Overview
The following is management's discussion and analysis of the financial condition
and results of operations of Atlantic American Corporation ("Atlantic American"
or the "Parent") and its subsidiaries (collectively with the Parent, the
"Company") as of and for the three month and nine month periods ended September
30, 2022. This discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included elsewhere
herein, as well as with the audited consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2021 (the "2021 Annual Report").
Atlantic American is an insurance holding company whose operations are conducted
primarily through its insurance subsidiaries: American Southern Insurance
Company and American Safety Insurance Company (together known as "American
Southern"), and Bankers Fidelity Life Insurance Company and Bankers Fidelity
Assurance Company (together known as "Bankers Fidelity"). Each operating company
is managed separately, offers different products and is evaluated on its
individual performance.
The Company recently formed a new life and health insurance entity, Atlantic
Capital Life Assurance Company, a wholly owned subsidiary of Bankers Fidelity
Life Insurance Company. Effective October 14, 2022, Atlantic Capital Life
Assurance Company obtained its Certificate of Authority from the Office of the
Commissioner of Insurance of the State of Georgia. Management intends to seek
certificates of authority in additional states and expects to commence
operations sometime during 2023.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ significantly from those estimates. The
Company has identified certain estimates that involve a higher degree of
judgment and are subject to a significant degree of variability. The Company's
critical accounting policies and the resultant estimates considered most
significant by management are disclosed in the 2021 Annual Report. Except as
disclosed in Note 2 of Notes to Condensed Consolidated Financial Statements, the
Company's critical accounting policies are consistent with those disclosed in
the 2021 Annual Report.
Overall Corporate Results
The following presents the Company's revenue, expenses and net income (loss) for
the three month and nine month periods ended September 30, 2022 and the
comparable periods in 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Insurance premiums, net $ 46,380 $ 46,092 $ 140,526 $ 137,315
Net investment income 2,641 2,137 7,510 6,516
Realized investment gains, net 101 349 29 520
Unrealized gains (losses) on equity
securities, net (2,783 ) 711 (5,456 ) 5,458
Other income 4 1 11 13
Total revenue 46,343 49,290 142,620 149,822
Insurance benefits and losses incurred 30,630 35,045 94,552 100,020
Commissions and underwriting expenses 12,843 11,927 35,894 36,670
Interest expense
523 347 1,291 1,040
Other expense 3,296 3,264 10,151 10,178
Total benefits and expenses 47,292 50,583 141,888 147,908
Income (loss) before income taxes $ (949 ) $ (1,293 ) $ 732 $ 1,914
Net income (loss)
$ (684 ) $ (915 ) $ 479 $ 1,616
Management also considers and evaluates performance by analyzing the non-GAAP
measure operating income (loss), and believes it is a useful metric for
investors, potential investors, securities analysts and others because it
isolates the "core" operating results of the Company before considering certain
items that are either beyond the control of management (such as taxes, which are
subject to timing, regulatory and rate changes depending on the timing of the
associated revenues and expenses) or are not expected to regularly impact the
Company's operational results (such as any realized and unrealized investment
gains, which are not a part of the Company's primary operations and are, to a
limited extent, subject to discretion in terms of timing of realization).
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A reconciliation of net income (loss) to operating income (loss) for the three
month and nine month periods ended September 30, 2022 and the comparable periods
in 2021 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
Reconciliation of Non-GAAP Financial
Measure 2022 2021 2022 2021
(In thousands)
Net income (loss) $ (684 ) $ (915 ) $ 479 $ 1,616
Income tax expense (benefit) (265 ) (378 ) 253 298
Realized investment gains, net (101 ) (349 ) (29 ) (520 )
Unrealized (gains) losses on equity
securities, net 2,783 (711 ) 5,456 (5,458 )
Non-GAAP operating income (loss) $ 1,733 $ (2,353 ) $ 6,159 $ (4,064 )On a consolidated basis, the Company had net loss of $0.7 million, or $0.04 per
diluted share, for the three month period ended September 30, 2022, compared to
net loss of $0.9 million, or $0.05 per diluted share, for the three month period
ended September 30, 2021. The Company had net income of $0.5 million, or $0.01
per diluted share, for the nine month period ended September 30, 2022, compared
to net income of $1.6 million, or $0.06 per diluted share, for the nine month
period ended September 30, 2021. The decrease in net loss for the three month
period ended September 30, 2022 was primarily attributable to more favorable
loss experience in the life and health operations, partially offset by a
decrease in unrealized gains of $3.5 million, from the comparable period in
2021. The decrease in net income for the nine month period ended September 30,
2022 was primarily attributable to the decrease in unrealized gains of $10.9
million from the comparable period in 2021, partially offset by more favorable
loss experience in the life and health operations.
For the three month period ended September 30, 2022, premium revenue increased
$0.3 million, or 0.6%, to $46.4 million from $46.1 million in the comparable
period in 2021. For the nine month period ended September 30, 2022, premium
revenue increased $3.2 million, or 2.3%, to $140.5 million from $137.3 million
in the comparable period in 2021. The increase in premium revenue was primarily
attributable to an increase in business writings and price increases in certain
programs within the automobile liability line of business in the property and
casualty operations. Also contributing to this increase in premium revenue was
an increase in group life insurance premiums in the life and health operations.
Partially offsetting this increase was a decrease in the Medicare supplement
line of business in the life and health operations.
Operating income increased $4.1 million in the three month period ended
September 30, 2022 from the three month period ended September 30, 2021. For
the nine month period ended September 30, 2022, operating income increased $10.2
million from the comparable period in 2021. The increase in operating income
was primarily due to favorable loss experience in the life and health
operations, resulting from an increase in earned premium within the group lines
of business coupled with a decrease in the number of claims incurred in the
Medicare supplement line of business.
A more detailed analysis of the individual operating segments and other
corporate activities follows.
American Southern
The following summarizes American Southern's premiums, losses, expenses and
underwriting ratios for the three month and nine month periods ended September
30, 2022 and the comparable periods in 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Dollars in thousands)
Gross written premiums $ 12,400 $ 13,945 $ 63,558 $ 58,460
Ceded premiums (1,583 ) (1,625 ) (4,922 ) (4,874 )
Net written premiums $ 10,817 $ 12,320 $ 58,636 $ 53,586
Net earned premiums $ 17,641 $ 17,320 $ 53,753 $ 50,297
Insurance benefits and losses incurred 12,031 11,651 36,549 33,557
Commissions and underwriting expenses 4,615 4,873 15,332 14,452
Underwriting income $ 995 $ 796 $ 1,872 $ 2,288
Loss ratio 68.2 % 67.3 % 68.0 % 66.7 %
Expense ratio 26.2 28.1 28.5 28.7
Combined ratio 94.4 % 95.4 % 96.5 % 95.4 %
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Gross written premiums at American Southern decreased $1.5 million, or 11.1%,
during the three month period ended September 30, 2022 and increased $5.1
million, or 8.7%, during the nine month period ended September 30, 2022, from
the comparable periods in 2021. The decrease in gross written premiums during
the three month period ended September 30, 2022 was primarily attributable to
the decrease in premiums written in the automobile physical damage line of
business. The increase in gross written premiums during the nine month period
ended September 30, 2022 was primarily attributable to an increase in premiums
written in the automobile liability line of business, resulting from new
business writings and price increases in certain programs.
Ceded premiums decreased slightly during the three month period ended September
30, 2022 and increased slightly during the nine month period ended September 30,
2022, from the comparable periods in 2021. American Southern's ceded premiums
are typically determined as a percentage of earned premiums and generally
increase or decrease as earned premiums increase or decrease. However, during
the three month period ended September 30, 2022, the decrease in ceded premiums
was primarily due to the decrease in the automobile physical damage line of
business, coupled with a decrease in ceding rates for two large programs in the
automobile liability line of business.
The following presents American Southern's net earned premiums by line of
business for the three month and nine month periods ended September 30, 2022 and
the comparable periods in 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(In thousands)
Automobile liability $ 9,546 $ 7,616 $ 25,731 $ 22,629
Automobile physical damage 4,179 5,992 16,649 17,009
General liability 1,532 1,463 4,391 4,140
Surety 1,485 1,404 4,453 4,048
Other lines 899 845 2,529 2,471
Total $ 17,641 $ 17,320 $ 53,753 $ 50,297Net earned premiums increased $0.3 million, or 1.9%, during the three month
period ended September 30, 2022, and $3.5 million, or 6.9%, during the nine
month period ended September 30, 2022, over the comparable periods in 2021. The
increase in net earned premiums was primarily attributable to an increase in
business writings and price increases in certain programs within the automobile
liability line of business as previously mentioned. Premiums are earned ratably
over their respective policy terms, and therefore premiums earned in the current
year are related to policies written during both the current year and
immediately preceding year.
The performance of an insurance company is often measured by its combined ratio.
The combined ratio represents the percentage of losses, loss adjustment expenses
and other expenses that are incurred for each dollar of premium earned by the
company. A combined ratio of under 100% represents an underwriting profit while
a combined ratio of over 100% indicates an underwriting loss. The combined ratio
is divided into two components, the loss ratio (the ratio of losses and loss
adjustment expenses incurred to premiums earned) and the expense ratio (the
ratio of expenses incurred to premiums earned).
Insurance benefits and losses incurred at American Southern increased $0.4
million, or 3.3%, during the three month period ended September 30, 2022, and
increased $3.0 million, or 8.9%, during the nine month period ended September
30, 2022, over the comparable periods in 2021. As a percentage of earned
premiums, insurance benefits and losses incurred were 68.2% in the three month
period ended September 30, 2022, compared to 67.3% in the three month period
ended September 30, 2021. For the nine month period ended September 30, 2022,
this ratio increased to 68.0% from 66.7% in the comparable period in 2021. The
increase in the loss ratio during the three month and nine month periods ended
September 30, 2022 was mainly due to severity of losses reported from programs
within the automobile liability line of business. Partially offsetting this
increase was a decrease in the frequency of claims in the automobile physical
damage line of business.
Commissions and underwriting expenses decreased $0.3 million, or 5.3%, during
the three month period ended September 30, 2022, and increased $0.9 million, or
6.1% during the nine month period ended September 30, 2022, over the comparable
periods in 2021. As a percentage of earned premiums, underwriting expenses were
26.2% in the three month period ended September 30, 2022, compared to 28.1% in
the three month period ended September 30, 2021. For the nine month period ended
September 30, 2022, this ratio decreased to 28.5% from 28.7% in the comparable
period in 2021. The decrease in the expense ratio during the three month and
nine month periods ended September 30, 2022 was primarily due to American
Southern's use of a variable commission structure with certain agents, which
compensates the participating agents in relation to the loss ratios of the
business they write. During periods in which the loss ratio decreases,
commissions and underwriting expenses will generally increase, and conversely,
during periods in which the loss ratio increases, commissions and underwriting
expenses will generally decrease.
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Bankers Fidelity
The following summarizes Bankers Fidelity's earned premiums, losses, expenses
and underwriting ratios for the three month and nine month periods ended
September 30, 2022 and the comparable periods in 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Dollars in thousands)
Medicare supplement $ 36,766 $ 40,372 $ 112,013 $ 122,230
Other health products 3,392 2,777 9,314 7,532
Life insurance 3,994 2,378 12,081 7,715
Gross earned premiums 44,152 45,527 133,408 137,477
Ceded premiums (15,413 ) (16,755 ) (46,635 ) (50,459 )
Net earned premiums 28,739 28,772 86,773 87,018
Insurance benefits and losses incurred 18,599 23,394 58,003 66,463
Commissions and underwriting expenses 9,893 8,936 26,012 27,576
Total expenses
28,492 32,330 84,015 94,039
Underwriting income (loss) $ 247 $ (3,558 ) $ 2,758 $ (7,021 )
Loss ratio 64.7 % 81.3 % 66.8 % 76.4 %
Expense ratio 34.4 31.1 30.0 31.7
Combined ratio 99.1 % 112.4 % 96.8 % 108.1 %
Net earned premium revenue at Bankers Fidelity remained consistent during the
three month period ended September 30, 2022, and decreased $0.2 million, or
0.3%, during the nine month period ended September 30, 2022, from the comparable
periods in 2021. Gross earned premiums from the Medicare supplement line of
business decreased $3.6 million, or 8.9%, during the three month period ended
September 30, 2022, and $10.2 million, or 8.4%, during the nine month period
ended September 30, 2022, due primarily to non-renewals exceeding the level of
new business writings. Other health product premiums increased $0.6 million, or
22.1%, during the three month period ended September 30, 2022, and $1.8 million,
or 23.7%, during the nine month period ended September 30, 2022, over the
comparable periods in 2021, primarily as a result of new sales of the company's
group health and individual cancer products. Gross earned premiums from the
life insurance line of business increased $1.6 million, or 68.0%, during the
three month period ended September 30, 2022, and increased $4.4 million, or
56.6%, during the nine month period ended September 30, 2022, over the
comparable periods in 2021, primarily due to an increase in the group life
products premium. Partially offsetting this increase was a decrease in
individual life products premium, resulting from the redemption and settlement
of existing individual life policy obligations exceeding the level of new
individual life sales. Premiums ceded decreased $1.3 million, or 8.0%, during
the three month period ended September 30, 2022 and $3.8 million, or 7.6%,
during the nine month period ended September 30, 2022, from the comparable
periods in 2021. The decrease in ceded premiums for the three month and nine
month periods ended September 30, 2022 was due to a decrease in Medicare
supplement premiums subject to reinsurance.
Insurance benefits and losses incurred decreased $4.8 million, or 20.5%, during
the three month period ended September 30, 2022, and $8.5 million, or 12.7%,
during the nine month period ended September 30, 2022, from the comparable
periods in 2021. As a percentage of earned premiums, benefits and losses were
64.7% in the three month period ended September 30, 2022, compared to 81.3% in
the three month period ended September 30, 2021. For the nine month period
ended September 30, 2022, this ratio decreased to 66.8% from 76.4% in the
comparable period in 2021. The decrease in the loss ratio for the three month
and nine month periods ended September 30, 2022 was primarily due to a decrease
in the loss ratio in the Medicare supplement line of business as a result of
improved rate adequacy, partially offset by an increase in the loss ratio in the
group lines of business.
Commissions and underwriting expenses increased $1.0 million, or 10.7%, during
the three month period ended September 30, 2022, and decreased $1.6 million, or
5.7%, during the nine month period ended September 30, 2022, over the comparable
periods in 2021. As a percentage of earned premiums, underwriting expenses were
34.4% in the three month period ended September 30, 2022, compared to 31.1% in
the three month period ended September 30, 2021. For the nine month period
ended September 30, 2022, this ratio decreased to 30.0% from 31.7% in the
comparable period in 2021. The increase in the expense ratio for the three month
period ended September 30, 2022 was primarily due to an increase in commission
expense and insurance servicing costs resulting from new sales within the group
life line of business. The decrease in the expense ratio for the nine month
period ended September 30, 2022 was primarily due to the level of additions to
deferred acquisition costs ("DAC") exceeding the amortization of DAC.
Net Investment Income and Realized Gains
Investment income increased $0.5 million, or 23.6%, during the three month
period ended September 30, 2022, and $1.0 million, or 15.3%, during the nine
month period ended September 30, 2022, over the comparable periods in 2021. The
increase in investment income in each of the three month and nine month periods
ended September 30, 2022, from the comparable periods in 2021, was primarily
attributable to the increase in the equity in earnings from investments in the
Company's limited liability companies of $0.3 million and $0.4 million,
respectively. Also, contributing to the increase in investment income during
the nine month period ended September 30, 2022 from the comparable period in
2021 was prepayment income of $0.3 million related to the redemption of certain
fixed maturities.
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The Company had net realized investment gains of $0.1 million during the three
month period ended September 30, 2022, compared to net realized investment gains
of $0.3 million during the three month period ended September 30, 2021. The
Company had net realized investment gains of nil during the nine month period
ended September 30, 2022 and net realized investment gains of $0.5 million
during the nine month period ended September 30, 2021. The net realized
investment gains during the three month and nine month periods ended September
30, 2022 resulted primarily from the disposition of several of the Company's
investments in fixed maturity securities, partially offset by the redemption of
certain fixed maturity securities. The net realized investment gains during the
three month and nine month periods ended September 30, 2021 resulted from the
disposition of several of the Company's investments in fixed maturity
securities. Management continually evaluates the Company's investment portfolio
and makes adjustments for impairments and/or divests investments as may be
determined to be appropriate.
Unrealized Gains (Losses) on Equity Securities
Investments in equity securities are measured at fair value at the end of the
reporting period, with any changes in fair value reported in net income during
the period, with certain exceptions. The Company recognized net unrealized
losses on equity securities of $2.8 million during the three month period ended
September 30, 2022 and unrealized gains on equity securities of $0.7 million
during the three month period ended September 30, 2021. The Company recognized
net unrealized losses on equity securities of $5.5 million during the nine month
period ended September 30, 2022 and unrealized gains on equity securities of
$5.5 million during the nine month period ended September 30, 2021. Changes in
unrealized gains on equity securities for the applicable periods are primarily
the result of fluctuations in the market value of certain of the Company's
equity securities.
Interest Expense
Interest expense increased $0.2 million, or 50.7%, during the three month period
ended September 30, 2022, and $0.3 million, or 24.1%, during the nine month
period ended September 30, 2022, from the comparable periods in 2021. Changes in
interest expense were primarily due to changes in the London Interbank Offered
Rate ("LIBOR"), as the interest rates on the Company's outstanding junior
subordinated deferrable interest debentures ("Junior Subordinated Debentures")
and the revolving credit facility are directly related to LIBOR. The Company is
preparing for the expected discontinuation of LIBOR by identifying, assessing
and monitoring risks associated with LIBOR transition. Preparation includes
taking steps to update operational processes to support alternative reference
rates and models, as well as evaluating legacy contracts for any changes that
may be required, including the determination of applicable fallbacks.
Liquidity and Capital Resources
The primary cash needs of the Company are for the payment of claims and
operating expenses, maintaining adequate statutory capital and surplus levels,
and meeting debt service requirements. Current and expected patterns of claim
frequency and severity may change from period to period but generally are
expected to continue within historical ranges. The Company's primary sources of
cash are written premiums, investment income and proceeds from the sale and
maturity of its invested assets. 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.
Cash flows at the Parent are derived from dividends, management fees, and
tax-sharing payments, as described below, from the subsidiaries. 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. At September 30,
2022, the Parent had approximately $3.8 million of unrestricted cash and
investments.
The Parent's insurance subsidiaries reported statutory net income of $5.7
million for the nine month period ended September 30, 2022, compared to
statutory net income of $0.8 million for the nine month period ended September
30, 2021. Statutory results are impacted by the recognition of all costs of
acquiring business. In periods in which the Company's first year premiums
increase, statutory results are generally lower than results determined under
GAAP. Statutory results for the Company's property and casualty operations may
differ from the Company's results of operations under GAAP due to the deferral
of acquisition costs for financial reporting purposes. The Company's life and
health operations' statutory results may differ from GAAP results primarily due
to the deferral of acquisition costs for financial reporting purposes, as well
as the use of different reserving methods.
Over 90% of the invested assets of the Parent's insurance subsidiaries are
invested in marketable securities that can be converted into cash, if required;
however, the use of such assets by the Company is limited by state insurance
regulations. Dividend payments to a parent corporation by its wholly owned
insurance subsidiaries are subject to annual limitations and are restricted to
10% of statutory surplus or statutory earnings before recognizing realized
investment gains of the individual insurance subsidiaries. At September 30,
2022, American Southern had $53.0 million of statutory capital and surplus and
Bankers Fidelity had $35.3 million of statutory capital and surplus. In 2022,
dividend payments by the Parent's insurance subsidiaries in excess of $5.6
million would require prior approval. Through September 30, 2022, the Parent
received dividends of $4.5 million from its subsidiaries.
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The Parent provides certain administrative and other services to each of its
insurance subsidiaries. The amounts charged to and paid by the subsidiaries
include reimbursements for various shared services and other expenses incurred
directly on behalf of the subsidiaries by the Parent. In addition, there is in
place a formal tax-sharing agreement between the Parent and its insurance
subsidiaries. As a result of the Parent's tax loss, it is anticipated that the
tax-sharing agreement will continue to provide the Parent with additional funds
from profitable subsidiaries to assist in meeting its cash flow obligations.
The Company has two statutory trusts which exist for the exclusive purpose of
issuing trust preferred securities representing undivided beneficial interests
in the assets of the trusts and investing the gross proceeds of the trust
preferred securities in Junior Subordinated Debentures. The outstanding $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
three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to
4.10%. At September 30, 2022, the effective interest rate was 7.07%. The
obligations of the Company with respect to the issuances of the trust preferred
securities represent a full and unconditional guarantee by the Parent of each
trust's obligations with respect to the trust preferred securities. Subject to
certain exceptions and limitations, the Company may elect from time to time to
defer Junior Subordinated Debenture interest payments, which would result in a
deferral of distribution payments on the related trust preferred securities. As
of September 30, 2022, the Company has not made such an election.
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.
At September 30, 2022, the Company had 55,000 shares of Series D preferred stock
("Series D Preferred Stock") outstanding. All of the shares of Series D
Preferred Stock are held by an affiliate of the Company's controlling
shareholder. The outstanding shares of Series D Preferred Stock have a stated
value of $100 per share; accrue annual dividends at a rate of $7.25 per share
(payable in cash or shares of the Company's common stock at the option of the
board of directors of the Company) and are cumulative. In certain circumstances,
the shares of the Series D Preferred Stock may be convertible into an aggregate
of approximately 1,378,000 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. The Series D Preferred Stock is not currently convertible. At September
30, 2022, the Company had accrued but unpaid dividends on the Series D Preferred
Stock totaling $0.3 million.
Bankers Fidelity Life Insurance Company (''BFLIC") is a member of the Federal
Home Loan Bank of Atlanta ("FHLB"), for the primary purpose of enhancing
financial flexibility. As a member, BFLIC can obtain access to low-cost funding
and also receive dividends on FHLB stock. The membership arrangement provides
for credit availability of five percent of statutory admitted assets, or
approximately $8.0 million, as of September 30, 2022. Additional FHLB stock
purchases may be required based upon the amount of funds borrowed from the
FHLB. As of September 30, 2022, BFLIC has pledged bonds having an amortized
cost of $7.3 million to the FHLB. BFLIC may be required to post additional
acceptable forms of collateral for any borrowings that it makes in the future
from the FHLB. As of September 30, 2022, BFLIC does not have any outstanding
borrowings from the FHLB.
On May 12, 2021, the Company entered into a Revolving Credit Agreement (the
"Credit Agreement") with Truist Bank as the lender (the "Lender"). The Credit
Agreement provides for an unsecured $10.0 million revolving credit facility that
matures on April 12, 2024. Under the Credit Agreement, the Company will pay
interest on the unpaid principal balance of outstanding revolving loans at the
LIBOR Rate (as defined in the Credit Agreement) plus 2.00%, subject to a LIBOR
floor rate of 1.00%.
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. The Credit Agreement also contains customary
representations and warranties and events of default. Events of default include,
among others, (a) the failure by the Company to pay any amounts owed under the
Credit Agreement when due, (b) the failure to perform and not timely remedy
certain covenants, (c) a change in control of the Company and (d) the occurrence
of bankruptcy or insolvency events. Upon an event of default, the Lender may,
among other things, declare all obligations under the Credit Agreement
immediately due and payable and terminate the revolving commitments. As of
September 30, 2022, the Company had outstanding borrowings of $1.0 million under
the Credit Agreement.
Cash and cash equivalents decreased from $24.8 million at December 31, 2021 to
$21.9 million at September 30, 2022. The decrease in cash and cash equivalents
during the nine month period ended September 30, 2022 was primarily attributable
to net cash used in operating activities of $2.2 million. Also contributing to
the decrease in cash and cash equivalents was net cash used in investing
activities of $1.1 million primarily as a result of investment purchases
exceeding investment sales and maturity of securities. Partially offsetting the
decrease in cash and cash equivalents was net cash provided by financing
activities of $0.5 million primarily as a result of proceeds from bank
financing.
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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, borrowings under its credit facilities or additional borrowings from
financial institutions, will enable the Company to meet its liquidity
requirements for the foreseeable future. Management is not aware of any current
recommendations by regulatory authorities, which, if implemented, would have a
material adverse effect on the Company's liquidity, capital resources or
operations.
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ATLANTIC AMERICAN CORPORATION 
