ATLANTIC AMERICAN CORP

Atlantic American Corporation 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 ¹. The property and casualty operations are conducted through American Southern Insurance Company and American Safety Insurance Company, together known as American Southern, while the life and health operations are conducted through Bankers Fidelity Life Insurance Company, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company, together known as Bankers Fidelity ². Each of American Southern and Bankers Fidelity is managed separately based upon the type of products it offers and is evaluated on its individual performance ³. The Company's strategy is to focus on well-defined geographic, demographic and/or product niches within the insurance marketplace, with each operating company operating with relative autonomy designed to allow for quick reaction to market opportunities ⁴. The Parent has no significant business operations of its own and relies on fees, dividends and other distributions from its operating subsidiaries as the principal source of cash flow to meet its obligations ⁵.

The property and casualty insurance business in which American Southern engages is highly competitive, with the principal areas of competition being pricing and service ⁶. Many competing property and casualty companies have been in business longer than American Southern, offer more diversified lines of insurance and have substantially greater financial resources ⁷. American Southern is licensed to do business in 32 states and the District of Columbia ⁸. The life and health insurance business remains highly competitive and includes a large number of insurance companies, many of which are new entrants to the business of providing Medicare Supplement and other accident and health insurance products ⁹. Bankers Fidelity has established itself as a trusted carrier of choice for its customers providing quality and sustainability for over 65 years ¹⁰. In order to compete, Bankers Fidelity actively seeks opportunities in niche markets, developing long-term relationships with a select number of independent marketing organizations ¹¹. Competition for insurance products is based on many factors including premiums charged, terms and conditions of coverage, customer service, financial ratings assigned by independent rating agencies, claims handling, consumer recognition and reputation, perceived financial strength and the experience of the organization in the line of business being written ¹².

The Company generates revenue primarily from the collection of premiums, as well as from investment income ¹³. American Southern provides tailored commercial automobile insurance coverage, on a multi-year contract basis, to state governments, local municipalities and other large motor pools and fleets, known as block accounts, that can be specifically rated and underwritten ¹⁴. The size of the block accounts insured by American Southern are generally such that individual class experience can be determined, which allows for customized policy terms and rates ¹⁵. Bankers Fidelity acquires its clientele through three distribution channels spread across 46 different states and two business divisions, all of which utilize commissioned, independent agents ¹⁶. The three distribution channels include traditional independent agents, brokers who are typically interested in a specific product of Bankers Fidelity and brokers who focus on sales within the group/employer benefits division, Atlantic American Employee Benefits, all of which are responsible for their own marketing and sales activities ¹⁷. Contracting as independent agents enables Bankers Fidelity to effectively expand or contract its sales force without incurring significant expense ¹⁸. Bankers Fidelity had approximately 6,565 licensed agents contracted in both the individual and group divisions as of December 31, 2025 ¹⁹. During 2025, approximately 3,094 of these licensed agents wrote policies on behalf of Bankers Fidelity ²⁰.

American Southern's primary product lines include commercial automobile insurance, which provides bodily injury and/or property damage liability coverage, uninsured motorist coverage and physical damage coverage for commercial accounts; general liability insurance, which covers bodily injury and/or property damage liability for both premises and completed operations exposures for general classes of business; surety bonds, which are contracts under which the insurance company guarantees to a third party that the primary party will fulfill an obligation in accordance with a contractual agreement; and inland marine policies, which provide motor truck cargo coverage for commercial accounts ²¹. American Southern directly provides surety bond coverage for subdivision construction, school bus contracts, as well as performance and payment bonds ²². For the year ended December 31, 2025, American Southern's net earned premiums were $49,640 thousand from automobile liability, $16,515 thousand from automobile physical damage, $6,121 thousand from general liability, $5,178 thousand from surety, and $7,050 thousand from inland marine, for total net earned premiums of $84,504 thousand ²³.

Bankers Fidelity offers a variety of life and supplemental health products, including ordinary life insurance, Medicare Supplement and other accident and health insurance products ²⁴. Life Insurance products include non-participating, individual and group whole life insurance policies with a variety of riders and options ²⁵. Medicare Supplement Insurance includes 8 of the 10 standardized Medicare Supplement plans that were developed in response to the requirements of the Omnibus Budget Reconciliation Act of 1990 ²⁶. These policies provide insurance coverage for certain expenses not covered by the Medicare program, including but not limited to, copayments and deductibles ²⁷. Other Accident and Health Insurance coverages include several individual and group policies providing for the payment of benefits that help defray the health care and other costs associated with the treatment of cancer and other critical illnesses ²⁸. In addition, Bankers Fidelity offers policies that reimburse the costs associated with short-term nursing facility care, policies that provide monthly benefits in the event of a covered disability, and policies that provide cash benefits in the event of a covered accident or a covered hospital stay ²⁹. Health insurance products, primarily Medicare Supplement insurance, accounted for 84% of Bankers Fidelity's net earned premiums in 2025 while life insurance, including both whole and term life insurance policies, accounted for the balance ³⁰. In terms of the number of policies written in 2025, 83% were health insurance policies and 17% were life insurance policies ³¹. For the year ended December 31, 2025, Bankers Fidelity's net earned premiums were $12,559 thousand from group life, $5,600 thousand from individual life, $75,360 thousand from Medicare Supplement, $9,178 thousand from group accident and health, and $8,941 thousand from other individual health, for total net earned premiums of $111,638 thousand ³².

During 2025, the Company adopted Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as subsequently amended, applying LDTI using the modified retrospective transition method as of January 1, 2024 to its whole life, Medicare Supplement and certain guaranteed-renewable accident and health insurance products ³³. In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2025, management identified errors relating to the recognition of due-premium receivables and related premium revenue within the Company's group whole life and group accident and health business, and the Company revised the 2024 financial information presented to reflect the correction of the errors in the appropriate prior periods ³⁴. The revisions principally resulted in a $5.580 million reduction in insurance premiums and other receivables, a $1.172 million increase in deferred income taxes, net, a $2.923 million reduction in accounts payable and accrued expenses, a $1.485 million reduction in retained earnings, a $0.351 million reduction in 2024 insurance premiums, net and income (loss) before income taxes, and a $0.277 million increase in 2024 net loss ³⁵. The Company also received notices from The Nasdaq Stock Market LLC stating that because the Company had not yet filed certain delinquent reports, the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1), and Nasdaq granted an extension until October 12, 2026 to regain compliance ³⁶. The Company expects that it will receive a staff delisting determination from Nasdaq due to its inability to file each of the delinquent reports by such date ³⁷.

On a consolidated basis, the Company had net income of $6.0 million, or $0.28 per diluted share, in 2025, compared to net loss of $1.4 million, or $(0.09) per diluted share, in 2024 ³⁸. Total revenue was $210.4 million in 2025 as compared to $188.41 million in 2024 ³⁹. Premium revenue increased to $196.1 million in 2025 from $178.6 million in 2024 ⁴⁰. Operating income was $3.7 million in 2025 as compared to operating loss of $1.3 million in 2024 ⁴¹. The increase in net income was primarily due to an increase in net earned premiums in the property and casualty operations due to a rate increase upon renewal of a program within the automobile liability line of business, as well as increases in earned premiums in the inland marine cargo and automobile physical damage lines of business that were due to increased premium writings ⁴². Also contributing to the increase in net income was the Company's recognition of net unrealized gains on equity securities of $4.5 million and net unrealized losses of $1.5 million during the years ended December 2025 and 2024, respectively ⁴³. Another contributing factor to the increase in net income was an increase in the net earned premiums for the Medicare Supplement line of business due to new sales within the life and health operations ⁴⁴.

The Company believes that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment of claims and operating expenses as needed ⁴⁵. The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the next 12 months and thereafter for the foreseeable future ⁴⁶. Management is not aware of any current recommendations by regulatory authorities, which, if implemented, would have a material adverse effect on the Company's liquidity, capital resources or operations ⁴⁷.

Bankers Fidelity's marketing and distribution strategy revolves around five pillars: Diversification, Differentiation, Quality, Retention and Profitability ⁴⁸. Through unique product offerings such as the Vantage Flex Plus®, a hospital indemnity plan, and Vantage Recovery®, a short-term care product and a group whole life product featuring a chronic illness rider, the Company is able to offer its distributors an array of products to sell that stand out from the competition ⁴⁹. As the Company continues to expand its geographical footprint with agents and products, one of its main objectives is to have a healthy mix of all of its product lines nationwide ⁵⁰. Bankers Fidelity is focused on being a niche carrier that delivers superior service, quality products and innovative solutions ⁵¹. Through seasonal campaigns and customer outreach, the Company is focused on client retention and servicing its policyholders through all stages in their lives ⁵². In an effort to be sustainable in the marketplace as a long-term partner, senior management is focused on diversification, differentiation, quality and retention to achieve profitability ⁵³.

American Southern's agent selection process is actively managed by internal marketing personnel with oversight from management, and senior management carefully reviews all new programs prior to acceptance ⁵⁴. Most of American Southern's 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 underlying business ⁵⁵. American Southern also solicits business from governmental entities and, as an experienced writer of insurance policies for certain governmental programs, the company actively pursues this market on a direct basis ⁵⁶. Much of this business is priced by means of competitive bid situations, and as a result, there can be no assurance with respect to the ultimate profitability or ability of the Company to obtain or retain such business at the time of a specific contract renewal ⁵⁷. 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 ⁵⁸. During the course of the policy life, extensive use is made of risk management representatives to assist commercial underwriters in identifying and correcting potential loss exposures and to physically inspect new accounts ⁵⁹. The underwriting results from each insured are reviewed on an individual basis periodically, and if results are below expectations, management takes corrective action, which may include adjusting rates, revising underwriting standards, adjusting commissions paid to agents, and/or altering or declining to renew accounts at expiration ⁶⁰.

The Company's primary cash needs are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements ⁶¹. Current and expected patterns of claim frequency and severity may change from period to period, but generally are expected to continue within historical ranges ⁶². The Company's primary sources of cash are written premiums, investment income and proceeds from the sale and maturity of its invested assets, as well as borrowings from time to time under our revolving credit facility ⁶³. Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments from the subsidiaries ⁶⁴. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company's board of directors from time to time ⁶⁵.

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 ⁶⁶. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of 3-month CME Term SOFR plus applicable tenor spread of 0.26161% plus an applicable margin ⁶⁷. The margin ranges from 4.00% to 4.10% ⁶⁸. At December 31, 2025, the effective interest rate was 8.13% ⁶⁹. The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from existing or potential future financing arrangements ⁷⁰. At December 31, 2025, the Company had 55,000 shares of Series D preferred stock outstanding, all of which are held by an affiliate of the Company's controlling shareholder ⁷¹. The outstanding shares of Series D Preferred Stock have a redemption value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company's common stock at the option of the board of directors of the Company) and are cumulative ⁷². In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company's common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company's option ⁷³. The Series D Preferred Stock is not currently convertible ⁷⁴. The Company had accrued, but unpaid, dividends on the Series D Preferred Stock of $17.7 thousand at December 31, 2025 and 2024 ⁷⁵. During each of 2025 and 2024, the Company paid Series D Preferred Stock dividends of $0.4 million ⁷⁶.

Bankers Fidelity Life Insurance Company is a member of the Federal Home Loan Bank of Atlanta, for the primary purpose of enhancing financial flexibility ⁷⁷. As a member, BFLIC can obtain access to low-cost funding and also receive dividends on FHLB stock ⁷⁸. The membership arrangement provides for credit availability of fifteen percent of statutory admitted assets, or approximately $27.3 million, as of December 31, 2025 ⁷⁹. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB ⁸⁰. As of December 31, 2025, BFLIC has pledged bonds having an amortized cost of $8.9 million to the FHLB ⁸¹. BFLIC may be required to post additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB ⁸². As of December 31, 2025, BFLIC does not have any outstanding borrowings from the FHLB ⁸³.

On May 12, 2021, the Company entered into a revolving credit agreement with Truist Bank as the lender ⁸⁴. The Revolving Credit Agreement provides for an unsecured $10.0 million revolving credit facility that originally matured on April 12, 2024 ⁸⁵. On March 22, 2024, the Company entered into a First Amendment to its Revolving Credit Agreement with the Lender ⁸⁶. The Amendment, among other things, (a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term SOFR rate, plus 2.00%, (b) extends the maturity date of the revolving credit facility to March 22, 2027, (c) requires the monthly payment of an unused commitment fee of 0.2% of the unused facility amount, and (d) requires that the Company maintain a consolidated net worth of not less than $64.2 million ⁸⁷. On May 27, 2026, July 31, 2026, October 9, 2026 and October 15, 2026, the Company and the Lender entered into amendments to the Credit Agreement, each of which had the effect of extending the then-applicable deadlines by which the Company must deliver to the Lender (i) the Company's audited consolidated financial statements for the year ended December 31, 2025, (ii) the Company's interim consolidated financial statements for the quarters ended March 31, 2026, June 30, 2026 and September 30, 2026, and (iii) related certificates of the Company's compliance with financial covenants under the Credit Agreement and certain other matters ⁸⁸. The Fifth Amendment to the Revolving Credit Agreement, dated October 15, 2026, also amended the minimum AM Best financial strength rating that must be maintained by American Southern Insurance Company to be no lower than "A-" and waived related defaults under the Credit Agreement occurring prior to such amendment ⁸⁹. The Credit Agreement requires the Company to comply with certain covenants, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35% of the Company's consolidated capitalization at any time and maintaining a minimum consolidated net worth, as previously mentioned ⁹⁰. As of December 31, 2025 and 2024, the Company had outstanding borrowings of $5.0 million and $4.0 million under the Credit Agreement ⁹¹.

The Company's insurance subsidiaries from time-to-time purchase reinsurance from unaffiliated insurers and reinsurers to reduce their potential liability on individual risks and to protect against catastrophic losses ⁹². American Southern's basic reinsurance treaties generally cover all claims in excess of specified per occurrence limitations ⁹³. Limits per occurrence within the reinsurance treaties are as follows: inland marine and automobile physical damage - $225,000 excess of $125,000 retention; and automobile liability and general liability - excess coverage of $2.0 million less retentions that may vary from $100,000 to $700,000 depending on the account ⁹⁴. American Southern maintains a property catastrophe treaty with a $5.5 million limit excess of $500,000 retention ⁹⁵. Bankers Fidelity has entered into reinsurance contracts ceding the excess of its life retention ⁹⁶. The maximum retention by Bankers Fidelity on any one individual life insurance policyholder is $200,000 ⁹⁷. As of December 31, 2025, $5.7 million of the $1,040.3 million of life insurance in force at Bankers Fidelity was reinsured under a combination of coinsurance and yearly renewable term agreements ⁹⁸. Bankers Fidelity has also entered into a reinsurance contract ceding excess new Medicare Supplement business to General Re Life Corporation ⁹⁹. Ceding thresholds are set for all policies issued in a given calendar year ¹⁰⁰. During 2025, the liability of the reinsurer was 71% of all Medicare Supplement business issued by the Company that year ¹⁰¹. This percentage is calculated based on a cession percentage of 50% on amounts of new business of up to $30 million of annualized premium, and 100% of all new Medicare Supplement business in excess of $30.0 million of annualized premiums ¹⁰². Accordingly, $36.9 million of the Company's $51.9 million of new annualized Medicare Supplement premium was ceded ¹⁰³.

The Company faces material risks related to its internal control over financial reporting, as management identified deficiencies that constituted a material weakness as of December 31, 2025, and correcting the identified errors addressed the financial-statement effects but did not remediate the material weakness ¹⁰⁴. The Company has received notices from Nasdaq stating that because it had not yet filed certain delinquent reports, it is not in compliance with Nasdaq Listing Rule 5250(c)(1), and the Company expects that it will receive a staff delisting determination from Nasdaq due to its inability to file each of the delinquent reports by the extension date of October 12, 2026 ¹⁰⁵. While the Company intends to appeal such determination to a Nasdaq Hearings Panel, an appeal may not be successful in preventing the suspension of trading, or delisting of, the Company's common stock from Nasdaq ¹⁰⁶. The Company's insurance subsidiaries are subject to regulation and supervision in the jurisdictions in which they do business, and virtually all of the states in which the Company's insurance subsidiaries are licensed to transact business require participation in their respective guaranty funds designed to cover claims against insolvent insurers, with insurers generally subject to assessments of up to 4% of annual direct premiums written in that jurisdiction to pay such claims ¹⁰⁷. As of the date of this Form 10-K, Bankers Fidelity has not yet filed its annual audited statutory financial statements for the fiscal year ended December 31, 2025 or quarterly statutory financial statements for the quarter ended June 30, 2026 with the applicable state insurance regulatory authorities, and if Bankers Fidelity is unable to file the required financial statements by the applicable deadlines, the Company is unable to predict with any certainty what measures may be imposed by the applicable regulatory authorities ¹⁰⁸. The Company's insurance reserves for losses and claims were $113.8 million as of December 31, 2025, and the process of establishing claim reserves requires the use of estimates and judgments, and relatively small changes in estimates of ultimate losses may materially affect the recorded liability and the benefits and losses recognized in the period of revision ¹⁰⁹. The Company's insurance reserves for future policy benefits were $84.7 million as of December 31, 2025, and these reserves are based upon significant management assumptions including mortality, morbidity, policyholder lapses and other termination rates, claim costs, loss ratios, anticipated premium-rate increases, discount rates and expenses ¹¹⁰.

Management's message to shareholders emphasizes the Company's focus on well-defined specialty markets within the life and health and property and casualty insurance industries, with each operating company managed separately and evaluated on its individual performance ¹¹¹. The Company's strategy is to focus on well-defined geographic, demographic and/or product niches within the insurance marketplace, with each of American Southern and Bankers Fidelity operating with relative autonomy designed to allow for quick reaction to market opportunities ¹¹². Management's strategic priorities for the period ahead center on diversification, differentiation, quality, retention and profitability, as articulated in Bankers Fidelity's marketing and distribution strategy ¹¹³. Through unique product offerings such as the Vantage Flex Plus®, a hospital indemnity plan, and Vantage Recovery®, a short-term care product and a group whole life product featuring a chronic illness rider, the Company is able to offer its distributors an array of products to sell that stand out from the competition ¹¹⁴. As the Company continues to expand its geographical footprint with agents and products, one of its main objectives is to have a healthy mix of all of its product lines nationwide ¹¹⁵. Management also emphasizes the Company's focus on being a niche carrier that delivers superior service, quality products and innovative solutions, and on client retention through seasonal campaigns and customer outreach ¹¹⁶. In an effort to be sustainable in the marketplace as a long-term partner, senior management is focused on diversification, differentiation, quality and retention to achieve profitability ¹¹⁷. The Company believes that its ability to attract and retain highly motivated and skilled employees with diverse backgrounds and experiences is critical to its continued success ¹¹⁸. The Company and its subsidiaries employed 166 people at December 31, 2025, of which 163 were full-time ¹¹⁹. Management also notes the Company's ongoing efforts to remediate material weaknesses in internal control over financial reporting and to regain compliance with Nasdaq listing standards ¹²⁰.