ITEM 1. BUSINESS
The Company
Atlantic American Corporation, a Georgia corporation (the "Parent" or "Company") incorporated in 1968, is a holding company that operates through its subsidiaries in well-defined specialty markets of the life, health, property and casualty insurance industries. Atlantic American's principal subsidiaries are American Southern Insurance Company and American Safety Insurance Company (collectively known as "American Southern"), Association Casualty Insurance Company ("ACIC"), Georgia Casualty & Surety Company, ("Georgia Casualty") and Bankers Fidelity Life Insurance Company ("Bankers Fidelity").
On July 1, 1999 the Company, for an aggregate price of $33.0 million, acquired 100% of the outstanding stock of Association Casualty Insurance Company ("ACIC") and its affiliated agency, Association Risk Management General Agency, Inc. ("ARMGA"), both of which are domiciled in Texas. The acquisition of both companies was accounted for using the purchase method of accounting. Together ACIC and ARMGA are referred to as Association Casualty. In addition, on April 1, 1999 the Company merged American Independent Life Insurance Company ("American Independent") into Bankers Fidelity completing the consolidation of these two companies whose operations had been assimilated following the acquisition of American Independent in 1997.
The Company's strategy is to focus on well-defined geographic, demographic and/or product niches within the insurance market place. The underwriting function of each of the Company's subsidiaries operates with relative autonomy which allows for quick reaction to market opportunities. In addition, the Company seeks to develop and expand cross-selling opportunities and other synergies among its subsidiaries as they arise.
Casualty Operations
The Company's casualty operations are composed of three distinct entities, American Southern, Association Casualty and Georgia Casualty. The primary products offered by the casualty group are described below, followed by an overview of each company.
Workers' Compensation Insurance policies provide indemnity and medical - ------------------------------------- benefits to insured workers for injuries sustained in the course of their employment.
Business Automobile Insurance policies provide for bodily injury and/or - ------------------------------------ property damage liability coverage, uninsured motorists 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 real and - ------------------------- personal property caused by fire and other multiple perils.
Personal Automobile Insurance polices provide for bodily injury and property - ---------------------------------- damage liability coverage, uninsured motorists coverage, and physical damage coverage for individuals.
American Southern. American Southern provides tailored fleet 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 produces business in 21 of the 24 states in the Southeast and Midwest in which it is authorized to conduct business. Additionally, American Southern provides personal automobile insurance to members of the Carolina Motor Club, an AAA affiliate. While the majority of American Southern's premiums are derived from auto liability and auto physical damage, American Southern also provides property, general liability and surety coverage.
The following table summarizes, for the periods indicated, the allocation of American Southern's net earned premiums for each of its principal product lines since its acquisition by the Company:
Year Ended December 31, ----------------------------------------- (in thousands) ----------------------------------------- 1999 1998 1997 1996 --------- --------- --------- --------- Automobile Liability $24,573 $23,396 $30,909 $30,889 Automobile Physical Damage 6,112 4,288 4,508 4,865 General Liability 4,302 4,291 3,116 1,947 Property 3,118 2,970 3,206 3,461 Surety 61 57 60 88 --------- --------- --------- --------- Total $38,166 $35,002 $41,799 $41,250 ========= ========= ========= =========
Georgia Casualty. Georgia Casualty is a property-casualty insurance company which provides workers' compensation, commercial property, general liability and automobile insurance in the Southeastern United States.
While Georgia Casualty has historically written business in industries that are perceived to be high risk, it has recently begun to focus on diversifying its book of business. Currently, Georgia Casualty is targeting retail, light manufacturing, service, and other lower hazard risks. Georgia Casualty is licensed to do business in thirteen Southeastern states; however, historically it has focused its efforts on Georgia, Mississippi, and Northern Florida. Along with the diversification of its book of business, Georgia Casualty is in the process of expanding geographically, with added focus on the states of North Carolina, South Carolina, and Tennessee.
The following table summarizes, for the periods indicated, the allocation of Georgia Casualty's net earned premiums for each of its principal product lines:
Year Ended December 31, ------------------------------------------------- (in thousands) ------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- --------- --------- -------- Workers' Compensation $13,157 $14,344 $ 12,841 $ 13,826 $14,954 Business Automobile 2,876 3,750 4,031 2,550 1,436 General Liability 1,251 1,619 1,387 1,152 1,025 Property 2,119 2,100 1,657 1,269 887 -------- -------- --------- --------- -------- Total $19,403 $21,813 $ 19,916 $ 18,797 $18,302 ======== ======== ========= ========= ========
Association Casualty
Association Casualty Insurance Company along with Association Risk Management General Agency, Inc. currently offers workers compensation coverage in Texas. Following the July acquisition by Atlantic American, Association Casualty began the process of expanding the products it offers. Beginning in the second quarter of 2000, Association Casualty will begin offering general liability, property, and other commercial coverages to complement its existing book of workers'compensation business.
Since its acquisition by Atlantic American on July 1, 1999, Association Casualty has had net earned premiums of $8.5 million, of which 95.7% was workers' compensation business.
Bankers Fidelity
Bankers Fidelity, which constitutes the life and health operations of Atlantic American Corporation, offers a variety of life and supplemental health products with a focus on the senior and middle income markets. Products offered by Bankers Fidelity include: ordinary life, Medicare supplement, cancer, and other supplemental health insurance products. Medicare supplement, offered on both a standard and preferred basis, accounted for 62.2% of Bankers Fidelity's net premiums in 1999. Life insurance, including both whole and term life insurance policies, accounted for 30.1% of Bankers Fidelity's premiums in 1999. Bankers Fidelity also offers several of its products, both life and supplemental health, through payroll deduction services.
The following table summarizes, for the periods indicated, the allocation of Bankers Fidelity's net premiums earned for each of its principal product lines followed by a brief description of the principal products:
Year Ended December 31, ------------------------------------------------ (in thousands) ------------------------------------------------ 1999 1998 1997 1996 1995 ------- --------- -------- -------- -------- ------- --------- -------- -------- -------- Life Insurance $12,499 $11,748 $10,453 $10,240 $ 8,297 ------- --------- -------- -------- --------
Medicare Supplement 25,822 19,743 12,534 11,560 11,882 Cancer, accident and other health 3,206 2,986 3,980 4,178 4,892 ------- --------- -------- -------- -------- Total Accident and Health 29,028 22,729 16,514 15,738 16,774 ------- --------- -------- -------- -------- Total Life and Accident and Health $41,527 $34,477 $26,967 $25,978 $25,071 ======= ========= ======== ======== ========
Life Products. Bankers Fidelity offers non-participating individual - -------------------- term and whole life insurance policies with a number of available riders and options.
Medicare Supplement. Bankers Fidelity currently markets 7 of the 10 - -------------------------- 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.
Cancer, Accident & Other Health Coverages. Bankers Fidelity offers several - ----------------------------------------------- policies providing for payment of benefits in connection with the treatment of diagnosed cancer, as well as a number of other policies including convalescent care, accident expense, hospital/surgical and disability.
Marketing
Casualty Operations
American Southern. American Southern's business is marketed through a small number of specialized, experienced independent agents. Most of American Southern's agents are paid a moderate up-front commission with the potential for additional commission by participating in a profit sharing arrangement that is directly linked to the profitability of the business generated. In addition, a significant portion (approximately 50.3% of total written premium in 1999) of American Southern's premiums are assumed from third parties. In arrangements similar to those with its agents, the premium assumed from these parties is adjusted based upon the profitability of the assumed business. During 1998, American Southern formed American Auto Club Insurance Agency, LLC in a 50/50 joint venture with the AAA Carolinas to market personal automobile insurance to the members of the automobile club. During 1999, the American Auto Club Agency produced $5.0 million of new premiums for American Southern.
Association Casualty. Association Casualty is represented by a field force of approximately 130 independent agents for the sale and distribution of its insurance products. Each agency is a party to a standard agency contract that sets forth the commission structure and other terms and can be terminated by either party. Marketing efforts are handled by an experienced staff of insurance professionals.
Georgia Casualty. Georgia Casualty is represented by a field force of approximately 105 independent agents for the sale and distribution of its insurance products. Each agency is a party to a standard agency contract that sets forth the commission structure and other terms and can be terminated by either party upon thirty days written notice. Georgia Casualty also offers a contingent profit-sharing arrangement that allows the most profitable agents to earn additional commissions when specific loss experience and premium growth goals are achieved. Marketing efforts, directed by experienced marketing professionals, are complemented by the underwriting, risk management, and audit staffs of Georgia Casualty, who are available to assist agents in the presentation of all insurance products and services to their insureds. Georgia Casualty has also begun marketing programs that include endorsements from trade organizations and business franchises.
Bankers Fidelity
Bankers Fidelity markets its policies through commissioned, independent agents. In general, Bankers Fidelity enters contractual arrangements with general agents who, in turn, contract with independent agents. The standard agreements set forth the commission arrangements and are terminable by either party upon thirty days written notice. General agents receive an override commission on sales made by agents contracted by them. Management believes utilizing direct writing, experienced agents, as well as independent general agents who recruit and train their own agents, is cost effective. All independent agents are compensated on a pure commission basis. Using independent agents also enables Bankers Fidelity to expand or contract their sales forces at any time without incurring significant additional expense.
Bankers Fidelity has implemented a selective agent qualification process and had 2,830 licensed agents in 1999. The agents concentrate their sales activities in either the accident and health or life insurance product lines. During 1999, a total of 1,513 agents wrote policies on behalf of Bankers Fidelity.
Products of Bankers Fidelity compete directly with products offered by other insurance companies, as agents may represent several insurance companies. Bankers Fidelity, in an effort to motivate agents to market their products, offers the following agency services: a unique lead system, competitive products and commission structures, efficient claims service, prompt payment of commissions, simplified policy issue procedures, periodic sales incentive programs and, in some cases, protected sales territories consisting of counties and/or zip codes. Additionally, Bankers Fidelity has a staff of 19 employees whose primary function is to facilitate the activities of the agents and to act as liaisons between the agents and Bankers Fidelity.
The company utilizes a distribution sales system 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 enough physical territory to produce a minimum senior population of 12,000. To allow for the expense of lead generation, commissions were lowered on Bankers Fidelity's senior citizen life plans. In addition, Bankers Fidelity recruits at a general agent level rather than at a managing general agent level in an effort to reduce commission expenses further.
The Company believes this distribution system solves an agent's most important dilemma -- prospecting -- and allows Bankers Fidelity to build long-term relationships with individual producers who view Bankers Fidelity as their primary company. In addition, management believes that Bankers Fidelity's product line is less sensitive to competitor pricing and commissions because of the perceived value of the protected territory and the lead generation plan. Through this distribution channel, production per agent contracted increased substantially when compared to Bankers Fidelity's general brokerage division.
Underwriting
Casualty Operations
American Southern specializes in the handling of block accounts such as states and municipalities that generally are sufficiently large to establish separate class experience, relying upon the underwriting expertise of its agents. In contrast, Georgia Casualty and Association Casualty underwrite the majority of their accounts in-house.
During the course of the policy year, extensive use is made of risk management representatives to assist underwriters in identifying and correcting potential loss exposures and to pre-inspect the majority of the new accounts that are underwritten. The results of each product line are reviewed on a stand-alone basis. When the results are below expectations, management takes appropriate corrective action which may include raising rates, reviewing underwriting standards, reducing commissions paid to agents, altering or declining to renew accounts at expiration, and/or terminating agencies with an unprofitable book of business.
American Southern also acts as a reinsurer with respect to all of the risks associated with certain automobile policies issued by state administrative agencies, naming the state and various local governmental entities as insureds. Premiums written from such policies constituted $22.1 million of American Southern's gross premiums written in 1999. For 1999, premiums assumed of $24.9 million, in 1999 include a single state contract of $15.1 million. Management believes that its relationship with all of its state agency customers is good; however, the loss of any one agency as a customer could potentially have a material adverse effect on the business or financial condition of the company.
Bankers Fidelity
Bankers Fidelity issues a variety of products including single and multiple premium life insurance policies with face amounts of not less than $1,000. All life insurance policies are fully underwritten, but the majority are issued with limited medical examinations subject to maximum policy limits ranging from $100,000 for persons under age 31 to $25,000 for persons under age 51. Medical examinations are required in connection with the issuance of life insurance policies in excess of these limits and for any amount on policies issued to customers over age 50. Paramedical examinations are ordered at age 41 for all life applications of $50,000 and above. Approximately 95% of the net premiums earned for life insurance sold during 1998 were derived from life insurance written below Bankers Fidelity's medical limits. For the senior market, Bankers Fidelity issues special life products on an accept-or-reject basis with a face amount from $15,000 at age 45 to a face amount of $2,000 at age 85. Bankers Fidelity only retains a maximum amount of $50,000 with respect to any individual life (see "Reinsurance").
Applications for insurance are reviewed as to the applicant's age and medical history and depending upon this information, additional information may be requested including the "Medical Information Bureau Report", medical examinations, statements from doctors, and, where indicated, special medical tests. If deemed necessary, Bankers Fidelity uses investigative services to supplement and substantiate information. For certain limited coverages, Bankers Fidelity has adopted simplified policy issue procedures by which the applicant submits a short application for coverage, typically containing only a few health related questions instead of presenting the applicant's complete medical history. At present, approximately 20% to 30% of the senior citizen life applications, through age 79 on the standard product and up to age 75 on the preferred, are verified by telephone. For ages 80 and above, 100% of the standard applicants are verified. All telephone verifications are made by the underwriting department. Applications not meeting the underwriting criteria are declined or additional information is requested.
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 claim processing time and to the accessibility of qualified staff to answer inquiries. Accordingly, the Company's policyholder and claims services include expeditious disposition of service requests by providing toll-free access to 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 insure timely response. 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. Hours have been expanded in all service areas to serve customers and agents in all time zones.
Casualty Operations
American Southern, Association Casualty, and Georgia Casualty control their claims costs by utilizing an in-house staff of claim supervisors to investigate, verify, negotiate and settle claims. Upon notification of an occurrence purportedly giving rise to a claim, the claims department conducts a preliminary investigation, determines whether an insurable event has occurred and, if so, records the claim. The companies frequently utilize independent adjusters and appraisers to service claims which require on-site inspections.
Bankers Fidelity
Insureds obtain claim forms by calling the claims department customer service group. 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 Fidelity's claims system when the proper documentation is received. Properly documented claims are generally paid within three to nine business days of receipt.
Reserves
The following table sets forth information concerning the Company's losses and claims and loss adjustment expenses ("LAE") reserves for the periods indicated:
1999 1998 -------------------------- Balance at January 1 $86,768 $86,721 -------- ------ Less: Reinsurance recoverables (22,625) (24,006) ---------- -------- Net balance at January 1 64,143 62,715 Incurred related to: Current year 73,056 63,030 Prior years 3,246 (2,606) --------- -------- Total incurred 76,302 60,424 Paid related to: Current year 44,623 35,566 Prior years 27,959 23,430 ------- ------- Total paid 72,582 58,996
Reserves acquired due to acquisition 19,934 - ------- ------- Net balance at December 31 87,797 64,143 Plus: Reinsurance recoverables 38,759 22,625 ------- --------- Balance at December 31 $126,556 $86,768 ========= ===========
Casualty Operations
Atlantic American Corporation's Casualty Operations maintain loss reserves representing estimates of amounts necessary for payment of losses and LAE. The Casualty Operations also maintain incurred but not reported reserves and bulk reserves 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 annually by qualified independent 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. 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 of cost trends and reviews of historical reserve results; however, it is difficult to measure the effect of any one of these considerations on reserve estimates.
The Casualty Operations establish reserves for claims based upon: (a) management's 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 claims based on past experience, and (c) estimates of LAE. The estimated liability is continually 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 table on the following page sets forth the development of balance sheet reserves for unpaid losses and LAE for the Casualty Operations' insurance lines for 1989 through 1999, including periods prior to the Company's ownership of American Southern and Association Casualty. The top line of the table represents the estimated 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 losses that have been incurred but not yet reported. 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 reestimated 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 year's estimates through the end of 1999. 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 one year are only affected, favorably or unfavorably, by the amount of the change in the estimate for such year. Conditions and trends that have affected development of the reserves in the past may not necessarily occur in the future. Accordingly, it is inappropriate to predict future redundancies or deficiencies based on the data in this table.
Bankers Fidelity
Bankers Fidelity establishes future policy benefits reserves to meet 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 some modification to reflect actual experience (see Note 3 of Notes to Consolidated Financial Statements for the year ended December 31, 1999).
Reinsurance
The insurance subsidiaries purchase reinsurance from unaffiliated insurers and reinsurers to reduce their 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.
Casualty Operations
American Southern. The limits of risks retained by American Southern vary by type of policy and insured, and amounts in excess of such limits are reinsured. The largest net amount insured in any one risk is $100,000. Reinsurance is generally maintained as follows: for fire, inland marine, and commercial automobile physical damage, recovery of losses over $40,000 up to $130,000. Net retentions for third party losses are generally over $35,000 up to $100,000. Catastrophe coverage for all lines except third party liability is for 95% of $6.6 million over $400,000.
Association Casualty. Association Casualty retains not more than the first $300,000 in losses on its workers' compensation policies, losses in excess of this limit are reinsured.
Georgia Casualty. Georgia Casualty's basic treaties cover all claims in excess of $200,000 per person, per occurrence on casualty losses, and per risk on property losses, up to $10.0 million per casualty claim and $3.0 million per property claim. An excess catastrophe treaty provides coverage up to statutory limits for any one occurrence on workers' compensation. The property lines of coverage are protected with an excess of loss treaty which affords recovery for property losses in excess of $250,000 up to a maximum of $3.0 million. Facultative arrangements are in place for property accounts with limits in excess of $3.0 million per risk. During 1999, Georgia Casualty entered into a stop loss reinsurance program for all losses in the 1999 accident year that, in the aggregate, fall between 55% and 75% of the net earned premiums, before the impact of the premium ceded under the treaty.
Bankers Fidelity
Bankers Fidelity has entered into reinsurance contracts ceding the excess of their 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, 1999, Bankers Fidelity's reinsured annualized premiums totaled $26.8 million of the $281.6 million of life insurance then in force, generally under yearly renewable term agreements. Certain reinsurance agreements that are no longer active for new business remain in force.
Competition
Casualty Operations
American Southern. 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 have available 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 where American Southern operates.
Association Casualty. As a monoline writer of workers' compensation insurance, Association Casualty's biggest competition comes from carriers that can provide insureds with all of their commercial insurance needs. In addition, the State of Texas, operates a state workers' compensation pool that competes directly with the carriers in the state. Association Casualty counters these competitive issues by offering high quality service. Additionally, Association Casualty anticipates beginning to write additional commercial coverages in the second quarter of 2000 in an effort to make itself more competitive.
Georgia Casualty. Georgia Casualty's insurance business is highly competitive.The competition can be placed in four categories: (1) companies with higher A.M. Best ratings, (2) alternative workers' compensation markets, (3) self-insured funds, and (4) insurance companies that actively solicit monoline workers' compensation accounts. Georgia Casualty's efforts are directed in the following three general categories where the company has the best opportunity to control exposures and claims: (1) manufacturing, (2) artisan contractors, and (3) service industries. Management believes that Georgia Casualty's keys to being competitive in these areas are maintaining strong underwriting standards, risk management programs, writing workers' compensation coverages as part of the total insurance package, maintaining and expanding its loyal network of agents and development of new agents in key territories. In addition, Georgia Casualty offers quality customer service to its agents and insureds, and provides rehabilitation, medical management, and claims management services to its insureds. Georgia Casualty believes that it will continue to be competitive in the marketplace based on its current strategies and services.
Bankers Fidelity
The life and health insurance business is highly competitive and includes a large number of insurance companies, many of which have substantially greater financial resources. Bankers Fidelity believes that the primary competitors are the Blue Cross/Blue Shield companies, AARP, the Prudential Insurance Company of America, Pioneer Life Insurance Company of Illinois, AFLAC, American Travellers, Kanawha Life, American Heritage, Bankers Life and Casualty Company, United American Insurance Corporation, and Standard Life of Oklahoma. Bankers Fidelity competes with 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, and market expertise. Bankers Fidelity believes that it competes effectively on the basis of policy benefits, services, and market expertise.
Rating
The following ratings are not designed for investors and do not constitute recommendations to buy, sell, or hold any security. Ratings are important in the insurance industry, and improved ratings should have a favorable impact on the ability of the companies to compete in the marketplace.
In 1999, for the first time, Atlantic American Corporation and its subsidiaries underwent a rating and review process by Standard & Poor's. As a result of the review, each of the Company's insurance subsidiaries was assigned a single "A-" counterparty credit and financial strength rating. This rating was affirmed in 2000 and now includes Association Casualty.
Each year A.M. Best Company, Inc. publishes Best's Insurance Reports ("Best's"), which include assessments and ratings of all insurance companies. Best's ratings, which may be revised quarterly, fall into fifteen categories ranging from A++ (Superior) to F (in liquidation). Best's ratings are based on an analysis of the 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.
Association Casualty. Association Casualty maintains a rating of "A-" (Excellent) by A.M. Best.
Georgia Casualty. Georgia Casualty maintains a Best's rating of "B++" (Very Good).
Bankers Fidelity. Bankers Fidelity maintains a Best's rating of "B++" (Very Good).
Regulation
In common with all domestic insurance companies, the Company's 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 commissions. 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 which must be met and maintained, deposits of securities for the benefit of policyholders, and periodic examinations of insurers and trade practices, among other things. The Company's 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 Company's 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 commission of intercorporate transfers of assets (including payments of dividends in excess of specified amounts by the insurance subsidiaries) within the holding company system.
Most states require that rate schedules and other information be filed with the state's 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 increases.
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, 1999, $ 16.2 million of securities were on deposit either directly with various state authorities or with third parties pursuant to various custodial agreements on behalf of Bankers Fidelity and the Casualty Operations.
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. 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 occurrence and amount of such assessments has increased in recent years. The likelihood and amount of any future assessments cannot be estimated until an insolvency has occurred. For the last five years, the amount incurred by the Company was not material.
NAIC Ratios
The National Association of Insurance Commissioners (the "NAIC") was established to 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 states 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, 1999, American Southern, Association Casualty, and Bankers Fidelity were within the NAIC "usual" range for all 13 financial ratios. Georgia Casualty was outside the "usual" range on one ratio, the two-year overall operating ratio, primarily due to adverse development on prior year losses.
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; if a company's adjusted capital is 200% or lower than ACL, it is subject to regulatory action. At December 31, 1999, all of the Company's insurance subsidiaries substantially exceeded the RBC regulatory levels.
Investments
Investment income represents a significant portion of the Company's 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 Company's investments as of the dates indicated.
Results of the investment portfolio for periods shown were as follows:
Year Ended December 31, 1999 1998 1997 (Dollars in thousands)
Average investments(1) $205,387 $ 199,132 $187,408 Net investment income $ 12,587 $ 11,167 $ 10,916
Average yield on investments 6.13% 5.6% 5.8% Realized investment gains, net $ 2,831 $ 2,909 $ 1,076
(1)Calculated as the average of the balances at the beginning of the year and at the end of each of the four segment quarters.
Management's investment strategy is an increased investment in short and medium maturity bonds and common and convertible preferred stocks.
Employees
The Company and its subsidiaries at December 31, 1999 employed 234 people.
Financial Information By Industry Segment
Financial information concerning the Company and its consolidated subsidiaries by industry segment for the three years ended December 31, 1999, is set forth on page 23 of the 1999 Annual Report to Shareholders, and such information by industry segment is incorporated herein by reference.
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 December 31, 1999, his name, age, positions with the Company, principal occupation, and business experience for the past five years and prior service with the Company (based upon information supplied by each of them).
Director or
Name Age Position with the Company Officer Since
J. Mack Robinson 76 Chairman of the Board 1974 Hilton H. Howell, Jr. 38 Director, President & CEO 1992 Edward L. Rand, Jr. 33 Vice President & CFO 1998
Officers are elected annually and serve at the discretion of the Board of Directors.
Mr. Robinson has served as 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 Bull Run Corporation and Gray Communications Systems, 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 Director of the Company since October 1992. Mr. Howell is the son-in-law of Mr. Robinson. He is also a Director of Bull Run Corporation and Gray Communications Systems, Inc.
Mr. Rand has served as Vice President and Chief Financial Officer of the Company since March 2000, and prior thereto he served as Vice President and Treasurer from May 1998 to March 2000. He also serves in the following capacities at subsidiaries of the Company, Treasurer of Self Insurance Administrators, Inc., Director of Georgia Casualty, Director of Association Casualty, and a Director of Bankers Fidelity Life Insurance Company. Prior to joining the Company in August 1997, he was Vice President and Controller of United Capitol Insurance Company.
Forward-Looking Statements
Certain of the statements and subject matters contained herein that are not based upon historical or current facts deal with or may be impacted by potential future circumstances and developments, and should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking statements are made based upon management's belief, as well as assumptions made by and information currently available to management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements, and the discussion of such subject areas, involve, and therefore are qualified by, the inherent risks and uncertainties surrounding future expectations generally, and may materially differ from the Company's actual future experience involving any one or more of such subject areas. The Company has attempted to identify, in context, certain of the factors that it currently believes may cause actual future experience and results to differ from current expectations. The Company's operations and results also may be subject to the effect of other risks and uncertainties in addition to the relevant qualifying factors identified elsewhere herein, including, but not limited to, locality and seasonality in the industries to which the Company offers its products, the impact of competitive products and pricing, unanticipated increases in the rate and number of claims outstanding, volatility in the capital markets that may have an impact on the Company's investment portfolio, issue, the uncertainty of general economic conditions, and other risks and uncertainties identified from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. Many of such factors are beyond the Company's ability to control or predict. As a result, the Company's 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.
ITEM 2.
ITEM 2. PROPERTIES
Owned Properties. The Company owns two parcels of unimproved property consisting of approximately seven acres located in Fulton and Washington Counties, Georgia. At December 31, 1999, the aggregate book value of such properties was approximately $46,000.
Leased Properties. The Company (with the exception of American Southern, Association Casualty, and SIA, Inc.) leases space for its principal offices in an office building located in Atlanta, Georgia, from Delta Life Insurance Company, under leases which expire at various times from May 31, 2002 to July 31, 2005. Under the current terms of the leases, 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 largest shareholder of the Company. The terms of the leases 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 offices in a building located in Atlanta, Georgia. The lease term expires January 31, 2000. Under the terms of the lease, American Southern occupies approximately 17,014 square feet.Effective February 1, 2000, the company entered into an extension of its lease for a ten year period.
Association Casualty leases space for its principal offices in a building located in Austin, Texas. The lease term expires December 31, 2000. Under the terms of the lease, Association Casualty occupies 15,777 square feet and the remaining 3,136 square feet is subleased.
SIA, Inc. leases space for its principal offices in a building located in Stone Mountain, Georgia. The lease term expires December 31, 2003. Under the terms of the lease, SIA, Inc. occupies 1,787 square feet.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Litigation
From time to time, the Company and its subsidiaries are involved in various claims and lawsuits incidental to and in the ordinary course of their businesses. In the opinion of management, such claims will not have a material effect on the business or financial condition of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders during the quarter ended December 31, 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market (Symbol: AAME). As of March 10, 2000, there were 5,040 shareholders of record. The following table sets forth for the periods indicated the high and low sale prices of the Company's common stock as reported on the Nasdaq National Market.
Year Ending December 31, High Low
1st quarter $4 5/8 $315/16 2nd quarter 4 11/16 3 7/8 3rd quarter 4 1/8 2 3/8 4th quarter 2 15/16 2 1/4
1st quarter $ 5 1/2 $4 5/8 2nd quarter 5 1/16 3 7/8 3rd quarter 5 1/4 4 4th quarter 4 15/16 3 5/8
The Company has not paid dividends to its common shareholders since the fourth quarter of 1988. Payment of dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial condition, capital requirements, and earnings of the Company as well as other factors as the Board of Directors may deem relevant. The Company's primary sources of cash for the payment of dividends are dividends from its subsidiaries. Under the insurance code of the state of jurisdiction under which each insurance subsidiary operates, cumulative dividend payments to the Parent by its insurance subsidiaries are limited to the accumulated statutory earnings of the insurance subsidiaries without the prior approval of the Insurance Commissioner. The Company's principal insurance subsidiaries had the following accumulated statutory earnings and/or (deficits) as of December 31, 1999: Georgia Casualty - $16.7 million, American Southern - $29.4 million, Association Casualty - $16.0 million, Bankers Fidelity Life - $26.5 million. 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data of Atlantic American Corporation and subsidiaries for the five year period December 31, 1999 is set forth on page 1 of the 1999 Annual Report to Shareholders and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of operations of Atlantic American Corporation and subsidiaries are set forth on pages 25 to 31 of the 1999 Annual Report to Shareholders and are incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Interest Rate and Market Risk" in the information incorporated by reference in Item 7 above, is incorporated by reference herein.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and related notes are set forth on pages 10 to 25 of the 1999 Annual Report to Shareholders and are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
With the exception of information relating to the Executive Officers of the Company, which is provided in Part I hereof, all information required by Part III (Items 10, 11, 12, and 13) is incorporated by reference to the sections entitled "Election of Directors", "Security Ownership of Management", "Section 16(a) Beneficial Ownership Compliance", "Executive Compensation", and "Certain Relationships and Related Transactions" contained in the Company's definitive proxy statement to be delivered in connection with the Company's Annual Meeting of Shareholders to be held May 2, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
FINANCIAL STATEMENTS
Page Reference ---------
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 10* Consolidated Statements of Operations for the Three Years ended December 31, 1999 11* Consolidated Statements of Shareholders' Equity for the Three Years ended December 31, 1999 12* Consolidated Statements of Cash Flows for the Three Years ended December 31, 1999 13* Notes to Consolidated Financial Statements 14-25* Report of Independent Public Accountants 32*
* The page references so designated refer to page numbers in the 1999 Annual Report to Shareholders of Atlantic American Corporation, which pages are incorporated herein by reference. With the exception of the information specifically incorporated within this Form 10-K, the 1999 Annual Report to Shareholders of Atlantic American Corporation is not deemed to be filed under the Securities Exchange Act of 1934.
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants
II - Condensed financial information of Registrant for the three years ended December 31, 1999
III - Supplementary Insurance Information for the three years ended December 31, 1999 IV - Reinsurance for the three years ended December 31, 1999
VI - Supplemental Information concerning property-casualty insurance
operations for the three years ended December 31, 1999
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.
EXHIBITS
3.1 - Restated and Amended Articles of Incorporation of the registrant [incorporated by reference to Exhibit 3.1 to the registrant's Form 10-Q for the fiscal quarter ended March 31, 1996].
3.2 - Bylaws of the registrant [incorporated by reference to Exhibit 3.2 to the registrant's Form 10-K for the year ended December 31, 1993].
10.01 - Lease Contract between registrant and Delta Life Insurance Company dated June 1, 1992 [incorporated by reference to Exhibit 10.11 to the registrant's Form 10-K for the year ended December 31, 1992].
10.02 - First Amendment to Lease Contract between registrant and Delta Life Insurance Company dated June 1, 1993 [incorporated by reference to Exhibit 10.11.1 to the registrant's Form 10Q for the quarter ended June 30, 1993].
10.03 - Second Amendment to Lease Contract between registrant and Delta Life Insurance Company dated August 1, 1994 [incorporated by reference to Exhibit 10.11.2 to the registrant's Form 10Q for the quarter ended September 30, 1994].
10.04 - Lease Agreement between Georgia Casualty & Surety Company and Delta Life Insurance Company dated September 1, 1991 [incorporated by reference to Exhibit 10.12 to the registrant's Form 10-K for the year ended December 31, 1992].
10.05 - First Amendment to Lease Agreement between Georgia Casualty & Surety Company and Delta Life Insurance Company dated June 1,1992 [incorporated by reference to Exhibit 10.12.1 to the registrant's Form 10-K for the year ended December 31, 1992].
10.06 - Management Agreement between registrant and Georgia Casualty & Surety Company dated April 1, 1983 [incorporated by reference to Exhibit 10.16 to the registrant's Form 10-K for the year ended December 31, 1986].
10.07* - Minutes of Meeting of Board of Directors of registrant held February 25, 1992 adopting registrant's 1992 Incentive Plan together with a copy of that plan, as adopted [incorporated by reference to Exhibit 10.21 to the registrant's Form 10-K for the year ended December 31, 1991].
10.08 - Loan and Security Agreement dated August 26, 1991, between registrant's three insurance subsidiaries and Leath Furniture, Inc. [incorporated by reference to Exhibit 10.38 to the registrant's Form 10-K for the year ended December 31, 1992].
10.09 - First amendment to the amended and reissued mortgage note dated January 1, 1992, [incorporated by reference to Exhibit 10.38.1 to the registrant's Form 10-K for the year ended December 31, 1992].
10.10 - Intercreditor Agreement dated August 26, 1991, between Leath Furniture, Inc., the registrant and the registrant's three insurance subsidiaries [incorporated by reference to Exhibit 10.39 to the registrant's Form 10-K for the year ended December 31, 1992].
10.11 - Management Agreement between 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 registrant's Form 10-Q for the quarter ended September 30, 1993].
10.12 - Tax allocation agreement dated January 28, 1994, between registrant and registrant's subsidiaries [incorporated by reference to Exhibit 10.44 to the registrant's Form 10-K for the year ended December 31, 1993].
10.13 - Acquistion Agreement by and among Atlantic American Corporation, Association Casualty Insurance Company, Association Risk General Management Agency, Inc. and Harold K. Fischer, dated as of April 21, 1999 [incorporated by reference to Exhibit 2.1 to the registrant's Form 8-K dated July 16, 1999].
10.14 - Indenture of trust, dated as of June 24, 1999, by and between Atlantic American Corporation and The Bank of New York, as trustee [incorporated by reference to Exhibit 10.1 to the registrant's Form 8-K dated July 16, 1999].
10.15 - Reimbursement and Security Agreement, dated as of June 24, 1999, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A. [incorporated by reference to Exhibit 10.3 to the registrant's Form 8-K dated July 16, 1999].
10.16 - Revolving Credit Facility, dated as of July 1, 1999, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A. [incorporated by reference to Exhibit 10.3 to the registrant's Form 8-K dated July 16, 1999].
13.1 - Those portions of the registrant's Annual Report to Shareholders for year ended December 31, 1997, that are specifically incorporated by reference herein.
21.1 - Subsidiaries of the registrant.
23.1 - Consent of Arthur Andersen LLP, Independent Public Accountants.
27 - Financial Data Schedule
28.1 - Form of General Agent's Contract of Atlantic American Life Insurance Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
28.2 - Form of Agent's Contract of Bankers Fidelity Life Insurance Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
28.3 - Form of Agency Contract of Georgia Casualty & Surety Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
(b) Reports on Form 8-K. None.
*Management contract, compensatory plan or arrangement required to be filed pursuant to, Part IV, Item 14(C) of Form 10-K and Item 601 of Regulation S-K.
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
/s/ By:--------------------------------------- Edward L. Rand, Jr. Vice President and Chief Financial Officer
Date: March 30, 2000
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 Chairman of the Board March 24, 2000
/s/ --------------------- HILTON H. HOWELL, JR. President, Chief Executive Officer March 24, 2000 and Director (Principal Executive Officer) /s/ - -------------------- EDWARD L. RAND, JR. Vice President and Chief Financial Officer March 24, 2000 /s/ - -------------------- EDWARD E. ELSON Director March 24, 2000
/s/ - -------------------- SAMUEL E. HUDGINS Director March 24, 2000
/s/ - -------------------- D. RAYMOND RIDDLE Director March 24, 2000
/s/ - -------------------- HARRIETT J. ROBINSON Director March 24, 2000 /s/ - -------------------- SCOTT G. THOMPSON Director March 24, 2000 /s/ - -------------------- MARK C. WEST Director March 24, 2000
/s/ - --------------------- WILLIAM H. WHALEY, M.D. Director March 24, 2000
/s/ - ------------------- DOM H. WYANT Director March 24, 2000
/s/ - --------------------- HAROLD K. FISCHER Director March 24, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlantic American Corporation:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Atlantic American Corporation's 1999 Annual Report to Shareholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated March 24, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14 (a) are the responsibility of the Company's management, are presented for the purpose of complying with the Securities and Exchange Commission's rules, and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
/s/ -------------------- ARTHUR ANDERSEN LLP
Atlanta, Georgia March 24, 2000
II-2
Schedule II Page 1 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
BALANCE SHEETS
(in thousands)
ASSETS
December 31, ----------------- 1999 1998 -------- ------- Current assets: Cash and short-term $ 1,030 $ 130 investments Investment in insurance subsidiaries 130,926 110,587 Deferred income taxes, net 2,778 - Other assets 1,543 1,884 -------- -------
$136,277 $112,601 ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ - $2,400 Other payables 6,325 4,320 -------- -------
Total current liabilities 6,325 6,720
Income taxes payable to subsidiaries 3 64
Long-term debt 51,000 23,600 Shareholders' equity 78,948 82,217 -------- -------
$136,277 $112,601 ======== =======
The notes to consolidated financial statements are an integral part of these condensed statements.
Schedule II Page 2 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31, ---------------------------- 1999 1998 1997 --------- --------- -------
REVENUE
Fees, rentals and interest income from subsidiaries $4,980 $4,230 $3,841 Distributed earnings from subsidiaries 5,706 7,054 11,209 Other 651 1,155 20 --------- --------- ------- Total revenue 11,337 12,439 15,070
GENERAL AND ADMINISTRATIVE EXPENSES 8,441 6,407 5,305
INTEREST EXPENSE 2,819 2,146 2,902 --------- --------- ------- 77 3,886 6,863 INCOME TAX BENEFIT (1) 8,963 1,703 1,862 --------- --------- ------- 9,040 5,589 8,725 EQUITY IN UNDISTRIBUTED EARNINGS OF CONSOLIDATED SUBSIDIARIES, NET 1,870 2,969 (692) --------- --------- -------
Net income $10,910 $8,558 $8,033 ========= ========= =======
[FN]
(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 Company's 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.
The notes to consolidated financial statements are an integral part of these condensed statements.
II-3
Schedule II Page 3 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) STATEMENTS OF CASH FLOWS
The notes to consolidated financial statements are an integral part of these condensed statements.
Schedule III Page 2 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
FINANCIAL STATEMENTS
Page Reference ---------
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 10* Consolidated Statements of Operations for the Three Years ended December 31, 1999 11* Consolidated Statements of Shareholders' Equity for the Three Years ended December 31, 1999 12* Consolidated Statements of Cash Flows for the Three Years ended December 31, 1999 13* Notes to Consolidated Financial Statements 14-25* Report of Independent Public Accountants 32*
* The page references so designated refer to page numbers in the 1999 Annual Report to Shareholders of Atlantic American Corporation, which pages are incorporated herein by reference. With the exception of the information specifically incorporated within this Form 10-K, the 1999 Annual Report to Shareholders of Atlantic American Corporation is not deemed to be filed under the Securities Exchange Act of 1934.
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants
II - Condensed financial information of Registrant for the three years ended December 31, 1999
III - Supplementary Insurance Information for the three years ended December 31, 1999 IV - Reinsurance for the three years ended December 31, 1999
VI - Supplemental Information concerning property-casualty insurance
operations for the three years ended December 31, 1999
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.
EXHIBITS
3.1 - Restated and Amended Articles of Incorporation of the registrant [incorporated by reference to Exhibit 3.1 to the registrant's Form 10-Q for the fiscal quarter ended March 31, 1996].
3.2 - Bylaws of the registrant [incorporated by reference to Exhibit 3.2 to the registrant's Form 10-K for the year ended December 31, 1993].
10.01 - Lease Contract between registrant and Delta Life Insurance Company dated June 1, 1992 [incorporated by reference to Exhibit 10.11 to the registrant's Form 10-K for the year ended December 31, 1992].
10.02 - First Amendment to Lease Contract between registrant and Delta Life Insurance Company dated June 1, 1993 [incorporated by reference to Exhibit 10.11.1 to the registrant's Form 10Q for the quarter ended June 30, 1993].
10.03 - Second Amendment to Lease Contract between registrant and Delta Life Insurance Company dated August 1, 1994 [incorporated by reference to Exhibit 10.11.2 to the registrant's Form 10Q for the quarter ended September 30, 1994].
10.04 - Lease Agreement between Georgia Casualty & Surety Company and Delta Life Insurance Company dated September 1, 1991 [incorporated by reference to Exhibit 10.12 to the registrant's Form 10-K for the year ended December 31, 1992].
10.05 - First Amendment to Lease Agreement between Georgia Casualty & Surety Company and Delta Life Insurance Company dated June 1,1992 [incorporated by reference to Exhibit 10.12.1 to the registrant's Form 10-K for the year ended December 31, 1992].
10.06 - Management Agreement between registrant and Georgia Casualty & Surety Company dated April 1, 1983 [incorporated by reference to Exhibit 10.16 to the registrant's Form 10-K for the year ended December 31, 1986].
10.07* - Minutes of Meeting of Board of Directors of registrant held February 25, 1992 adopting registrant's 1992 Incentive Plan together with a copy of that plan, as adopted [incorporated by reference to Exhibit 10.21 to the registrant's Form 10-K for the year ended December 31, 1991].
10.08 - Loan and Security Agreement dated August 26, 1991, between registrant's three insurance subsidiaries and Leath Furniture, Inc. [incorporated by reference to Exhibit 10.38 to the registrant's Form 10-K for the year ended December 31, 1992].
10.09 - First amendment to the amended and reissued mortgage note dated January 1, 1992, [incorporated by reference to Exhibit 10.38.1 to the registrant's Form 10-K for the year ended December 31, 1992].
10.10 - Intercreditor Agreement dated August 26, 1991, between Leath Furniture, Inc., the registrant and the registrant's three insurance subsidiaries [incorporated by reference to Exhibit 10.39 to the registrant's Form 10-K for the year ended December 31, 1992].
10.11 - Management Agreement between 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 registrant's Form 10-Q for the quarter ended September 30, 1993].
10.12 - Tax allocation agreement dated January 28, 1994, between registrant and registrant's subsidiaries [incorporated by reference to Exhibit 10.44 to the registrant's Form 10-K for the year ended December 31, 1993].
10.13 - Acquistion Agreement by and among Atlantic American Corporation, Association Casualty Insurance Company, Association Risk General Management Agency, Inc. and Harold K. Fischer, dated as of April 21, 1999 [incorporated by reference to Exhibit 2.1 to the registrant's Form 8-K dated July 16, 1999].
10.14 - Indenture of trust, dated as of June 24, 1999, by and between Atlantic American Corporation and The Bank of New York, as trustee [incorporated by reference to Exhibit 10.1 to the registrant's Form 8-K dated July 16, 1999].
10.15 - Reimbursement and Security Agreement, dated as of June 24, 1999, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A. [incorporated by reference to Exhibit 10.3 to the registrant's Form 8-K dated July 16, 1999].
10.16 - Revolving Credit Facility, dated as of July 1, 1999, between Atlantic American Corporation and Wachovia Bank of Georgia, N.A. [incorporated by reference to Exhibit 10.3 to the registrant's Form 8-K dated July 16, 1999].
13.1 - Those portions of the registrant's Annual Report to Shareholders for year ended December 31, 1997, that are specifically incorporated by reference herein.
21.1 - Subsidiaries of the registrant.
23.1 - Consent of Arthur Andersen LLP, Independent Public Accountants.
27 - Financial Data Schedule
28.1 - Form of General Agent's Contract of Atlantic American Life Insurance Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
28.2 - Form of Agent's Contract of Bankers Fidelity Life Insurance Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
28.3 - Form of Agency Contract of Georgia Casualty & Surety Company [incorporated by reference to Exhibit 28 to the registrant's Form 10-K for the year ended December 31, 1990].
(b) Reports on Form 8-K. None.
*Management contract, compensatory plan or arrangement required to be filed pursuant to, Part IV, Item 14(C) of Form 10-K and Item 601 of Regulation S-K.
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
/s/ By:--------------------------------------- Edward L. Rand, Jr. Vice President and Chief Financial Officer
Date: March 30, 2000
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 Chairman of the Board March 24, 2000
/s/ --------------------- HILTON H. HOWELL, JR. President, Chief Executive Officer March 24, 2000 and Director (Principal Executive Officer) /s/ - -------------------- EDWARD L. RAND, JR. Vice President and Chief Financial Officer March 24, 2000 /s/ - -------------------- EDWARD E. ELSON Director March 24, 2000
/s/ - -------------------- SAMUEL E. HUDGINS Director March 24, 2000
/s/ - -------------------- D. RAYMOND RIDDLE Director March 24, 2000
/s/ - -------------------- HARRIETT J. ROBINSON Director March 24, 2000 /s/ - -------------------- SCOTT G. THOMPSON Director March 24, 2000 /s/ - -------------------- MARK C. WEST Director March 24, 2000
/s/ - --------------------- WILLIAM H. WHALEY, M.D. Director March 24, 2000
/s/ - ------------------- DOM H. WYANT Director March 24, 2000
/s/ - --------------------- HAROLD K. FISCHER Director March 24, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlantic American Corporation:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Atlantic American Corporation's 1999 Annual Report to Shareholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated March 24, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14 (a) are the responsibility of the Company's management, are presented for the purpose of complying with the Securities and Exchange Commission's rules, and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
/s/ -------------------- ARTHUR ANDERSEN LLP
Atlanta, Georgia March 24, 2000
II-2
Schedule II Page 1 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
BALANCE SHEETS
(in thousands)
ASSETS
December 31, ----------------- 1999 1998 -------- ------- Current assets: Cash and short-term $ 1,030 $ 130 investments Investment in insurance subsidiaries 130,926 110,587 Deferred income taxes, net 2,778 - Other assets 1,543 1,884 -------- -------
$136,277 $112,601 ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ - $2,400 Other payables 6,325 4,320 -------- -------
Total current liabilities 6,325 6,720
Income taxes payable to subsidiaries 3 64
Long-term debt 51,000 23,600 Shareholders' equity 78,948 82,217 -------- -------
$136,277 $112,601 ======== =======
The notes to consolidated financial statements are an integral part of these condensed statements.
Schedule II Page 2 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ATLANTIC AMERICAN CORPORATION
(Parent Company Only)
STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31, ---------------------------- 1999 1998 1997 --------- --------- -------
REVENUE
Fees, rentals and interest income from subsidiaries $4,980 $4,230 $3,841 Distributed earnings from subsidiaries 5,706 7,054 11,209 Other 651 1,155 20 --------- --------- ------- Total revenue 11,337 12,439 15,070
GENERAL AND ADMINISTRATIVE EXPENSES 8,441 6,407 5,305
INTEREST EXPENSE 2,819 2,146 2,902 --------- --------- ------- 77 3,886 6,863 INCOME TAX BENEFIT (1) 8,963 1,703 1,862 --------- --------- ------- 9,040 5,589 8,725 EQUITY IN UNDISTRIBUTED EARNINGS OF CONSOLIDATED SUBSIDIARIES, NET 1,870 2,969 (692) --------- --------- -------
Net income $10,910 $8,558 $8,033 ========= ========= =======
[FN]
(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 Company's 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.
The notes to consolidated financial statements are an integral part of these condensed statements.
II-3
Schedule II Page 3 of 3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) STATEMENTS OF CASH FLOWS
The notes to consolidated financial statements are an integral part of these condensed statements.
Schedule III Page 2 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)