10-Q: Atlantic American Swings to Profit, Boosts Premiums

Atlantic American Corporation reported a significant financial turnaround for the nine months ended September 30, 2025, moving from a net loss to a net income, driven by strong premium growth and improved underwriting profitability across its insurance segments.

Summary

• Net income for the nine months ended September 30, 2025, was $4.7 million, a substantial improvement from a net loss of $4.7 million in the comparable prior-year period.
• Diluted earnings per common share for the nine months ended September 30, 2025, was $0.22, compared to a loss of $0.24 in the prior year.
• Total revenue increased by 14.36% to $159.18 million for the nine months ended September 30, 2025, up from $139.18 million in the prior year.
• Net insurance premiums grew by 11.8% to $149.03 million for the nine months ended September 30, 2025, compared to $133.33 million in the prior year.
• Non-GAAP operating income for the nine months ended September 30, 2025, was $3.47 million, a significant increase from an operating loss of $4.21 million in the prior year.
• The American Southern segment's gross written premiums increased by 34.2% to $71.81 million for the nine months ended September 30, 2025, with its combined ratio improving to 100.3% from 102.6%.
• The Bankers Fidelity segment's gross earned premiums increased by 8.9% to $132.02 million for the nine months ended September 30, 2025, and its combined ratio improved significantly to 96.1% from 103.1%.
• The previously identified material weakness in internal control over financial reporting related to insurance reserves and deferred acquisition costs was remediated during the quarter ended September 30, 2025.

Sentiment

Score: 8

Explanation: The company demonstrated a significant financial turnaround, moving from a net loss to a net income, driven by strong premium growth and improved underwriting profitability in both its property & casualty and life & health segments. The successful remediation of a material weakness in internal controls further strengthens confidence.

Positives

• Net income of $4.7 million for the nine months ended September 30, 2025, represents a significant turnaround from a net loss of $4.7 million in the prior year.
• Diluted EPS improved to $0.22 for the nine months ended September 30, 2025, from $(0.24) in the prior year.
• Total revenue increased by $19.99 million (14.36%) to $159.18 million for the nine months ended September 30, 2025.
• Net insurance premiums increased by $15.7 million (11.8%) to $149.03 million for the nine months ended September 30, 2025, driven by growth in automobile liability, inland marine, automobile physical damage, Medicare supplement, and group accident and health lines.
• Non-GAAP operating income increased by $7.68 million to $3.47 million for the nine months ended September 30, 2025, from a loss of $4.21 million in the prior year.
• American Southern segment's gross written premiums increased by $18.3 million (34.2%) to $71.81 million for the nine months ended September 30, 2025, primarily due to program renewals with rate increases and new business.
• American Southern's combined ratio improved to 100.3% for the nine months ended September 30, 2025, from 102.6% in the prior year, indicating a move towards underwriting profitability.
• Bankers Fidelity segment's combined ratio significantly improved to 96.1% for the nine months ended September 30, 2025, from 103.1% in the prior year, indicating an underwriting profit.
• Successful remediation of a previously identified material weakness in internal control over financial reporting related to insurance reserves and deferred acquisition costs.
• Shareholders' equity increased to $109.49 million at September 30, 2025, from $99.61 million at December 31, 2024.

Negatives

• Cash and cash equivalents decreased by $1.13 million to $34.44 million at September 30, 2025, from $35.57 million at December 31, 2024, primarily due to net cash used in investing activities.
• American Southern segment still reported an underwriting loss for the nine months ended September 30, 2025, with a combined ratio of 100.3%, though it improved from the prior year.
• Unrealized losses on equity securities of $0.8 million were recognized for the three months ended September 30, 2025.

Risks

• Effects of macroeconomic conditions and general economic uncertainty.
• Unexpected developments in the health care or insurance industries affecting providers or individuals, including the cost or availability of services, or related tax consequences.
• Disruption to the financial markets.
• Unanticipated increases in the rate, number, and amounts of claims outstanding.
• The level of performance of reinsurance companies under reinsurance contracts and the availability, pricing, and adequacy of reinsurance to protect against losses.
• Changes in the stock markets, interest rates, or other financial markets, including the potential effect on statutory capital levels.
• The uncertain effect of regulatory and market-driven changes in practices relating to the payment of incentive compensation to brokers, agents, and other producers.
• The potential impact of public health emergencies.
• The incidence and severity of catastrophes, both natural and man-made.
• The possible occurrence of terrorist attacks.
• Stronger than anticipated competitive activity.
• Unfavorable judicial or legislative developments.
• The potential effect of regulatory developments, including those which could increase business costs and required capital levels.
• The ability to distribute products through distribution channels, both current and future.
• The uncertain effect of emerging claim and coverage issues.
• The effect of assessments and other surcharges for guaranty funds and other mandatory pooling arrangements.
• Information technology system failures or network disruptions.
• Risks related to cybersecurity matters, such as breaches of computer networks or those of other parties or the loss of or unauthorized access to maintained data.
• Inherent limitations in the effectiveness of any internal control system, which may not prevent or detect all misstatements or fraud.

Future Outlook

The company anticipates a material impact on its consolidated financial statements upon the adoption of ASU 2018-12 for long-duration contracts, with actuarial models currently being tested. It is also evaluating the effects of ASU 2025-06 on internal-use software accounting. The software for the cloud-based hosting arrangement is expected to be ready for its intended use in 2026. Management believes existing cash, dividends, fees, and tax-sharing payments from subsidiaries, along with potential borrowings, will be sufficient to meet liquidity requirements for the foreseeable future, and is not aware of any regulatory recommendations that would materially adversely affect operations.

Management Comments

• Management believes operating income (loss) is a useful metric for investors, potential investors, securities analysts and others because it isolates the core operating results of the Company before considering certain items that are either beyond the control of management or are not expected to regularly impact the Company's operational results.
• Management does not believe the One Big Beautiful Bill Act of 2025 will have a material impact on the Company's consolidated financial statements.
• Based on credit analysis, management believes that the issuers of fixed maturity investments in unrealized loss positions have the ability to service their obligations.
• The Company does not intend to sell investments in unrealized loss positions and is not more likely than not to be required to sell them before recovery of their amortized cost bases.
• Management believes that any known litigation and regulatory matters are not expected to have a material effect on the financial condition or results of operations.
• Management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective as of the end of the period.
• With the successful deployment of product-specific systems during the quarter ended September 30, 2025, management believes that there are no material weaknesses over financial reporting.

Industry Context

The insurance industry continues to navigate macroeconomic conditions, including interest rate fluctuations that impact investment portfolios and the cost of debt. Regulatory changes, such as new accounting standards (ASU 2018-12 for long-duration contracts and ASU 2025-06 for internal-use software), are ongoing and require significant adaptation in financial reporting. The company's performance in property & casualty and life & health segments reflects broader industry trends in premium growth, claim frequency, and healthcare costs (e.g., Medicare supplement market dynamics). The transition from LIBOR to SOFR as a reference rate for debt is also an industry-wide shift.

Corporate Governance

Legal Proceedings

• The company is involved in various claims and lawsuits incidental to and arising in the ordinary course of its business, which management does not expect to have a material effect on financial condition or results of operations.
• The company receives notices and inquiries from state insurance departments with respect to various matters, which management does not expect to have a material effect on financial condition or results of operations.

Related Party Transactions

• Series D Preferred Stock is held by an affiliate of the company's controlling shareholder.
• The Parent provides administrative and other services to its insurance subsidiaries, charging reimbursements for various shared services and other expenses.
• A formal tax-sharing agreement is in place between the Parent and its insurance subsidiaries, anticipated to provide the Parent with additional funds from profitable subsidiaries.

Stakeholder Impact

• Shareholders: Positive impact due to significant turnaround from net loss to net income, improved EPS, and increased shareholders' equity. Remediation of material weakness in internal controls enhances confidence.
• Customers: Improved underwriting ratios suggest better risk management and operational efficiency, potentially leading to stable or competitive pricing and reliable service.
• Creditors: Improved financial health, increased profitability, and managed debt obligations are positive indicators for creditors.
• Regulatory Authorities: Compliance with new accounting standards and successful remediation of internal control weaknesses demonstrate strong governance and operational integrity.

Next Steps

• Complete testing of actuarial models for ASU 2018-12 to ensure reflection of applicable assumptions and product parameters.
• Evaluate the components of the amounts to be disclosed for the transition liability under ASU 2018-12 for the year ending December 31, 2025.
• Continue evaluating the new guidance from ASU 2025-06 and its effect on consolidated financial statements.
• Begin amortizing capitalized software implementation costs on a straight-line basis when the software is substantially ready for its intended use (expected in 2026).
• Implement scheduled rent adjustments for the principal office lease on January 1, 2027, January 1, 2030, and every five years thereafter.
• Continue to pay Junior Subordinated Debenture obligations using existing cash, dividends/tax-sharing payments from subsidiaries, or existing/potential future financing arrangements.

Key Dates

Recommendation

The company has demonstrated a remarkable financial recovery, transitioning from a substantial net loss to a significant net income. This turnaround is supported by robust premium growth across both its property & casualty and life & health segments, alongside notable improvements in underwriting profitability, as evidenced by the combined ratios. The successful remediation of a material weakness in internal controls further de-risks the investment and signals improved operational integrity. While cash decreased slightly due to investing activities, the overall financial health, increased shareholders' equity, and positive operational momentum suggest strong future performance potential.

Keywords

Insurance, Property and Casualty, Life and Health Insurance, SEC Filing, Quarterly Report, Financial Results, Underwriting Profit, Premium Growth, Combined Ratio, Internal Controls, Medicare Supplement, Automobile Liability, Investment Income