Business Overview and History
Atlantic American Corporation was founded in 1968 and has since grown to become a significant player in the insurance industry. The company operates through three primary subsidiaries: American Southern Insurance Company, American Safety Insurance Company, and Bankers Fidelity Life Insurance Company. American Southern and American Safety focus on the property and casualty insurance market, while Bankers Fidelity specializes in life and health insurance products.
In its early years, Atlantic American concentrated on building its property and casualty insurance business through American Southern while simultaneously expanding its life and health insurance operations through Bankers Fidelity. The 1980s and 1990s presented challenges for the company as it navigated changing market conditions and regulatory environments. During this period, Atlantic American took strategic steps to strengthen its capital position and improve operational efficiency.
The 2000s brought additional hurdles, including the 2008 financial crisis, which significantly impacted the company's investment portfolio and operations. In response, Atlantic American implemented various cost-cutting measures and worked to diversify its product offerings and distribution channels. The company also faced increasing competition and pricing pressures in its core insurance markets.
Despite these challenges, Atlantic American has maintained its position as a regional insurance provider, primarily serving customers in the southeastern United States. The company's long-standing commitment to serving its communities and its ability to adapt to industry changes have been key factors in its resilience. However, Atlantic American has faced profitability issues in recent years, reporting net losses in 2023 and 2022 due to unfavorable loss experience in its life and health operations.
Financial Performance and Liquidity
Atlantic American's financial performance has been a mixed bag in recent years. The company reported a net loss of $4.7 million, or $0.24 per diluted share, for the nine-month period ended September 30, 2024, compared to net income of $2.1 million, or $0.09 per diluted share, for the same period in 2023. This decline was primarily attributable to unfavorable loss experience in the company's life and health operations, driven by an increase in incurred losses in the group life and Medicare supplement lines of business.
For the most recent quarter (Q3 2024), Atlantic American reported revenue of $44,519,000, a slight increase from the prior year quarter. However, the company's net income saw a significant decline, with a net loss of $1,998,000 compared to a net income of $1.8 million in the same period of 2023. Operating cash flow (OCF) also decreased to $90,000, while free cash flow (FCF) declined to $58,000.
Despite these challenges, Atlantic American has maintained a strong balance sheet and liquidity position. As of September 30, 2024, the company had $23.0 million in cash and cash equivalents, and its insurance subsidiaries reported $50.4 million and $31.0 million in statutory capital and surplus for American Southern and Bankers Fidelity, respectively. The company's debt-to-capital ratio stood at 26.3% as of the same date, indicating a prudent approach to leverage.
Atlantic American's liquidity position remains solid, with a current ratio and quick ratio of 5.72 as of September 30, 2024. The company also maintains a $10 million revolving credit facility, of which $4.02 million was outstanding as of the same date. The Credit Agreement requires the company to comply with certain covenants, including maintaining a debt to capital ratio that restricts consolidated indebtedness from exceeding 35.00% of the company's consolidated capitalization at any time.
Operational Highlights and Segment Performance
American Southern, the company's property and casualty insurance segment, saw a decrease in gross written premiums during the nine-month period ended September 30, 2024, primarily due to a decline in premiums in the automobile liability and automobile physical damage lines of business. The segment's combined ratio increased to 102.6% for the nine-month period, up from 98.7% in the same period of 2023, driven by an unfavorable loss experience in the automobile liability line.
During the three months ended September 30, 2024, American Southern's gross written premiums decreased $2.3 million, or 21.4%, compared to the same period in 2023. This decrease was primarily attributable to a decline in premiums written in the automobile liability, automobile physical damage, and surety lines of business. The decrease in automobile liability premiums was due to the non-renewal of a program, while the decrease in automobile physical damage premiums was due to a decline in demand within the trucking industry. The decrease in surety premiums was due to construction slowdowns in certain regions.
American Southern's loss ratio increased to 86.2% in the three-month period ended September 30, 2024, compared to 71.7% in the same period in 2023. This increase was mainly due to an increase in the frequency and severity of claims in the automobile liability line of business. Partially offsetting the increase in the loss ratio was a decrease in the general liability line of business due to favorable reserve development, as well as a decrease in loss adjustment expenses related to a decline in claims costs.
In the life and health insurance segment, represented by Bankers Fidelity, net earned premium revenue decreased by 3.0% during the nine-month period ended September 30, 2024, compared to the same period in 2023. This decline was primarily attributable to a decrease in Medicare supplement premiums, partially offset by increases in other health product and life insurance premiums. The segment's combined ratio increased to 103.1% for the nine-month period, up from 93.7% in the same period of 2023, primarily due to an increase in reserves in the group life line of business and higher paid claims in the Medicare supplement line.
During the three months ended September 30, 2024, Bankers Fidelity's net earned premium revenue increased $0.4 million, or 1.4%, compared to the same period in 2023. Gross earned premiums from the Medicare supplement line of business decreased $1.7 million, or 5.2%, due primarily to non-renewals exceeding the level of new business writings. However, gross earned premiums from other health products increased $0.7 million, or 20.5%, and gross earned premiums from the life insurance line of business increased $0.8 million, or 16.6%, primarily due to an increase in group life products premiums.
Bankers Fidelity's insurance benefits and losses incurred increased $1.8 million, or 12.3%, during the three-month period ended September 30, 2024, compared to the same period in 2023. The loss ratio increased to 60.9% from 55.0%, primarily due to an increase in reserves in the group life line of business and an increase in paid claims in relation to premiums within the Medicare supplement line of business.
Regulatory Environment and Challenges
The insurance industry is subject to a highly complex and ever-evolving regulatory landscape, and Atlantic American is no exception. The company's operations are closely monitored by state insurance regulators, who oversee matters ranging from solvency and capital requirements to product pricing and market conduct. Navigating this regulatory environment requires constant vigilance and the implementation of robust compliance measures.
In addition to regulatory challenges, Atlantic American has faced headwinds from broader industry trends, such as the low-interest-rate environment and increased competition from both traditional and emerging players. The company has responded by diversifying its product offerings, investing in technology, and optimizing its operational efficiency to maintain a competitive edge.
Outlook and Future Prospects
As Atlantic American looks to the future, the company is focused on strengthening its core businesses, exploring strategic growth opportunities, and enhancing its technological capabilities. The company's management team has expressed cautious optimism about the company's long-term prospects, citing the potential for improved performance in the life and health insurance segment and continued disciplined underwriting in the property and casualty business.
However, the company also faces several risks, including the potential for increased claims frequency and severity, the impact of macroeconomic factors on investment returns, and the ongoing challenges of the regulatory environment. Navigating these complexities will require a continued focus on risk management, innovation, and adaptability – qualities that have long been hallmarks of Atlantic American's corporate culture.
Conclusion
Atlantic American Corporation's story is one of resilience and adaptation in the face of an ever-changing insurance landscape. With a diversified business model, a strong balance sheet, and a proven track record of navigating industry challenges, the company is poised to continue its legacy of serving its customers and delivering value to its shareholders. As the insurance industry evolves, Atlantic American remains committed to innovation, disciplined execution, and a steadfast focus on its core mission – providing reliable and innovative insurance solutions to its clients.
The company's recent financial performance, while challenging, demonstrates its ability to maintain a strong liquidity position and adapt to market conditions. The decrease in net income, operating cash flow, and free cash flow in the most recent quarter highlights the ongoing challenges in the insurance industry, particularly in the life and health operations and the property and casualty automobile liability line of business. However, the company's solid balance sheet, with $23.04 million in cash and cash equivalents and a manageable debt position, provides a foundation for future growth and stability.
Atlantic American's geographic focus on the United States, particularly the southeastern region, allows the company to leverage its deep understanding of local markets and customer needs. While this concentration may limit growth opportunities in other regions, it also provides a degree of insulation from international market volatility.
As Atlantic American moves forward, the company will need to address the challenges in its various business lines, particularly the unfavorable loss experience in the life and health operations and the increased claims frequency and severity in the property and casualty automobile liability line. By continuing to refine its underwriting practices, optimize its product mix, and invest in technology and operational efficiencies, Atlantic American can work towards improving its financial performance and strengthening its market position.
The absence of any reported scandals, short seller reports, or CEO departures speaks to the company's stability and integrity in its corporate governance. This stability, combined with Atlantic American's long-standing presence in the insurance industry, positions the company well to navigate future challenges and capitalize on emerging opportunities in the evolving insurance landscape.