adoption of either of the
standards will have a material impact on the Companys
financial position or results of operations; although if future
acquisitions are made, the prospective accounting will differ
from that of the past.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement
No. 115. This statement permits entities to choose,
at specified election dates, to measure eligible items at fair
value (i.e. the fair value option). Items eligible for the fair
value option include certain recognized financial assets and
liabilities, rights and obligations under certain insurance
contracts that are not financial instruments, host financial
instruments resulting from the separation of an embedded
nonfinancial derivative instrument from a nonfinancial hybrid
instrument, and certain commitments. Business entities are
required to report unrealized gains and losses on items for
which the fair value option has been elected in net income. The
fair value option: (a) may be applied instrument by
instrument, with certain exceptions; (b) is irrevocable
(unless a new election date occurs); and (c) is applied
only to entire instruments and not to portions of instruments.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after
November 15, 2007, although early adoption is
45
permitted under certain conditions. The Company did not elect
the fair value option for any specific financial instruments or
other items.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value under accounting principles generally accepted in the
United States, and enhances disclosures about fair value
measurements. SFAS No. 157 provides guidance on
measuring fair value when required under existing accounting
standards and establishes a hierarchy that prioritizes the
inputs to valuation techniques. SFAS No. 157 is
effective for fiscal years beginning after November 15,
2007. The Company does not believe the adoption of this
statement will have a material impact on the Companys
financial position or results of operations.
In July 2006, the FASB issued Financial Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an entitys
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes and prescribes a
recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken, or expected to be
taken, in a tax return. Additionally, FIN 48 provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006, with early adoption permitted. The
Company adopted the provisions of FIN 48 on January 1,
2007 and did not recognize any liability for unrecognized tax
benefits or adjust retained earnings. The Companys policy
is to classify interest and penalties related to unrecognized
tax benefits in income tax expense and, as of January 1,
2007, the Company had no accrued interest and penalties.
In September 2005, the AICPA issued Statement of Position
05-1,
Accounting by Insurance Enterprises for Deferred
Acquisition Costs (DAC) in Connection with
Modifications or Exchanges of Insurance Contracts
(SOP 05-1).
SOP 05-1
provides guidance on accounting by insurance enterprises for DAC
on internal replacements of insurance. An internal replacement
is a modification in product benefits, features, rights or
coverages that occurs by the exchange of a contract for a new
contract, or by amendment, endorsement, or rider to a contract,
or by the election of a feature or coverage within a contract.
Modifications that result in a replacement contract that is
substantially changed from the replaced contract should be
accounted for as an extinguishment of the replaced contract.
Unamortized DAC, unearned revenue liabilities and deferred sales
inducements from the replaced contract must be written-off.
Modifications that result in a contract that is substantially
unchanged from the replaced contract should be accounted for as
a continuation of the replaced contract.
SOP 05-1
is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006, with earlier adoption
encouraged. The Company adopted
SOP 05-1
on January 1, 2007. Adoption of this statement did not have
a material impact on the Companys financial position or
results of operations.
Use of
Estimates in the Preparation of Financial
Statements
The preparation of financial statements and related disclosures
in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and
expenses during the reporting period. Significant estimates and
assumptions are used in developing and evaluating deferred
income taxes, deferred acquisition costs, insurance reserves,
investments, pension benefits, commitments and contingencies,
among others, and actual results could differ from
managements estimates.
46
|
|
Note 2.
|
Discontinued
Operations
|
On December 26, 2007, the Company entered into a SPA
providing for the sale of all the outstanding shares of stock of
Association Casualty and Georgia Casualty to Columbia.
Accordingly, the consolidated financial statements reflect the
assets, liabilities, and operating results of Georgia Casualty
and Association Casualty as discontinued operations.
The following table provides operating results from the
discontinued operations of Georgia Casualty and Association
Casualty for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
37,031
|
|
|
$
|
44,125
|
|
|
$
|
60,242
|
|
Investment income
|
|
|
6,343
|
|
|
|
6,397
|
|
|
|
5,857
|
|
Realized investment gains (losses), net
|
|
|
3,225
|
|
|
|
3,607
|
|
|
|
(3,153
|
)
|
Other income
|
|
|
26
|
|
|
|
45
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
46,625
|
|
|
|
54,174
|
|
|
|
63,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
34,107
|
|
|
|
26,472
|
|
|
|
44,474
|
|
Commissions and underwriting expenses
|
|
|
16,951
|
|
|
|
25,584
|
|
|
|
22,716
|
|
Other
|
|
|
3,109
|
|
|
|
453
|
|
|
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
54,167
|
|
|
|
52,509
|
|
|
|
69,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations before taxes
|
|
|
(7,542
|
)
|
|
|
1,665
|
|
|
|
(6,851
|
)
|
Income tax benefit
|
|
|
(3,209
|
)
|
|
|
(105
|
)
|
|
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(4,333
|
)
|
|
$
|
1,770
|
|
|
$
|
(4,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The following table provides condensed information about the
assets and liabilities of the discontinued operations of Georgia
Casualty and Association Casualty and as aggregated in the
consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets of Discontinued Operations:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including short-term investments of
$10,585
and $3,997 in 2007 and 2006, respectively
|
|
$
|
15,424
|
|
|
$
|
9,688
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturities (cost: $91,216 and $97,278)
|
|
|
91,088
|
|
|
|
97,933
|
|
Common and non-redeemable preferred stocks (cost: $2,406 and
$3,733)
|
|
|
3,139
|
|
|
|
6,350
|
|
Other invested assets (cost: $47 and 1,330)
|
|
|
47
|
|
|
|
1,295
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
94,274
|
|
|
|
105,578
|
|
|
|
|
|
|
|
|
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
54,391
|
|
|
|
42,227
|
|
Other
|
|
|
17,570
|
|
|
|
20,709
|
|
Deferred acquisition costs
|
|
|
3,486
|
|
|
|
4,200
|
|
Other assets
|
|
|
11,009
|
|
|
|
11,846
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
196,154
|
|
|
$
|
194,248
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Discontinued Operations:
|
|
|
|
|
|
|
|
|
Unearned premiums
|
|
$
|
22,065
|
|
|
$
|
25,532
|
|
Losses and claims
|
|
|
122,418
|
|
|
|
107,658
|
|
Accounts payable and accrued expenses
|
|
|
7,864
|
|
|
|
10,270
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
152,347
|
|
|
$
|
143,460
|
|
|
|
|
|
|
|
|
|
|
48
Investments were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Fixed Maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government
agencies and authorities
|
|
$
|
127,070
|
|
|
$
|
994
|
|
|
$
|
67
|
|
|
$
|
126,143
|
|
Obligations of states and political subdivisions
|
|
|
412
|
|
|
|
14
|
|
|
|
|
|
|
|
398
|
|
Corporate securities
|
|
|
29,728
|
|
|
|
314
|
|
|
|
832
|
|
|
|
30,246
|
|
Mortgage-backed securities (government guaranteed)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Redeemable preferred stocks
|
|
|
10,714
|
|
|
|
264
|
|
|
|
1,416
|
|
|
|
11,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
167,927
|
|
|
|
1,586
|
|
|
|
2,315
|
|
|
|
168,656
|
|
Common and non-redeemable preferred stocks
|
|
|
5,335
|
|
|
|
590
|
|
|
|
621
|
|
|
|
5,366
|
|
Other invested assets (fair value of $1,563)
|
|
|
1,563
|
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
Policy and student loans
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
1,958
|
|
Real estate
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Investments in unconsolidated trusts
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
178,059
|
|
|
|
2,176
|
|
|
|
2,936
|
|
|
|
178,819
|
|
Short-term investments
|
|
|
23,432
|
|
|
|
|
|
|
|
|
|
|
|
23,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
201,491
|
|
|
$
|
2,176
|
|
|
$
|
2,936
|
|
|
$
|
202,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Fixed Maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government
agencies and authorities
|
|
$
|
117,120
|
|
|
$
|
99
|
|
|
$
|
1,660
|
|
|
$
|
118,681
|
|
Obligations of states and political subdivisions
|
|
|
414
|
|
|
|
18
|
|
|
|
|
|
|
|
396
|
|
Corporate securities
|
|
|
33,892
|
|
|
|
2,597
|
|
|
|
297
|
|
|
|
31,592
|
|
Mortgage-backed securities (government guaranteed)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Redeemable preferred stocks
|
|
|
12,949
|
|
|
|
656
|
|
|
|
153
|
|
|
|
12,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
164,382
|
|
|
|
3,370
|
|
|
|
2,110
|
|
|
|
163,122
|
|
Common and non-redeemable preferred stocks
|
|
|
22,476
|
|
|
|
14,960
|
|
|
|
30
|
|
|
|
7,546
|
|
Other invested assets (fair value of $1,735)
|
|
|
1,735
|
|
|
|
|
|
|
|
34
|
|
|
|
1,769
|
|
Mortgage loans (fair value of $1,564)
|
|
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
1,379
|
|
Policy and student loans
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
|
|
1,949
|
|
Real estate
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Investments in unconsolidated trusts
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
193,197
|
|
|
|
18,330
|
|
|
|
2,174
|
|
|
|
177,041
|
|
Short-term investments
|
|
|
16,191
|
|
|
|
|
|
|
|
|
|
|
|
16,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
209,388
|
|
|
$
|
18,330
|
|
|
$
|
2,174
|
|
|
$
|
193,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Bonds and short-term investments having an amortized cost of
$10,553 and $10,709 were on deposit with insurance regulatory
authorities at December 31, 2007 and 2006, respectively, in
accordance with statutory requirements.
Securities with unrealized losses at December 31, 2007 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
U.S. Treasury securities and obligations of U.S. Government
agencies and authorities
|
|
$
|
8,189
|
|
|
$
|
40
|
|
|
$
|
4,241
|
|
|
$
|
27
|
|
|
$
|
12,430
|
|
|
$
|
67
|
|
Corporate securities
|
|
|
9,801
|
|
|
|
425
|
|
|
|
5,918
|
|
|
|
407
|
|
|
|
15,719
|
|
|
|
832
|
|
Redeemable preferred stocks
|
|
|
4,465
|
|
|
|
657
|
|
|
|
2,751
|
|
|
|
759
|
|
|
|
7,216
|
|
|
|
1,416
|
|
Common and non-redeemable preferred stocks
|
|
|
1,980
|
|
|
|
303
|
|
|
|
928
|
|
|
|
318
|
|
|
|
2,908
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporary impaired securities
|
|
$
|
24,435
|
|
|
$
|
1,425
|
|
|
$
|
13,838
|
|
|
$
|
1,511
|
|
|
$
|
38,273
|
|
|
$
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
U.S. Treasury securities and obligations of U.S. Government
agencies and authorities
|
|
$
|
23,091
|
|
|
$
|
175
|
|
|
$
|
71,819
|
|
|
$
|
1,485
|
|
|
$
|
94,910
|
|
|
$
|
1,660
|
|
Corporate securities
|
|
|
3,885
|
|
|
|
52
|
|
|
|
5,054
|
|
|
|
245
|
|
|
|
8,939
|
|
|
|
297
|
|
Redeemable preferred stocks
|
|
|
|
|
|
|
|
|
|
|
5,637
|
|
|
|
153
|
|
|
|
5,637
|
|
|
|
153
|
|
Common and non-redeemable preferred stocks
|
|
|
594
|
|
|
|
24
|
|
|
|
994
|
|
|
|
6
|
|
|
|
1,588
|
|
|
|
30
|
|
Other invested assets
|
|
|
1,735
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
1,735
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporary impaired securities
|
|
$
|
29,305
|
|
|
$
|
285
|
|
|
$
|
83,504
|
|
|
$
|
1,889
|
|
|
$
|
112,809
|
|
|
$
|
2,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market changes in interest rates and credit spreads result in
changes in the fair values of investments and are accumulated
and reported as unrealized gains and losses. Excluding
U.S. Treasury securities and obligations of
U.S. Government agencies and authorities, the change in
value of which is deemed solely to relate to interest rate
movements, the Company held investments in less than 30 issuers
which had unrealized investment losses at December 31, 2007
and 2006, respectively. The majority of the unrealized losses at
December 31, 2007 resulted from holdings in financial
entities which have been impacted by the markets and related
liquidity in the markets for mortgage related and other
derivative products. Holdings with the largest amount of
unrealized losses include redeemable preferred stocks of
Citigroup and JPMorgan Chase and corporate bonds of General
Motors Acceptance Corporation. Unrealized losses related to
these three holdings aggregated approximately
1/3
of the Companys total unrealized losses related to
corporate bonds, common and preferred stocks at
December 31, 2007.
During the years ended December 31, 2007, 2006, and 2005,
the Company recorded impairments related to the following
investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Corporate securities(1)
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
6,380
|
|
Redeemable preferred stocks(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
875
|
|
Other invested assets
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Includes automotive sector impairments of $7,198 in 2005,
primarily from holdings in General Motors and related entities. |
50
As part of the Companys ongoing investment review, the
Company has reviewed its investment portfolio and concluded that
there were no additional investments with other than temporary
impairments as of December 31, 2007 or 2006. The evaluation
for other than temporary impairments 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. The risks and
uncertainties include changes in general economic conditions, an
issuers financial condition or near term recovery
prospects and the effects of changes in interest rates. As a
result of issuers continued satisfaction of the investment
obligations in accordance with their contractual terms, if
applicable, and managements expectation that they will
continue to do so, also if applicable, managements intent
and ability to hold these securities, as well as the evaluation
of the fundamentals of the issuers financial condition and
other objective evidence, the Company believes that the
unrealized losses on investments at December 31, 2007 and
2006 were temporary.
The amortized cost and carrying value of fixed maturities and
short-term investments at December 31, 2007 and 2006 by
contractual maturity were as follows. Actual maturities may
differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Amortized
|
|
|
Carrying
|
|
|
Amortized
|
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
|
(In thousands)
|
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
43,069
|
|
|
$
|
43,031
|
|
|
$
|
39,592
|
|
|
$
|
39,587
|
|
Due after one year through five years
|
|
|
14,389
|
|
|
|
14,084
|
|
|
|
12,936
|
|
|
|
12,644
|
|
Due after five years through ten years
|
|
|
13,832
|
|
|
|
13,832
|
|
|
|
22,751
|
|
|
|
22,081
|
|
Due after ten years
|
|
|
120,066
|
|
|
|
121,138
|
|
|
|
105,287
|
|
|
|
104,994
|
|
Varying maturities
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
191,359
|
|
|
$
|
192,088
|
|
|
$
|
180,573
|
|
|
$
|
179,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income was earned from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Fixed maturities
|
|
$
|
9,384
|
|
|
$
|
9,922
|
|
|
$
|
8,205
|
|
Common and non-redeemable preferred stocks
|
|
|
767
|
|
|
|
948
|
|
|
|
1,386
|
|
Mortgage loans
|
|
|
79
|
|
|
|
184
|
|
|
|
250
|
|
Short-term investments
|
|
|
1,297
|
|
|
|
671
|
|
|
|
598
|
|
Other
|
|
|
195
|
|
|
|
201
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
$
|
11,722
|
|
|
$
|
11,926
|
|
|
$
|
10,828
|
|
Less investment expenses
|
|
|
(119
|
)
|
|
|
(104
|
)
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
11,603
|
|
|
$
|
11,822
|
|
|
$
|
10,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of realized investment gains (losses) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Fixed
|
|
|
Other Invested
|
|
|
|
|
|
|
Stocks
|
|
|
Maturities
|
|
|
Assets
|
|
|
Total
|
|
|
Gains
|
|
$
|
12,905
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
12,926
|
|
Losses
|
|
|
|
|
|
|
(176
|
)
|
|
|
(123
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses), net
|
|
$
|
12,905
|
|
|
$
|
(155
|
)
|
|
$
|
(123
|
)
|
|
$
|
12,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Fixed
|
|
|
Other Invested
|
|
|
|
|
|
|
Stocks
|
|
|
Maturities
|
|
|
Assets
|
|
|
Total
|
|
|
Gains
|
|
$
|
1,738
|
|
|
$
|
1,201
|
|
|
$
|
654
|
|
|
$
|
3,593
|
|
Losses
|
|
|
|
|
|
|
(509
|
)
|
|
|
|
|
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses), net
|
|
$
|
1,738
|
|
|
$
|
692
|
|
|
$
|
654
|
|
|
$
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
Fixed
|
|
|
Other
|
|
|
|
|
|
|
Stocks
|
|
|
Maturities
|
|
|
Invested Assets
|
|
|
Total
|
|
|
Gains
|
|
$
|
715
|
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
796
|
|
Losses
|
|
|
(384
|
)
|
|
|
(7,715
|
)
|
|
|
|
|
|
|
(8,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses), net
|
|
$
|
331
|
|
|
$
|
(7,634
|
)
|
|
$
|
|
|
|
$
|
(7,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Common and non-redeemable preferred stocks
|
|
$
|
16,635
|
|
|
$
|
1,666
|
|
|
$
|
11,884
|
|
Fixed maturities
|
|
|
5,753
|
|
|
|
15,510
|
|
|
|
16,021
|
|
Student loans
|
|
|
|
|
|
|
128
|
|
|
|
245
|
|
Other investments
|
|
|
150
|
|
|
|
1,080
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proceeds
|
|
$
|
22,538
|
|
|
$
|
18,384
|
|
|
$
|
28,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investments in fixed maturity securities of
General Motors and General Motors Acceptance Corporation
exceeded 10% of shareholders equity at December 31,
2007. The carrying value of these fixed maturity investments at
December 31, 2007 was $9,907 with an adjusted cost basis of
$10,164.
The Companys bond portfolio included 90% investment grade
securities at December 31, 2007 as defined by the NAIC.
52
|
|
Note 4.
|
Insurance
Reserves and Policyholder Funds
|
The following table presents the Companys reserves for
life, accident, health and property and casualty losses as well
as loss adjustment expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Insurance
|
|
|
|
|
|
|
|
|
|
In Force
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Future policy benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance policies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
$
|
44,187
|
|
|
$
|
43,046
|
|
|
$
|
228,780
|
|
|
$
|
224,401
|
|
Mass market
|
|
|
4,586
|
|
|
|
4,908
|
|
|
|
6,985
|
|
|
|
7,667
|
|
Individual annuities
|
|
|
297
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,070
|
|
|
|
48,286
|
|
|
$
|
235,765
|
|
|
$
|
232,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident and health insurance policies
|
|
|
6,478
|
|
|
|
3,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,548
|
|
|
|
52,019
|
|
|
|
|
|
|
|
|
|
Unearned premiums
|
|
|
18,948
|
|
|
|
25,190
|
|
|
|
|
|
|
|
|
|
Losses and claims
|
|
|
51,704
|
|
|
|
55,291
|
|
|
|
|
|
|
|
|
|
Other policy liabilities
|
|
|
1,878
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance reserves and policyholder funds
|
|
$
|
128,078
|
|
|
$
|
134,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized premiums for accident and health insurance policies
were $45,913 and $47,326 at December 31, 2007 and 2006,
respectively.
Future
Policy Benefits
Liabilities for life insurance future policy benefits are based
upon assumed future investment yields, mortality rates, and
withdrawal rates after giving effect to possible risks of
unexpected claim experience. The assumed mortality and
withdrawal rates are based upon the Companys experience.
The interest rates assumed for life, accident and health are
generally: (i) 2.5% to 5.5% for issues prior to 1977,
(ii) 7% graded to 5.5% for 1977 through 1979 issues,
(iii) 9% for 1980 through 1987 issues, and (iv) 5% to
7% for 1988 and later issues.
Loss
and Claim Reserves
Loss and claim reserves represent estimates of projected
ultimate losses and are based upon: (a) managements
estimate of ultimate liability and claim adjusters
evaluations for unpaid claims reported prior to the close of the
accounting period, (b) estimates of incurred but not
reported (IBNR) claims based on past experience, and
(c) estimates of loss adjustment expenses. The estimated
liability is periodically reviewed by management and updated
with changes to the estimated liability recorded in the
statement of operations in the year in which such changes are
known.
53
Activity in the liability for unpaid loss and claim reserves is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at January 1
|
|
$
|
55,291
|
|
|
$
|
53,817
|
|
|
$
|
53,025
|
|
Less: Reinsurance recoverables
|
|
|
(12,266
|
)
|
|
|
(12,829
|
)
|
|
|
(12,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at January 1
|
|
|
43,025
|
|
|
|
40,988
|
|
|
|
40,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
65,274
|
|
|
|
73,167
|
|
|
|
76,626
|
|
Prior years
|
|
|
(11,517
|
)
|
|
|
(9,926
|
)
|
|
|
(8,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
53,757
|
|
|
|
63,241
|
|
|
|
68,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
41,687
|
|
|
|
46,355
|
|
|
|
50,922
|
|
Prior years
|
|
|
16,395
|
|
|
|
14,849
|
|
|
|
16,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
58,082
|
|
|
|
61,204
|
|
|
|
67,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31
|
|
|
38,700
|
|
|
|
43,025
|
|
|
|
40,988
|
|
Plus: Reinsurance recoverables
|
|
|
13,004
|
|
|
|
12,266
|
|
|
|
12,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
51,704
|
|
|
$
|
55,291
|
|
|
$
|
53,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years development was primarily the result of better
than expected development on prior years IBNR reserves for
Medicare supplement as well as certain lines of business within
American Southern.
Following is a reconciliation of total incurred claims to total
insurance benefits and losses incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Total incurred claims
|
|
$
|
53,757
|
|
|
$
|
63,241
|
|
|
$
|
68,256
|
|
Cash surrender value and matured endowments
|
|
|
1,413
|
|
|
|
1,666
|
|
|
|
1,663
|
|
Benefit reserve changes
|
|
|
3,531
|
|
|
|
553
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance benefits and losses incurred
|
|
$
|
58,701
|
|
|
$
|
65,460
|
|
|
$
|
71,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with general practice in the insurance industry,
portions of the life, property and casualty insurance written by
the Company are reinsured; however, the Company remains liable
with respect to reinsurance ceded should any reinsurer be unable
to meet its obligations. Approximately 82% of the Companys
reinsurance receivables were due from one reinsurer as of
December 31, 2007. Reinsurance receivables of $10,686 were
with Swiss Reinsurance Corporation, rated AA- (Very
Strong) by Standard & Poors and A+
(Superior) by A.M. Best. Allowances for uncollectible
amounts are established against reinsurance receivables, if
appropriate.
54
The following table reconciles premiums written to premiums
earned and summarizes the components of insurance benefits and
losses incurred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Direct premiums written
|
|
$
|
89,766
|
|
|
$
|
104,253
|
|
|
$
|
118,184
|
|
Plus premiums assumed
|
|
|
9,022
|
|
|
|
9,763
|
|
|
|
9,655
|
|
Less premiums ceded
|
|
|
(6,729
|
)
|
|
|
(9,338
|
)
|
|
|
(9,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
|
92,059
|
|
|
|
104,678
|
|
|
|
118,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums
|
|
|
6,242
|
|
|
|
5,006
|
|
|
|
(1,269
|
)
|
Change in unearned premiums ceded
|
|
|
(477
|
)
|
|
|
(104
|
)
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premiums
|
|
|
5,765
|
|
|
|
4,902
|
|
|
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
97,824
|
|
|
$
|
109,580
|
|
|
$
|
117,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for benefits and losses incurred
|
|
$
|
66,641
|
|
|
$
|
70,217
|
|
|
$
|
79,462
|
|
Reinsurance loss recoveries
|
|
|
(7,940
|
)
|
|
|
(4,757
|
)
|
|
|
(8,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
$
|
58,701
|
|
|
$
|
65,460
|
|
|
$
|
71,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of reinsurance receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Receivable on unpaid losses
|
|
$
|
12,929
|
|
|
$
|
12,266
|
|
Receivable on paid losses
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,004
|
|
|
$
|
12,266
|
|
|
|
|
|
|
|
|
|
|
Total income taxes were allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax expense (benefit) on income or loss from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
7,513
|
|
|
$
|
2,458
|
|
|
$
|
(1,746
|
)
|
Discontinued operations
|
|
|
(3,209
|
)
|
|
|
(105
|
)
|
|
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense (benefit) on income or loss
|
|
|
4,304
|
|
|
|
2,353
|
|
|
|
(4,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax (benefit) expense on components of shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on investment securities
|
|
|
(6,842
|
)
|
|
|
(231
|
)
|
|
|
(2,292
|
)
|
Fair value adjustment to derivative financial instrument
|
|
|
(201
|
)
|
|
|
(58
|
)
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
109
|
|
|
|
(325
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax benefit on shareholders equity
|
|
|
(6,934
|
)
|
|
|
(614
|
)
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (benefit) expense
|
|
$
|
(2,630
|
)
|
|
$
|
1,739
|
|
|
$
|
(6,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
A reconciliation of the differences between income taxes
computed at the federal statutory income tax rate and the income
tax expense (benefit) from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal income tax provision at statutory rate of 35%
|
|
$
|
6,684
|
|
|
$
|
3,368
|
|
|
$
|
(215
|
)
|
Tax exempt interest and dividends received deductions
|
|
|
(282
|
)
|
|
|
(401
|
)
|
|
|
(444
|
)
|
Small life deduction
|
|
|
(55
|
)
|
|
|
(579
|
)
|
|
|
(534
|
)
|
Non-deductible goodwill
|
|
|
217
|
|
|
|
|
|
|
|
|
|
Intercompany fees(1)
|
|
|
363
|
|
|
|
504
|
|
|
|
|
|
Other permanent differences
|
|
|
38
|
|
|
|
46
|
|
|
|
39
|
|
Change in asset valuation allowance due to change in judgment
relating to realizability of deferred tax assets
|
|
|
333
|
|
|
|
(569
|
)
|
|
|
(125
|
)
|
Adjustment for prior years estimates to actual
|
|
|
205
|
|
|
|
80
|
|
|
|
(474
|
)
|
State income taxes
|
|
|
10
|
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
7,513
|
|
|
$
|
2,458
|
|
|
$
|
(1,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany fees from discontinued operations eliminated in
consolidated tax return. |
A reconciliation of the differences between income taxes
computed at the federal statutory income tax rate and the income
tax expense (benefit) from discontinued operations was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal income tax provision at statutory rate of 35%
|
|
$
|
(2,640
|
)
|
|
$
|
583
|
|
|
$
|
(2,398
|
)
|
Tax exempt interest and dividends received deductions
|
|
|
(147
|
)
|
|
|
(170
|
)
|
|
|
(257
|
)
|
Intercompany fees(1)
|
|
|
(363
|
)
|
|
|
(504
|
)
|
|
|
|
|
Other permanent differences
|
|
|
9
|
|
|
|
4
|
|
|
|
10
|
|
Adjustment for prior years estimates to actual
|
|
|
(68
|
)
|
|
|
(26
|
)
|
|
|
101
|
|
State income taxes
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(3,209
|
)
|
|
$
|
(105
|
)
|
|
$
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intercompany fees from discontinued operations eliminated in
consolidated tax return. |
The primary differences between the effective tax rate and the
federal statutory income tax rate results from the
dividends-received deduction (DRD), the small life
insurance company deduction (SLD) and the change in
asset valuation allowance. The current estimated DRD is adjusted
as underlying factors change, including known actual 2007
distributions earned on invested assets. The actual 2007 DRD can
vary from the estimates based on, but not limited to, amounts of
distributions from these investments as well as appropriate
levels of taxable income. The SLD varies in amount and is
determined at a rate of 60 percent of the tentative life
insurance company taxable income (LICTI). The amount
of the SLD for any taxable year is reduced (but not below zero)
by 15 percent of the tentative LICTI for such taxable year
as it exceeds $3,000 and is ultimately phased out at $15,000.
The change in the asset valuation allowance results from
reassessment of the realization of certain net operating loss
carry forwards.
56
Deferred tax liabilities and assets at December 31, 2007
and 2006 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred acquisition costs
|
|
$
|
(2,564
|
)
|
|
$
|
(2,874
|
)
|
Net unrealized investment gains
|
|
|
|
|
|
|
(5,655
|
)
|
Deferred and uncollected premiums
|
|
|
(672
|
)
|
|
|
(657
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,236
|
)
|
|
|
(9,186
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
1,957
|
|
|
|
4,161
|
|
Insurance reserves
|
|
|
2,819
|
|
|
|
3,148
|
|
Impaired assets
|
|
|
1,333
|
|
|
|
1,247
|
|
Alternative minimum tax credit
|
|
|
|
|
|
|
1,125
|
|
Net unrealized investment losses
|
|
|
266
|
|
|
|
|
|
Bad debts and other
|
|
|
1,484
|
|
|
|
1,493
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,859
|
|
|
|
11,174
|
|
|
|
|
|
|
|
|
|
|
Asset valuation allowance
|
|
|
(694
|
)
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,929
|
|
|
$
|
1,627
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax expense (benefit) from
continuing operations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current Federal
|
|
$
|
3,792
|
|
|
$
|
1,468
|
|
|
$
|
1,206
|
|
Current State
|
|
|
10
|
|
|
|
9
|
|
|
|
7
|
|
Deferred Federal
|
|
|
3,711
|
|
|
|
981
|
|
|
|
(2,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,513
|
|
|
$
|
2,458
|
|
|
$
|
(1,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax (benefit) expense from
discontinued operations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current Federal
|
|
$
|
(1,662
|
)
|
|
$
|
(1,089
|
)
|
|
$
|
(1,228
|
)
|
Current State
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Deferred Federal
|
|
|
(1,547
|
)
|
|
|
976
|
|
|
|
(1,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,209
|
)
|
|
$
|
(105
|
)
|
|
$
|
(2,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the Company had regular federal net
operating loss carryforwards of approximately $3,609 expiring
generally between 2009 and 2025. As of December 31, 2007
and 2006, a valuation allowance of $694 and $361, respectively,
was established against deferred income tax benefits relating
primarily to net operating loss carryforwards that may not be
realized. In each year, the changes in the valuation allowance
resulted from a reassessment of the realization of certain net
operating loss carryforwards. During 2005, the Company amended
certain prior years tax returns to recognize permanent
items that generated an income tax refund of $676 which was
received in 2006. Since the Companys ability to generate
taxable income from operations and utilize available
tax-planning strategies in the near term is dependent upon
various factors, many of which are beyond managements
control, management believes that the remaining deferred income
tax benefits relating to certain years carryforwards may
not be realized. However, realization of the remaining deferred
income tax benefits will be assessed periodically based on the
Companys current and anticipated results of operations,
and amounts could increase or decrease in the near term if
estimates of future taxable income change. The Company has
formal tax-sharing agreements, and files a consolidated income
tax return, with its subsidiaries.
57
Note 7. Credit
Arrangements
Bank
Debt
At December 31, 2007, the Companys $12,750 of bank
debt consisted of a reducing revolving credit facility (the
Credit Agreement) with Wachovia Bank, National
Association (Wachovia) pursuant to which the Company
was able to, subject to the terms and conditions thereof,
initially borrow or reborrow up to $15,000 (the Commitment
Amount). In accordance with the terms of the Credit
Agreement, the Commitment Amount is incrementally reduced every
six months beginning on July 1, 2007 and had been reduced
to $14,000 by December 31, 2007. 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 an Applicable Margin (as defined). The Applicable Margin
varies based upon the Companys leverage ratio (funded debt
to total capitalization, each as defined) and ranges from 1.75%
to 2.50%. As of December 31, 2007, the effective interest
rate was 7.25%. Interest on amounts outstanding is payable
quarterly. If not sooner repaid in full, the Credit Agreement
requires the Company to repay $500 in principal on each of June
30 and December 31, 2008, $1,000 and $1,500 in principal on
June 30 and December 31, 2009, respectively, with one final
payment of $10,500 in principal at maturity on June 30,
2010. 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 redemptions, as well as minimum risk-based
capital levels. Upon the occurrence of an event of default,
Wachovia may terminate the Credit Agreement and declare all
amounts outstanding due and payable in full. The Company was in
compliance with all covenants at December 31, 2007.
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.
58
The financial structure of each of Atlantic American Statutory
Trust I and II, as of December 31, 2007 and 2006, was
as follows:
|
|
|
|
|
|
|
|
|
|
|
Atlantic American
|
|
|
Atlantic American
|
|
|
|
Statutory Trust I
|
|
|
Statutory Trust II
|
|
|
JUNIOR SUBORDINATED DEBENTURES(1)(2)
|
|
|
|
|
|
|
|
|
Principal amount owed
|
|
$
|
18,042
|
|
|
$
|
23,196
|
|
Balance December 31, 2007
|
|
|
18,042
|
|
|
|
23,196
|
|
Balance December 31, 2006
|
|
|
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 on or after
|
|
|
December 4, 2007
|
|
|
|
May 15, 2008
|
|
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
Companys 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 8.
|
Derivative
Financial Instruments
|
On February 21, 2006, the Company entered into a zero cost
rate collar with Wachovia 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 estimated fair value and related carrying value of the
Companys rate collar at December 31, 2007 was a
liability of approximately $740.
59
|
|
Note 9.
|
Commitments
and Contingencies
|
Litigation
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.
Operating
Lease Commitments
The Companys rental expense, including common area
charges, for operating leases was $1,268, $1,276, and $1,269 in
2007, 2006, and 2005, respectively. The Companys future
minimum lease obligations under non-cancelable operating leases
are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
2008
|
|
$
|
1,098
|
|
2009
|
|
|
1,018
|
|
2010
|
|
|
655
|
|
2011
|
|
|
622
|
|
2012
|
|
|
622
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,015
|
|
|
|
|
|
|
|
|
Note 10.
|
Employee
Benefit Plans
|
Stock
Options
In accordance with the Companys 1992 Incentive Plan, the
Board of Directors was authorized to grant up to 1,800,000 stock
options or share awards. The Board of Directors may grant:
(a) incentive stock options within the meaning of
Section 422 of the Internal Revenue Code;
(b) non-qualified stock options; (c) performance
units; (d) awards of restricted shares of the
Companys common stock and other stock unit awards;
(e) deferred shares of common stock; or (f) all or any
combination of the foregoing to officers and key employees.
Stock options granted under this plan expire five or ten years
from the date of grant, as specified in an award agreement.
Vesting occurs at 50% upon issuance of an option, and the
remaining portion vests in 25% increments in each of the
following two years. In accordance with the Companys
1996 Director Stock Option Plan, a maximum of 200,000 stock
options were authorized to be granted, which fully vest six
months after the grant date. In accordance with the
Companys 2002 Incentive Plan (the 2002 Plan),
the Board of Directors was authorized to grant up to 2,000,000
stock options or share awards. Subject to adjustment as provided
in the 2002 Plan, the Board of Directors is authorized to grant:
(a) incentive stock options; (b) non-qualified stock
options; (c) stock appreciation rights; (d) restricted
shares; (e) deferred shares; and (f) performance
shares
and/or
performance units. Further, the Board may authorize the granting
to non-employee directors of stock options
and/or
restricted shares. A total of 12,397, 21,923 and 21,923
restricted shares were issued to the Companys Board of
Directors under the 2002 Plan in 2007, 2006 and 2005,
respectively. As of December 31, 2007, an aggregate of
twenty-eight employees, officers and directors held options
under the three plans.
60
A summary of the status of the Companys stock options at
December 31, 2007, 2006 and 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Shares
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Options outstanding, beginning of year
|
|
|
636,500
|
|
|
$
|
1.43
|
|
|
|
649,500
|
|
|
$
|
1.44
|
|
|
|
677,500
|
|
|
$
|
1.47
|
|
Options exercised
|
|
|
(7,000
|
)
|
|
|
2.68
|
|
|
|
(9,500
|
)
|
|
|
1.70
|
|
|
|
(21,000
|
)
|
|
|
1.73
|
|
Options canceled or expired
|
|
|
(5,500
|
)
|
|
|
1.63
|
|
|
|
(3,500
|
)
|
|
|
1.44
|
|
|
|
(7,000
|
)
|
|
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of year
|
|
|
624,000
|
|
|
|
1.42
|
|
|
|
636,500
|
|
|
|
1.43
|
|
|
|
649,500
|
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
624,000
|
|
|
|
1.42
|
|
|
|
636,500
|
|
|
|
1.43
|
|
|
|
649,500
|
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for future grant
|
|
|
2,479,594
|
|
|
|
|
|
|
|
2,486,491
|
|
|
|
|
|
|
|
2,504,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data on options outstanding and exercisable at December 31,
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Weighted Average
|
|
Range of Exercise Price
|
|
Options
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
$1.00 to $1.50
|
|
|
380,000
|
|
|
|
3.79
|
|
|
$
|
1.25
|
|
$1.51 to $2.00
|
|
|
244,000
|
|
|
|
5.17
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
624,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of options granted is determined on the date of
grant using the Black-Scholes option pricing model, which
requires the input of subjective assumptions, including the
expected volatility of the stock price. No options were granted
in 2007, 2006 or 2005.
401(k)
Plan
The Company initiated an employees savings plan qualified
under Section 401(k) of the Internal Revenue Code in May
1995. The plan covers substantially all of the Companys
employees, except employees of American Southern. Under the
plan, employees generally may elect to contribute up to 16% of
their compensation to the plan. The Company generally makes a
matching contribution on behalf of each employee in an amount
equal to 50% of the first 6% of such contributions. The
Companys matching contribution is in Company common stock
and had a value of approximately $136, $135, and $129 in 2007,
2006, and 2005, respectively. During 2007, an additional
matching contribution was made by the Company to the plan in an
amount equal to 50% of the first 6% of an employees
contribution to the plan. The additional contribution was in
cash and was $141.
Defined
Benefit Pension Plans
The Company has both a funded and unfunded noncontributory
defined benefit pension plan covering the employees of American
Southern. The plans provide defined benefits based on years of
service and average salary. The Companys general funding
policy is to contribute annually the maximum amount that can be
deducted for income tax purposes. The measurement date for these
plans was December 31 of each year.
61
Obligation
and Funded Status
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Net benefit obligation at beginning of year
|
|
$
|
6,190
|
|
|
$
|
5,713
|
|
Service cost
|
|
|
204
|
|
|
|
237
|
|
Interest cost
|
|
|
330
|
|
|
|
314
|
|
Actuarial loss
|
|
|
(316
|
)
|
|
|
53
|
|
Gross benefits paid
|
|
|
(305
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
Net benefit obligation at end of year
|
|
|
6,103
|
|
|
|
6,190
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
3,154
|
|
|
|
2,799
|
|
Employer contributions
|
|
|
215
|
|
|
|
184
|
|
Actual return on plan assets
|
|
|
100
|
|
|
|
298
|
|
Gross benefits paid
|
|
|
(305
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
3,164
|
|
|
|
3,154
|
|
|
|
|
|
|
|
|
|
|
Funded Status of Plan
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
(2,939
|
)
|
|
|
(3,036
|
)
|
Unrecognized net actuarial loss
|
|
|
1,322
|
|
|
|
1,634
|
|
Unrecognized prior service cost
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Unrecognized net transition obligation
|
|
|
|
|
|
|
|
|
Additional minimum liability
|
|
|
(329
|
)
|
|
|
(483
|
)
|
Additional liability due to SFAS 158
|
|
|
(986
|
)
|
|
|
(1,144
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in accrued liabilities at end of year
|
|
$
|
(2,939
|
)
|
|
$
|
(3,036
|
)
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit plans
at December 31, 2007 and 2006 was $5,117 and $5,046,
respectively.
The weighted-average assumptions used to determine the benefit
obligation at December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Discount rate to determine the projected benefit obligation
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
Projected annual salary increases
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Included in the above is one plan which is unfunded. The
projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for this plan were $2,017, $1,681, and
$0, respectively, as of December 31, 2007 and $1,986,
$1,586, and $0, respectively, as of December 31, 2006.
Components
of Net Periodic Benefit Cost
Net periodic pension cost for the Companys qualified and
non-qualified defined benefit plans for the years ended
December 31, 2007, 2006 and 2005 included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
204
|
|
|
$
|
237
|
|
|
$
|
177
|
|
Interest cost
|
|
|
330
|
|
|
|
314
|
|
|
|
298
|
|
Expected return on plan assets
|
|
|
(216
|
)
|
|
|
(193
|
)
|
|
|
(185
|
)
|
Net amortization
|
|
|
112
|
|
|
|
155
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
430
|
|
|
$
|
513
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
The weighted-average assumptions used to determine the net
periodic benefit cost for the years ended December 31,
2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate to determine the net periodic benefit cost
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
Expected long-term rate of return on plan assets used to
determine net periodic pension cost
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Projected annual salary increases
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
The qualified defined benefit plan assets were invested in the
AIM Basic Balanced Fund (the Fund), the prospectus
for which indicates an average annual return of approximately 7%
since its inception; accordingly, a 7.00% rate of return was
used to calculate the periodic benefit cost for 2007. The Fund
normally invests at least 65% of its assets in equity securities
and at least 30% of its assets in fixed income securities that
are investment grade at the time of purchase. The remaining
assets of the Fund are allocated to other investments at the
Fund managers discretion, based upon current business,
economic and market conditions.
The Companys investment strategy with respect to pension
assets is to invest the assets in accordance with ERISA and
fiduciary standards. The long-term primary investment objectives
are to: 1) provide for a reasonable amount of long-term
growth of capital, without undue exposure to risk, and protect
the assets from erosion of purchasing power, and 2) provide
investment results that meet or exceed the actuarially assumed
long-term rate of return. The Fund does not include any equity
securities of the Company in its portfolio at any time.
Expected
Cash Flows
The Company expects to contribute $299 for all defined benefit
plans in 2008.
Estimated
Future Benefit Payments
Estimated future benefit payments as of December 31, 2007
were as follows:
|
|
|
|
|
Pension Benefits
|
|
|
|
|
2008
|
|
$
|
224
|
|
2009
|
|
$
|
224
|
|
2010
|
|
$
|
258
|
|
2011
|
|
$
|
289
|
|
2012
|
|
$
|
317
|
|
2013 2017
|
|
$
|
2,371
|
|
The Company had 134,000 shares of Series B Preferred
Stock (Series B Preferred Stock) outstanding at
December 31, 2007 and 2006, having a stated value of $100
per share. All of the shares of Series B Preferred Stock
are held by affiliates of the Companys Chairman. Annual
dividends on the Series B Preferred Stock are $9.00 per
share and are cumulative. Dividends accrue whether or not
declared by the Board of Directors. The Series B Preferred
Stock is not currently convertible, but may become convertible
into shares of the Companys common stock under certain
circumstances. In such event, the Series B Preferred Stock
would be convertible into an aggregate of approximately
3,358,000 shares of the Companys common stock at a
conversion rate of $3.99 per share. The Series B Preferred
Stock is redeemable solely at the option of the Company. As of
December 31, 2007 and 2006, the Company had accrued but
unpaid dividends on the Series B Preferred Stock of $14,472
and $13,266, respectively.
The Company had 7,000 shares of Series D Preferred
Stock (Series D Preferred Stock) outstanding at
December 31, 2007 and 2006. All of the shares of
Series D Preferred Stock are held by affiliates of the
Companys Chairman. The outstanding shares of Series D
Preferred Stock have a stated value of $100 per
63
share; accrue annual dividends at a rate of $7.25 per share
(payable in cash or shares of the Companys 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 1,754,000 shares of the
Companys 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 Companys option. The
Series D Preferred Stock is not currently convertible.
During 2007, the Company issued common stock in lieu of
Series D Preferred Stock dividend payments of
$0.6 million. Accordingly, as of December 31, 2007,
the Company did not have any unpaid dividends on the
Series D Preferred Stock. As of December 31, 2006, the
Company had accrued but unpaid dividends on the Series D
Preferred Stock of $127.
|
|
Note 12.
|
Earnings
Per Common Share
|
A reconciliation of the numerator and denominator of the
earnings per common share calculations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before preferred stock
dividends
|
|
$
|
11,585
|
|
|
|
21,606
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(1,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common
shareholders
|
|
|
9,894
|
|
|
|
21,606
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common
shareholders
|
|
$
|
9,894
|
|
|
|
21,952
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,2006
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before preferred stock
dividends
|
|
$
|
7,166
|
|
|
|
21,419
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common
shareholders
|
|
|
5,833
|
|
|
|
21,419
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
330
|
|
|
|
|
|
Effect of Series B and D Preferred Stock
|
|
|
1,333
|
|
|
|
5,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common
shareholders
|
|
$
|
7,166
|
|
|
|
26,861
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic and Diluted Loss Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before preferred stock
dividends
|
|
$
|
1,132
|
|
|
|
21,305
|
|
|
|
|
|
Less preferred stock dividends
|
|
|
(1,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations applicable to common shareholders
|
|
$
|
(74
|
)
|
|
|
21,305
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumed conversion of the Series B Preferred Stock was
excluded from the earnings per common share calculation for 2007
and 2005 since its impact was antidilutive. The assumed
conversion of the Series D Preferred Stock was excluded
from the earnings per common share calculation for 2007 since
its impact was antidilutive. In 2005, all outstanding stock
options were excluded from the earnings per common share
calculation since their impact was antidilutive.
|
|
Note 13.
|
Statutory
Reporting
|
The assets, liabilities and results of operations have been
reported on the basis of GAAP, which varies from statutory
accounting practices (SAP) prescribed or permitted
by insurance regulatory authorities. The principal differences
between SAP and GAAP are that under SAP: (i) certain assets
that are non-admitted assets are eliminated from the balance
sheet; (ii) acquisition costs for policies are expensed as
incurred, while they are deferred and amortized over the
estimated life of the policies under GAAP; (iii) the
provision that is made for deferred income taxes is different
than under GAAP; (iv) the timing of establishing certain
reserves is different than under GAAP; and (v) valuation
allowances are established against investments.
The amount of statutory net income and surplus
(shareholders equity) from continuing operations for the
Parents insurance subsidiaries for the years ended
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Life and Health, net income
|
|
$
|
11,961
|
|
|
$
|
3,173
|
|
|
$
|
5,135
|
|
Property and Casualty, net income
|
|
|
8,466
|
|
|
|
5,955
|
|
|
|
6,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory net income(1)
|
|
$
|
20,427
|
|
|
$
|
9,128
|
|
|
$
|
11,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life and Health, surplus
|
|
$
|
33,810
|
|
|
$
|
34,467
|
|
|
$
|
33,881
|
|
Property and Casualty, surplus
|
|
|
38,213
|
|
|
|
34,938
|
|
|
|
31,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory surplus
|
|
$
|
72,023
|
|
|
$
|
69,405
|
|
|
$
|
64,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Automotive sector impairments of $7,198 were recorded in the
first quarter of 2006 for statutory purposes. |
Under the insurance code of the state of jurisdiction under
which each insurance subsidiary operates, dividend payments to
the Parent by its insurance subsidiaries are subject to certain
limitations without the prior approval of the applicable
states Insurance Commissioner. The Parent received
dividends of $5,576, $7,786 and $11,942 in 2007, 2006, and 2005,
respectively, from its subsidiaries. In 2008, dividend payments
by insurance subsidiaries in excess of $13,263 would require
prior approval.
|
|
Note 14.
|
Related
Party and Other Transactions
|
In the normal course of business the Company has engaged in
transactions with its Chairman and his affiliates from time to
time. These transactions include the leasing of office space as
well as certain investing and financing activities.
65
The Company leases approximately 65,489 square feet of
office and covered garage space from an entity which is an
affiliate of the Company and its Chairman. During the years
ended December 31, 2007, 2006, and 2005, the Company paid
$1,066, $1,069 and $1,065, respectively, under these leases.
Certain financing for the Company has been provided by
affiliates of the Companys Chairman, in the form of
investments in the Series B and the Series D Preferred
Stock (See Note 11).
The Company has in the past made mortgage loans to finance
properties owned by Leath Furniture, LLC (Leath),
which, prior to July 11, 2006, was owned by an affiliate of
the Chairman. At December 31, 2007 and 2006, the balance of
mortgage loans owed by Leath to the Companys insurance
subsidiary was $0 and $1,378, respectively. For 2007, 2006, and
2005, interest paid by Leath on the mortgage loans totaled $79,
$184, and $250, respectively.
In accordance with terms of the SPA with Columbia, certain
investments held by the discontinued operations were required to
be disposed of at any time prior to the completion of the sale.
Effective November 30, 2007, an investment in a real estate
joint venture was sold by Georgia Casualty to an affiliate of
the Companys Chairman. In connection with the sale,
management obtained an independent appraisal of the underlying
real estate assets. Further, subsequent to December 31,
2007, substantially all of the shares of Triple Crown Media,
Inc. (Triple Crown) and Gray Television, Inc.
(Gray) held by the discontinued operations were
acquired by the Parent at their quoted or estimated market
values.
Certain members of management are shareholders and on the Board
of Directors of Triple Crown and Gray. On August 3, 2005,
Gray announced a plan to spin-off its newspaper publishing and
wireless businesses to its shareholders. The new company formed
as a result of the spin-off, Triple Crown, then acquired Bull
Run Corporation (Bull Run). In connection with the
spin-off, the Company received one share of Triple Crown common
stock for every ten shares of Gray common stock and for every
ten shares of Gray Class A common stock owned. In
connection with the Bull Run acquisition, the Company received
0.0289 shares of Triple Crown common stock for each share
of Bull Run common stock owned by it and one share of Triple
Crown Series A preferred stock for each share of Bull Run
Series D preferred stock owned by it. The exchange of Bull
Run Series D preferred stock for Triple Crown Series A
preferred stock resulted in a realized loss of $591. At
December 31, 2007 and 2006, the Company (including its
discontinued operations) owned 54,732 shares of Triple
Crown common stock, 388,060 shares of Gray Class A
common stock and 106,000 shares of Gray common stock. At
December 31, 2007, the Company (including its discontinued
operations) owned 2,360 shares of Triple Crown
Series A preferred stock. At December 31, 2006, the
Company (including its discontinued operations) owned
175 shares of Gray Series C preferred stock and
2,360 shares of Triple Crown Series A preferred stock.
On May 22, 2007, Gray Television redeemed the
Companys investment in Gray Television Series C
preferred stock at a price of $10,000 per share plus accrued but
unpaid dividends thereon. There was no gain or loss on the
transaction. The aggregate carrying value of these investments
in Triple Crown and Gray at December 31, 2007 was $1,642
and $4,149, respectively. The aggregate carrying value of these
investments in Triple Crown and Gray at December 31, 2006
was $2,086 and $5,701, respectively.
In 1998, American Southern formed the American Auto Insurance
Agency (the Agency) in a joint venture with Carolina
Motor Club, Inc. to market personal automobile insurance to the
members of the automobile club. American Southern at all times
held a 50% interest in the joint venture, accounted for using
the equity method and reflected as an operating activity, and
underwrote a majority of the standard automobile business
written by the Agency. This program, which began writing
business in 1999, had gross written premiums of approximately
$0, $2,550 and $8,615 in 2007, 2006, and 2005, respectively. The
Company has, in the past funded its pro rata share of
operations. Effective October 1, 2005, this joint venture
was terminated due to unfavorable underwriting results and,
consequently, a significant decrease in gross written premiums
occurred during 2006.
|
|
Note 15.
|
Segment
Information
|
The Parents primary insurance subsidiaries operate with
relative autonomy and each company is evaluated based on its
individual performance. American Southern operates in the
Property and Casualty
66
insurance market, while Bankers Fidelity operates in the Life
and Health insurance market. All segments derive revenue from
the collection of premiums, as well as from investment income.
Substantially all revenue other than that in the corporate and
other segment is from external sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
Bankers
|
|
|
Corporate
|
|
|
Discontinued
|
|
|
Adjustments
|
|
|
|
|
|
|
Southern
|
|
|
Fidelity
|
|
|
& Other
|
|
|
Operations
|
|
|
& Eliminations
|
|
|
Consolidated
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
41,575
|
|
|
$
|
56,249
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
97,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
18,399
|
|
|
|
40,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,701
|
|
Expenses deferred
|
|
|
(8,398
|
)
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,731
|
)
|
Amortization and depreciation expense
|
|
|
9,460
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,227
|
|
Other expenses
|
|
|
18,123
|
|
|
|
17,817
|
|
|
|
16,515
|
|
|
|
|
|
|
|
(8,778
|
)
|
|
|
43,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
37,584
|
|
|
|
58,553
|
|
|
|
16,515
|
|
|
|
|
|
|
|
(8,778
|
)
|
|
|
103,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss)
|
|
|
3,991
|
|
|
|
(2,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, including net realized gains
|
|
|
5,450
|
|
|
|
18,351
|
|
|
|
4,372
|
|
|
|
|
|
|
|
(3,824
|
)
|
|
|
24,349
|
|
Other income
|
|
|
21
|
|
|
|
58
|
|
|
|
5,674
|
|
|
|
|
|
|
|
(4,954
|
)
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
9,462
|
|
|
$
|
16,105
|
|
|
$
|
(6,469
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
19,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
47,046
|
|
|
$
|
74,658
|
|
|
$
|
10,046
|
|
|
|
|
|
|
$
|
(8,778
|
)
|
|
$
|
122,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,350
|
|
|
$
|
778
|
|
|
$
|
260
|
|
|
|
|
|
|
$
|
|
|
|
$
|
2,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
116,473
|
|
|
$
|
129,968
|
|
|
$
|
110,465
|
|
|
$
|
196,154
|
|
|
$
|
(94,806
|
)
|
|
$
|
458,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
Bankers
|
|
|
Corporate
|
|
|
Discontinued
|
|
|
Adjustments
|
|
|
|
|
|
|
Southern
|
|
|
Fidelity
|
|
|
& Other
|
|
|
Operations
|
|
|
& Eliminations
|
|
|
Consolidated
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
50,660
|
|
|
$
|
58,920
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
109,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
23,440
|
|
|
|
42,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,460
|
|
Expenses deferred
|
|
|
(11,087
|
)
|
|
|
(677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,764
|
)
|
Amortization and depreciation expense
|
|
|
12,523
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,568
|
|
Other expenses
|
|
|
21,092
|
|
|
|
17,301
|
|
|
|
17,710
|
|
|
|
|
|
|
|
(8,633
|
)
|
|
|
47,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
45,968
|
|
|
|
60,689
|
|
|
|
17,710
|
|
|
|
|
|
|
|
(8,633
|
)
|
|
|
115,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss)
|
|
|
4,692
|
|
|
|
(1,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, including net realized gains
|
|
|
5,914
|
|
|
|
8,450
|
|
|
|
4,341
|
|
|
|
|
|
|
|
(3,695
|
)
|
|
|
15,010
|
|
Other income
|
|
|
19
|
|
|
|
73
|
|
|
|
5,614
|
|
|
|
|
|
|
|
(4,938
|
)
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
10,625
|
|
|
$
|
6,754
|
|
|
$
|
(7,755
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
9,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
56,593
|
|
|
$
|
67,443
|
|
|
$
|
9,955
|
|
|
|
|
|
|
$
|
(8,633
|
)
|
|
$
|
125,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,350
|
|
|
$
|
778
|
|
|
$
|
880
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
122,292
|
|
|
$
|
128,246
|
|
|
$
|
113,837
|
|
|
$
|
194,248
|
|
|
$
|
(99,471
|
)
|
|
$
|
459,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
Bankers
|
|
|
Corporate
|
|
|
Discontinued
|
|
|
Adjustments
|
|
|
|
|
|
|
Southern
|
|
|
Fidelity
|
|
|
& Other
|
|
|
Operations
|
|
|
& Eliminations
|
|
|
Consolidated
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums
|
|
$
|
51,447
|
|
|
$
|
65,904
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
117,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance benefits and losses incurred
|
|
|
24,827
|
|
|
|
46,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,201
|
|
Expenses deferred
|
|
|
(12,582
|
)
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,291
|
)
|
Amortization and depreciation expense
|
|
|
12,715
|
|
|
|
2,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,116
|
|
Other expenses
|
|
|
23,200
|
|
|
|
17,981
|
|
|
|
16,326
|
|
|
|
|
|
|
|
(7,938
|
)
|
|
|
49,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
48,160
|
|
|
|
66,047
|
|
|
|
16,326
|
|
|
|
|
|
|
|
(7,938
|
)
|
|
|
122,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss)
|
|
|
3,287
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, including net realized gains
|
|
|
4,818
|
|
|
|
5,816
|
|
|
|
3,072
|
|
|
|
|
|
|
|
(2,983
|
)
|
|
|
10,723
|
|
Automotive sector investments impairment charge
|
|
|
(3,733
|
)
|
|
|
(3,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,198
|
)
|
Other income
|
|
|
393
|
|
|
|
|
|
|
|
5,667
|
|
|
|
|
|
|
|
(4,955
|
)
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
4,765
|
|
|
$
|
2,208
|
|
|
$
|
(7,587
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
52,925
|
|
|
$
|
68,255
|
|
|
$
|
8,739
|
|
|
|
|
|
|
$
|
(7,938
|
)
|
|
$
|
121,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,350
|
|
|
$
|
778
|
|
|
$
|
880
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
123,919
|
|
|
$
|
128,225
|
|
|
$
|
99,663
|
|
|
$
|
201,745
|
|
|
$
|
(92,186
|
)
|
|
$
|
461,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16.
|
Disclosures
About Fair Value of Financial Instruments
|
The estimated fair value amounts have been determined by the
Company using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessary to interpret market data and to develop the estimates
of fair value. Accordingly, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including short-term investments
|
|
$
|
36,909
|
|
|
$
|
36,909
|
|
|
$
|
17,606
|
|
|
$
|
17,606
|
|
Fixed maturities
|
|
|
167,927
|
|
|
|
167,927
|
|
|
|
164,382
|
|
|
|
164,382
|
|
Common and non-redeemable preferred stocks
|
|
|
5,335
|
|
|
|
5,335
|
|
|
|
22,476
|
|
|
|
22,476
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
|
1,379
|
|
|
|
1,564
|
|
Policy and student loans
|
|
|
1,958
|
|
|
|
1,958
|
|
|
|
1,949
|
|
|
|
1,949
|
|
Other invested assets
|
|
|
1,563
|
|
|
|
1,563
|
|
|
|
1,735
|
|
|
|
1,735
|
|
Real estate
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Investments in unconsolidated trusts
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
1,238
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt payable to bank
|
|
|
12,750
|
|
|
|
12,750
|
|
|
|
12,750
|
|
|
|
12,750
|
|
Junior Subordinated Debentures
|
|
|
41,238
|
|
|
|
41,238
|
|
|
|
41,238
|
|
|
|
41,238
|
|
The fair value estimates as of December 31, 2007 and 2006
were based on pertinent information available to management as
of the respective dates. Although management is not aware of any
factors that would significantly affect the estimated fair value
amounts, current estimates of fair value may differ
significantly from amounts that might ultimately be realized.
68
The following describes the methods and assumptions used by the
Company in estimating fair values:
Cash
and Cash Equivalents, including Short-term
Investments
The carrying amount approximates fair value due to the
short-term nature of the instruments.
Fixed
Maturities, Common and Non-Redeemable Preferred Stocks and
Publicly Traded Other Invested Assets
The carrying amount is determined in accordance with methods
prescribed by the NAIC, which do not differ materially from
nationally quoted market prices. Certain non-redeemable
preferred stocks that do not have quoted values are carried at
estimated fair value as determined by management.
Non-publicly
Traded Invested Assets
The fair value of investments in certain limited partnerships
which are included in other invested assets on the consolidated
balance sheet, were determined by officers of those limited
partnerships.
Mortgage
Loans
The fair values are estimated based on quoted market prices for
those or similar investments.
Debt
Payable and Junior Subordinated Debentures
The fair value is estimated based on the quoted market prices
for the same or similar issues or on the current rates offered
for debt having the same or similar returns and remaining
maturities.
|
|
Note 17.
|
Reconciliation
of Other Comprehensive Income (Loss)
|
The Companys comprehensive income (loss) consists of net
income (loss), unrealized gains and losses on securities
available for sale, fair value adjustments from the ownership of
a derivative financial instrument and minimum additional pension
liability, net of applicable income taxes. Other than net income
(loss), the other components of comprehensive income (loss) for
the years ended December 31, 2007, 2006 and 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net realized gains (losses) on investment securities included in
income (loss) from continuing operations
|
|
$
|
12,627
|
|
|
$
|
3,084
|
|
|
$
|
(7,303
|
)
|
Net realized gains (losses) on investment securities included in
income (loss) from discontinued operations
|
|
|
3,225
|
|
|
|
3,607
|
|
|
|
(3,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) on investment securities
included in net income (loss)
|
|
$
|
15,852
|
|
|
$
|
6,691
|
|
|
$
|
(10,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other components of comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax unrealized gains (losses) on investment securities
arising during year
|
|
$
|
(3,697
|
)
|
|
$
|
6,031
|
|
|
$
|
(17,005
|
)
|
Reclassification adjustment for net realized (gains) losses on
investment securities
|
|
|
(15,852
|
)
|
|
|
(6,691
|
)
|
|
|
10,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax unrealized gains (losses) on investment securities
recognized in other comprehensive income (loss)
|
|
|
(19,549
|
)
|
|
|
(660
|
)
|
|
|
(6,549
|
)
|
Fair value adjustment to derivative financial instrument
|
|
|
(575
|
)
|
|
|
(165
|
)
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
312
|
|
|
|
(928
|
)
|
|
|
(160
|
)
|
Deferred income tax attributable to other comprehensive income
(loss)
|
|
|
6,934
|
|
|
|
614
|
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12,878
|
)
|
|
$
|
(1,139
|
)
|
|
$
|
(4,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Note 18.
|
Quarterly
Financial Information (Unaudited)
|
The following table sets forth a summary of the quarterly
unaudited results of operations for the two years in the period
ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Revenue
|
|
$
|
28,287
|
|
|
$
|
27,753
|
|
|
$
|
28,516
|
|
|
$
|
38,416(1
|
)
|
|
$
|
32,936
|
|
|
$
|
30,789
|
|
|
$
|
30,449
|
|
|
$
|
31,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
891
|
|
|
$
|
1,305
|
|
|
$
|
2,432
|
|
|
$
|
14,470
|
|
|
$
|
2,652
|
|
|
$
|
1,703
|
|
|
$
|
2,333
|
|
|
$
|
2,936
|
|
Income tax expense
|
|
|
475
|
|
|
|
686
|
|
|
|
656
|
|
|
|
5,696
|
|
|
|
956
|
|
|
|
787
|
|
|
|
471
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
416
|
|
|
|
619
|
|
|
|
1,776
|
|
|
|
8,774
|
|
|
|
1,696
|
|
|
|
916
|
|
|
|
1,862
|
|
|
|
2,692
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
435
|
|
|
|
(185
|
)
|
|
|
30
|
|
|
|
(4,613
|
)
|
|
|
1,798
|
|
|
|
(1,175
|
)
|
|
|
875
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
851
|
|
|
$
|
434
|
|
|
$
|
1,806
|
|
|
$
|
4,161
|
|
|
$
|
3,494
|
|
|
$
|
(259
|
)
|
|
$
|
2,737
|
|
|
$
|
2,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.38
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.07
|
|
|
$
|
0.11
|
|
Discontinued operations
|
|
|
0.02
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.21
|
)
|
|
|
0.08
|
|
|
|
(0.06
|
)
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
|
|
|
$
|
0.06
|
|
|
$
|
0.17
|
|
|
$
|
0.15
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.32
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.07
|
|
|
$
|
0.10
|
|
Discontinued operations
|
|
|
0.02
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.17
|
)
|
|
|
0.07
|
|
|
|
(0.06
|
)
|
|
|
0.03
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
|
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.10
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a $12.9 million realized gain from the disposition
of the Companys investment in equity securities of
Wachovia Corporation in the fourth quarter of 2007. |
70
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9a.
|
Controls
and Procedures
|
As of the end of the period covered by this report, 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 Securities Exchange Act of 1934). 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 that date.
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company. An internal control system over
financial reporting has been designed to provide reasonable
assurance regarding the reliability and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Management recognizes
that there are inherent limitations in the effectiveness of any
internal control system. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2007 based upon the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework.
Based on this evaluation, management believes that internal
control over financial reporting as such term is defined in
Exchange Act
Rule 13a-15(f)
was effective as of December 31, 2007.
There have been no changes in our internal control over
financial reporting that occurred during the fourth quarter of
2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
This Annual Report does not include an attestation report of the
Companys independent registered public accounting firm
regarding internal control over financial reporting.
Managements report was not subject to attestation by the
Companys independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only
managements report on this Annual Report.
|
|
Item 9b.
|
Other
Information
|
None.
PART III
With the exception of information relating to the Executive
Officers of the Company, which is provided in Part I
hereof, the information relating to securities authorized for
issuance under equity compensation plans, which is included in
Part II, Item 5 hereof, and the information relating
to the Companys Code of Ethics, which is included below,
all information required by Part III (Items 10, 11,
12, 13 and 14) is incorporated by reference to the sections
entitled Election of Directors, Security
Ownership of Certain Beneficial Owners and Management,
Section 16(a) Beneficial Ownership Reporting
Compliance, Executive Compensation,
Certain Relationships and Related Transactions, and
Director Independence and Ratification of
Independent Registered Public Accounting Firm to be
contained in the Companys definitive proxy statement to be
filed with the SEC within 120 days of the Companys
fiscal year end and delivered in connection with the
Companys Annual Meeting of Shareholders to be held on
May 6, 2008.
71
The Company has adopted a Code of Ethics that applies to its
principal executive officer, principal financial officer,
principal accounting officer or controller, or any persons
performing similar functions, as well as its directors and other
employees. A copy of this Code of Ethics has been filed as an
exhibit to the Companys annual report on
Form 10-K
for the year ended December 31, 2003 and is incorporated
herein by this reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) List of documents filed as part of this report:
1. Financial Statements:
See Index to Financial Statements contained in Item 8
hereof.
2. Financial Statement Schedules:
Schedule II Condensed financial information of
Registrant
Schedule III Supplementary insurance
information for the three years ended December 31, 2007
Schedule IV Reinsurance for the three years
ended December 31, 2007
|
|
|
|
Schedule VI
|
Supplemental information concerning property-casualty insurance
operations for the three years ended December 31, 2007
|
Schedules other than those listed above are omitted as they are
not required or are not applicable, or the required information
is shown in the financial statements or notes thereto. Columns
omitted from schedules filed have been omitted because the
information is not applicable.
3. Exhibits*:
|
|
|
|
|
|
|
|
|
|
3
|
.1
|
|
|
|
Restated Articles of Incorporation of the registrant, as amended
[incorporated by reference to Exhibit 3.1 to the
registrants Form 10-K for the year ended December 31,
2002].
|
|
|
|
3
|
.1.1
|
|
|
|
Amendment to Restated Articles of Incorporation of the
registrant, as amended [incorporated by reference to Exhibit 3.1
to the registrants Form 8-K dated October 4, 2006].
|
|
|
|
3
|
.2
|
|
|
|
Bylaws of the registrant [incorporated by reference to Exhibit
3.2 to the registrants Form 10-K for the year ended
December 31, 1993].
|
|
|
|
3
|
.2.1
|
|
|
|
Amendment of Bylaws of the registrant, effective as of February
22, 2007 [incorporated by reference to Exhibit 10.1 to the
registrants Form 8-K dated February 28, 2007].
|
|
|
|
10
|
.01
|
|
|
|
Management Agreement between registrant and Georgia Casualty
& Surety Company dated April 1, 1983 [incorporated by
reference to Exhibit 10.16 to the registrants Form 10-K
for the year ended December 31, 1986].
|
|
|
|
10
|
.02
|
|
|
|
Management Agreement between the registrant and Atlantic
American Life Insurance Company and Bankers Fidelity Life
Insurance Company dated July 1, 1993 [incorporated by reference
to Exhibit 10.41 to the registrants Form 10-Q for the
quarter ended September 30, 1993].
|
|
|
|
10
|
.03
|
|
|
|
Tax allocation agreement dated January 28, 1994, between
registrant and registrants subsidiaries [incorporated by
reference to Exhibit 10.44 to the registrants Form 10-K
for the year ended December 31, 1993].
|
|
|
|
10
|
.04**
|
|
|
|
Atlantic American Corporation 1992 Incentive Plan [incorporated
by reference to Exhibit 4 to the registrants Form S-8
filed on November 1, 1999].
|
|
|
|
10
|
.05**
|
|
|
|
Atlantic American Corporation 1996 Director Stock Option
Plan [incorporated by reference to Exhibit 4 to the
registrants Form S-8 filed on November 1, 1999].
|
|
|
|
10
|
.06**
|
|
|
|
Atlantic American Corporation 2002 Stock Incentive Plan
[incorporated by reference to Exhibit 4.1 to the
registrants Form S-8 filed on August 2, 2002].
|
|
|
72
|
|
|
|
|
|
|
|
|
|
10
|
.07**
|
|
|
|
Summary Terms of Consulting Arrangement between Atlantic
American Corporation and Samuel E. Hudgins, entered into in June
2002 [incorporated by reference to Exhibit 10.23 to the
registrants Form 10-K for the year ended December 31,
2002].
|
|
|
|
10
|
.08
|
|
|
|
Credit Agreement, dated as of December 22, 2006 between Atlantic
American Corporation and Wachovia Bank, National Association
[incorporated by reference to Exhibit 10.1 to the
registrants Form 8-K dated December 22, 2006].
|
|
|
|
10
|
.09
|
|
|
|
Stock Purchase Agreement, dated as of December 26, 2007 between
Atlantic American Corporation and Columbia Mutual Insurance
Company.
|
|
|
|
10
|
.10
|
|
|
|
Lease Agreement between Georgia Casualty & Surety Company,
Bankers Fidelity Life Insurance Company, Atlantic American
Corporation and Delta Life Insurance Company dated as of
November 1, 2007.
|
|
|
|
14
|
.1
|
|
|
|
Code of Ethics [incorporated by reference to Exhibit 14.1 to the
registrants Form 10-K for the year ended December 31,
2003].
|
|
|
|
21
|
.1
|
|
|
|
Subsidiaries of the registrant.
|
|
|
|
23
|
.1
|
|
|
|
Consent of BDO Seidman LLP, Independent Registered Public
Accounting Firm.
|
|
|
|
31
|
.1
|
|
|
|
Certification of the Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31
|
.2
|
|
|
|
Certification of the Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
.1
|
|
|
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
|
* |
|
The registrant agrees to furnish to the Commission upon request
a copy of any instruments defining the rights of securityholders
of the registrant that may be omitted from filing in accordance
with the Commissions rules and regulations. |
|
** |
|
Management contract, compensatory plan or arrangement required
to be filed pursuant to, Part IV, Item 15(c) of
Form 10-K
and Item 601 of
Regulation S-K. |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) ATLANTIC AMERICAN CORPORATION
|
|
|
|
By:
|
/s/ John
G. Sample, Jr.
|
John G. Sample, Jr.
Senior Vice President and Chief Financial Officer
Date: March 31, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ J.
Mack Robinson
J.
Mack Robinson
|
|
Chairman of the Board
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Hilton
H. Howell, Jr.
Hilton
H. Howell, Jr.
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 31, 2008
|
|
|
|
|
|
/s/ John
G. Sample, Jr.
John
G. Sample, Jr.
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Edward
E. Elson
Edward
E. Elson
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Samuel
E. Hudgins
Samuel
E. Hudgins
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ D.
Raymond Riddle
D.
Raymond Riddle
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Harriett
J. Robinson
Harriett
J. Robinson
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Scott
G. Thompson
Scott
G. Thompson
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Mark
C. West
Mark
C. West
|
|
Director
|
|
March 31, 2008
|
74
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
H. Whaley, M.D.
William
H. Whaley, M.D.
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Dom
H. Wyant
Dom
H. Wyant
|
|
Director
|
|
March 31, 2008
|
|
|
|
|
|
/s/ Harold
K. Fischer
Harold
K. Fischer
|
|
Director
|
|
March 31, 2008
|
75
SCHEDULE II
Page 1 of 3
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC
AMERICAN CORPORATION
(Parent Company Only)
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and short-term investments
|
|
$
|
9,220
|
|
|
$
|
9,388
|
|
Investment in subsidiaries
|
|
|
94,654
|
|
|
|
99,294
|
|
Investments in unconsolidated trusts
|
|
|
1,238
|
|
|
|
1,238
|
|
Deferred tax asset, net
|
|
|
3,268
|
|
|
|
967
|
|
Income taxes receivable from subsidiaries
|
|
|
4,888
|
|
|
|
1,386
|
|
Other assets
|
|
|
1,380
|
|
|
|
1,742
|
|
Net investment in discontinued operations
|
|
|
43,807
|
|
|
|
50,788
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
158,455
|
|
|
$
|
164,803
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Other payables
|
|
$
|
16,673
|
|
|
$
|
16,627
|
|
Debt payable to bank
|
|
|
12,750
|
|
|
|
12,750
|
|
Junior subordinated debentures
|
|
|
41,238
|
|
|
|
41,238
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
70,661
|
|
|
|
70,615
|
|
Shareholders equity
|
|
|
87,794
|
|
|
|
94,188
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
158,455
|
|
|
$
|
164,803
|
|
|
|
|
|
|
|
|
|
|
II-1
SCHEDULE II
Page 2 of 3
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC
AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees, rentals and interest income from subsidiaries
|
|
$
|
4,954
|
|
|
$
|
4,939
|
|
|
$
|
4,948
|
|
Distributed earnings from subsidiaries
|
|
|
5,576
|
|
|
|
7,786
|
|
|
|
11,942
|
|
Other
|
|
|
656
|
|
|
|
745
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
11,186
|
|
|
|
13,470
|
|
|
|
17,078
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
7,429
|
|
|
|
8,989
|
|
|
|
9,281
|
|
INTEREST EXPENSE
|
|
|
4,160
|
|
|
|
4,605
|
|
|
|
3,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403
|
)
|
|
|
(124
|
)
|
|
|
4,186
|
|
INCOME TAX BENEFIT(1)
|
|
|
526
|
|
|
|
997
|
|
|
|
6,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
873
|
|
|
|
10,271
|
|
EQUITY IN UNDISTRIBUTED EARNINGS (LOSSES) OF CONTINUING
OPERATIONS, NET
|
|
|
11,462
|
|
|
|
6,293
|
|
|
|
(9,139
|
)
|
EQUITY IN EARNINGS (LOSSES) OF DISCONTINUED OPERATIONS, NET
|
|
|
(4,333
|
)
|
|
|
1,770
|
|
|
|
(4,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
7,252
|
|
|
$
|
8,936
|
|
|
$
|
(3,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under the terms of its tax-sharing agreement with its
subsidiaries, income tax provisions for the individual companies
are computed on a separate company basis. Accordingly, the
Companys income tax benefit results from the utilization
of the parent company separate return loss to reduce the
consolidated taxable income of the Company and its subsidiaries. |
II-2
SCHEDULE II
Page 3 of 3
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC
AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,252
|
|
|
$
|
8,936
|
|
|
$
|
(3,175
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains
|
|
|
(533
|
)
|
|
|
(439
|
)
|
|
|
(72
|
)
|
Depreciation and amortization
|
|
|
702
|
|
|
|
692
|
|
|
|
776
|
|
Compensation expense related to share awards
|
|
|
68
|
|
|
|
70
|
|
|
|
65
|
|
Equity in undistributed (earnings) losses of continuing
operations
|
|
|
(11,462
|
)
|
|
|
(6,293
|
)
|
|
|
9,139
|
|
Equity in (earnings) losses of discontinued operations
|
|
|
4,333
|
|
|
|
(1,770
|
)
|
|
|
4,307
|
|
(Increase) decrease in intercompany taxes
|
|
|
(3,502
|
)
|
|
|
1,696
|
|
|
|
(663
|
)
|
Deferred income tax expense (benefit)
|
|
|
3,711
|
|
|
|
981
|
|
|
|
(2,959
|
)
|
(Decrease) increase in other liabilities
|
|
|
(1,607
|
)
|
|
|
291
|
|
|
|
406
|
|
Other, net
|
|
|
249
|
|
|
|
163
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in ) provided by operating activities
|
|
|
(789
|
)
|
|
|
4,327
|
|
|
|
8,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution to subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Additions to property and equipment
|
|
|
(411
|
)
|
|
|
(173
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(411
|
)
|
|
|
(173
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series D Preferred Stock
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
(23
|
)
|
|
|
(70
|
)
|
|
|
(132
|
)
|
Proceeds from bank financing
|
|
|
36,000
|
|
|
|
15,750
|
|
|
|
|
|
Repayments of debt
|
|
|
(36,000
|
)
|
|
|
(13,250
|
)
|
|
|
(1,750
|
)
|
Proceeds from exercise of stock options
|
|
|
19
|
|
|
|
16
|
|
|
|
34
|
|
Financing of discontinued operations
|
|
|
1,036
|
|
|
|
(6,560
|
)
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,032
|
|
|
|
2,886
|
|
|
|
(6,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(168
|
)
|
|
|
7,040
|
|
|
|
1,790
|
|
Cash at beginning of year
|
|
|
9,388
|
|
|
|
2,348
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
9,220
|
|
|
$
|
9,388
|
|
|
$
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,195
|
|
|
$
|
4,711
|
|
|
$
|
3,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (received) paid for income taxes
|
|
$
|
450
|
|
|
$
|
(76
|
)
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-3
SCHEDULE III
Page 1 of 2
ATLANTIC
AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY
INSURANCE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, Losses,
|
|
|
|
|
|
Other Policy
|
|
|
|
Deferred
|
|
|
Claims and Loss
|
|
|
Unearned
|
|
|
Claims and
|
|
Segment
|
|
Acquisition Costs
|
|
|
Reserves
|
|
|
Premiums
|
|
|
Benefits Payable
|
|
|
|
(In thousands)
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
15,644
|
|
|
$
|
63,258
|
|
|
$
|
3,332
|
|
|
$
|
1,878
|
|
American Southern
|
|
|
3,186
|
|
|
|
43,994
|
|
|
|
15,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,830
|
|
|
$
|
107,252
|
(1)
|
|
$
|
18,948
|
|
|
$
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
16,024
|
|
|
$
|
61,655
|
|
|
$
|
3,494
|
|
|
$
|
1,816
|
|
American Southern
|
|
|
4,194
|
|
|
|
45,655
|
|
|
|
21,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,218
|
|
|
$
|
107,310
|
(2)
|
|
$
|
25,190
|
|
|
$
|
1,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
16,957
|
|
|
$
|
61,580
|
|
|
$
|
4,011
|
|
|
$
|
2,445
|
|
American Southern
|
|
|
5,194
|
|
|
|
43,593
|
|
|
|
26,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,151
|
|
|
$
|
105,173
|
(3)
|
|
$
|
30,196
|
|
|
$
|
2,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes future policy benefits of $55,548 and losses and claims
of $51,704. |
|
(2) |
|
Includes future policy benefits of $52,019 and losses and claims
of $55,291. |
|
(3) |
|
Includes future policy benefits of $51,356 and losses and claims
of $53,817. |
III-1
SCHEDULE III
Page 2 of 2
ATLANTIC
AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY
INSURANCE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits,
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Claims, Losses
|
|
|
of Deferred
|
|
|
Other
|
|
|
Casualty
|
|
|
|
Premium
|
|
|
Investment
|
|
|
and Settlement
|
|
|
Acquisition
|
|
|
Operating
|
|
|
Premiums
|
|
Segment
|
|
Revenue
|
|
|
Income
|
|
|
Expenses
|
|
|
Costs
|
|
|
Expenses
|
|
|
Written
|
|
|
|
(In thousands)
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
56,249
|
|
|
$
|
6,091
|
|
|
$
|
40,302
|
|
|
$
|
1,713
|
|
|
$
|
16,538
|
|
|
$
|
|
|
American Southern
|
|
|
41,575
|
|
|
|
5,497
|
|
|
|
18,399
|
|
|
|
9,406
|
|
|
|
9,779
|
|
|
|
35,972
|
|
Other
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
7,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,824
|
|
|
$
|
11,603
|
|
|
$
|
58,701
|
|
|
$
|
11,119
|
|
|
$
|
34,054
|
|
|
$
|
35,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
58,920
|
|
|
$
|
6,097
|
|
|
$
|
42,020
|
|
|
$
|
1,610
|
|
|
$
|
17,059
|
|
|
$
|
|
|
American Southern
|
|
|
50,660
|
|
|
|
5,516
|
|
|
|
23,440
|
|
|
|
12,087
|
|
|
|
10,441
|
|
|
|
46,274
|
|
Other
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
9,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,580
|
|
|
$
|
11,822
|
|
|
$
|
65,460
|
|
|
$
|
13,697
|
|
|
$
|
36,577
|
|
|
$
|
46,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
65,904
|
|
|
$
|
5,866
|
|
|
$
|
46,374
|
|
|
$
|
1,927
|
|
|
$
|
17,746
|
|
|
$
|
|
|
American Southern
|
|
|
51,447
|
|
|
|
4,821
|
|
|
|
24,827
|
|
|
|
12,240
|
|
|
|
11,093
|
|
|
|
52,983
|
|
Other
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
8,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,351
|
|
|
$
|
10,702
|
|
|
$
|
71,201
|
|
|
$
|
14,167
|
|
|
$
|
37,227
|
|
|
$
|
52,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
III-2
SCHEDULE IV
ATLANTIC
AMERICAN CORPORATION AND SUBSIDIARIES
REINSURANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded To
|
|
|
Assumed
|
|
|
|
|
|
Percentage of
|
|
|
|
Direct
|
|
|
Other
|
|
|
From Other
|
|
|
Net
|
|
|
Amount Assumed
|
|
|
|
Amount
|
|
|
Companies
|
|
|
Companies
|
|
|
Amounts
|
|
|
To Net
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
$
|
272,308
|
|
|
$
|
(36,543
|
)
|
|
$
|
|
|
|
$
|
235,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
56,340
|
|
|
$
|
(350
|
)
|
|
$
|
259
|
|
|
$
|
56,249
|
|
|
|
0.5
|
%
|
American Southern
|
|
|
38,381
|
|
|
|
(6,856
|
)
|
|
|
10,050
|
|
|
|
41,575
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums
|
|
$
|
94,721
|
|
|
$
|
(7,206
|
)
|
|
$
|
10,309
|
|
|
$
|
97,824
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
$
|
269,306
|
|
|
$
|
(37,238
|
)
|
|
$
|
|
|
|
$
|
232,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
58,692
|
|
|
$
|
(73
|
)
|
|
$
|
301
|
|
|
$
|
58,920
|
|
|
|
0.5
|
%
|
American Southern
|
|
|
50,599
|
|
|
|
(9,369
|
)
|
|
|
9,430
|
|
|
|
50,660
|
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums
|
|
$
|
109,291
|
|
|
$
|
(9,442
|
)
|
|
$
|
9,731
|
|
|
$
|
109,580
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
$
|
276,996
|
|
|
$
|
(33,025
|
)
|
|
$
|
|
|
|
$
|
243,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankers Fidelity
|
|
$
|
65,734
|
|
|
$
|
(191
|
)
|
|
$
|
361
|
|
|
$
|
65,904
|
|
|
|
0.5
|
%
|
American Southern
|
|
|
51,935
|
|
|
|
(9,028
|
)
|
|
|
8,540
|
|
|
|
51,447
|
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums
|
|
$
|
117,669
|
|
|
$
|
(9,219
|
)
|
|
$
|
8,901
|
|
|
$
|
117,351
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-1
SCHEDULE VI
ATLANTIC
AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL
INFORMATION CONCERNING
PROPERTY-CASUALTY
INSURANCE OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims and Claim
|
|
|
|
|
|
Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment Expenses
|
|
|
Amortization
|
|
|
Claims
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Incurred Related To
|
|
|
of Deferred
|
|
|
and Claim
|
|
|
|
|
|
|
Policy
|
|
|
|
|
|
Unearned
|
|
|
Earned
|
|
|
Investment
|
|
|
Current
|
|
|
Prior
|
|
|
Acquisition
|
|
|
Adjustment
|
|
|
Premiums
|
|
Year Ended
|
|
Acquisition
|
|
|
Reserves
|
|
|
Premium
|
|
|
Premium
|
|
|
Income
|
|
|
Year
|
|
|
Years
|
|
|
Costs
|
|
|
Expenses
|
|
|
Written
|
|
|
|
(In thousands)
|
|
|
December 31, 2007
|
|
$
|
3,186
|
|
|
$
|
43,994
|
|
|
$
|
15,616
|
|
|
$
|
41,575
|
|
|
$
|
5,497
|
|
|
$
|
27,009
|
|
|
$
|
(8,610
|
)
|
|
$
|
9,406
|
|
|
$
|
20,723
|
|
|
$
|
35,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
4,194
|
|
|
$
|
45,655
|
|
|
$
|
21,696
|
|
|
$
|
50,660
|
|
|
$
|
5,516
|
|
|
$
|
30,174
|
|
|
$
|
(6,734
|
)
|
|
$
|
12,087
|
|
|
$
|
20,815
|
|
|
$
|
46,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
$
|
5,194
|
|
|
$
|
43,593
|
|
|
$
|
26,185
|
|
|
$
|
51,447
|
|
|
$
|
4,821
|
|
|
$
|
30,037
|
|
|
$
|
(5,210
|
)
|
|
$
|
12,240
|
|
|
$
|
23,513
|
|
|
$
|
52,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VI-1