ATLANTIC AMERICAN CORP – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of the financial condition
and results of operations of
or the "Parent") and its subsidiaries (collectively with the Parent, the
"Company") for the years ended
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere herein.
primarily through its insurance subsidiaries:
Company
Southern") in the property and casualty insurance industry, and
Life Insurance Company and Bankers Fidelity Assurance Company
"Bankers Fidelity") in the life and health insurance industry. Each operating
company is managed separately, offers different products and is evaluated on its
individual performance.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in
("GAAP") and, in management's belief, conform to general practices within the
insurance industry. The following is an explanation of the Company's accounting
policies and the resultant estimates considered most significant by management.
These accounting policies inherently require significant judgment and
assumptions and actual operating results could differ significantly from
management's estimates determined using these policies.
not expect that changes in the estimates determined using these policies will
have a material effect on the Company's financial condition or liquidity,
although changes could have a material effect on its consolidated results of
operations.
Cash and investments comprised 77% of the Company's total assets at
2021
preferred stocks, the values of which are subject to significant market
fluctuations. The Company carries all fixed maturities, which includes bonds and
redeemable preferred stocks, and equity securities, which includes common and
non-redeemable preferred stocks, as available for sale and, accordingly, at
their estimated fair values. On occasion, the value of a fixed maturity
investment may decline to a value below its amortized purchase price and remain
at such value for an extended period of time. When a fixed maturity investment's
indicated fair value has declined below its cost basis for a period of time, the
Company evaluates such investment for an other than temporary impairment. The
evaluation for an other than temporary impairment is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are other
than temporary. Potential risks and uncertainties include, among other things,
changes in general economic conditions, an issuer's financial condition or near
term recovery prospects and the effects of changes in interest rates. In
evaluating a potential impairment, the Company considers, among other factors,
management's intent and ability to hold the securities until price recovery, the
nature of the investment and the expectation of prospects for the issuer and its
industry, the status of an issuer's continued satisfaction of its obligations in
accordance with their contractual terms, and management's expectation as to the
issuer's ability and intent to continue to do so, as well as ratings actions
that may affect the issuer's credit status. If an other than temporary
impairment is deemed to exist, then the Company will write down the amortized
cost basis of the investment to its estimated fair value. While any such write
down does not impact the reported value of the investment in the Company's
balance sheet, it is reflected as a realized investment loss in the Company's
net income or other comprehensive income, depending upon the nature of the loss,
in the period incurred.
The Company determines the fair values of certain financial instruments based on
the fair value hierarchy established in Accounting Standards Codification
("ASC") 820-10-20, Fair Value Measurements and Disclosures ("ASC 820-10-20").
The fair values of fixed maturities and equity securities are largely determined
by nationally quoted market prices, when available, or independent broker
quotations. See Note 2 and Note 3 of Notes to Consolidated Financial Statements
with respect to assets and liabilities carried at fair value and information
about the inputs used to value those financial instruments, by hierarchy level,
in accordance with ASC 820-10-20.
Future policy benefits comprised 33% of the Company's total liabilities at
and are based upon assumed future investment yields, mortality rates, and lapse
rates after giving effect to possible risks of adverse deviation. The assumed
mortality and lapse rates are based upon the Company's experience modified as
necessary to reflect anticipated trends and are generally established at
contract inception. If actual results differ from the initial assumptions, the
amount of the Company's recorded liability could require adjustment.
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Unpaid loss and loss adjustment expenses comprised 33% of the Company's total
liabilities at
unpaid losses on claims reported prior to
development on those reported claims, 3) unpaid ultimate losses on claims
incurred prior to
adjustment expenses for reported and unreported claims incurred prior to
involves a significant degree of judgment and estimates may vary, materially,
from period to period. Estimated unpaid losses on reported claims are developed
based on historical experience with similar claims by the Company. Development
on reported claims, estimates of unpaid ultimate losses on claims incurred prior
to
adjustment expenses are developed based on the Company's historical experience,
using actuarial methods to assist in the analysis. The Company's actuaries
develop ranges of estimated development on reported and unreported claims as
well as loss adjustment expenses using various methods, including the paid-loss
development method, the reported-loss development method, the paid
Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method. Any
single method used to estimate ultimate losses has inherent advantages and
disadvantages due to the trends and changes affecting the business environment
and the Company's administrative policies. Further, external factors, such as
legislative changes, medical cost inflation, and others may directly or
indirectly impact the relative adequacy of liabilities for unpaid losses and
loss adjustment expenses. The Company's approach is to select an estimate of
ultimate losses based on comparing results of a variety of reserving methods, as
opposed to total reliance on any single method. Unpaid loss and loss adjustment
expenses are reviewed periodically for significant lines of business, and when
current results differ from the original assumptions used to develop such
estimates, the amount of the Company's recorded liability for unpaid loss and
loss adjustment expenses is adjusted. In the event the Company's actual reported
losses in any period are materially in excess of the previously estimated
amounts, such losses, to the extent reinsurance coverage does not exist, could
have a material adverse effect on the Company's results of operations.
Receivables are amounts due from reinsurers, insureds and agents, and any sales
of investment securities not yet settled, and comprised 11% of the Company's
total assets at
periodically for collectibility. Annually, the Company performs an analysis of
the creditworthiness of the reinsurers with whom the Company contracts using
various data sources. Failure of reinsurers to meet their obligations due to
insolvencies, disputes or otherwise could result in uncollectible amounts and
losses to the Company. Allowances for uncollectible amounts are established, as
and when a loss has been determined probable, against the related receivable.
Losses are recognized by the Company when determined on a specific account basis
and a general provision for loss is made based on the Company's historical
experience.
Deferred acquisition costs comprised 10% of the Company's total assets at
and other incremental direct costs of contract acquisition that results directly
from and are essential to the contract transaction(s) and would not have been
incurred by the Company had the contract transaction(s) not occurred. The
deferred amounts are recorded as an asset on the balance sheet and amortized to
expense in a systematic manner. Traditional life insurance and long-duration
health insurance deferred policy acquisition costs are amortized over the
estimated premium-paying period of the related policies using assumptions
consistent with those used in computing the related liability for policy benefit
reserves. Deferred acquisition costs for property and casualty insurance and
short-duration health insurance are amortized over the effective period of the
related insurance policies. Deferred policy acquisition costs are expensed when
such costs are deemed not to be recoverable from future premiums (for
traditional life and long-duration health insurance) and from the related
unearned premiums and investment income (for property and casualty and
short-duration health insurance). Assessments of recoverability for property and
casualty and short-duration health insurance are extremely sensitive to the
estimates of a subsequent year's projected losses related to the unearned
premiums. Projected loss estimates for a current block of business for which
unearned premiums remain to be earned may vary significantly from the indicated
losses incurred in any previous calendar year.
Deferred income taxes reflect the effect of temporary differences between assets
and liabilities that are recognized for financial reporting purposes and the
amounts that are recognized for tax purposes. These deferred income taxes are
measured by applying currently enacted tax laws and rates. Valuation allowances
are recognized to reduce the deferred tax asset to the amount that is deemed
more likely than not to be realized. In assessing the likelihood of realization,
management considers estimates of future taxable income and tax planning
strategies.
Share-based transactions include employee and director share-based compensation
awards. The Company determines a grant date fair value based on the price of our
publicly-traded common stock and recognize the related compensation expense,
adjusted for actual forfeitures, in the consolidated statement of operations on
a straight-line basis over the requisite service period for the entire award.
For non-employee share-based compensation awards, the Company recognizes the
impact during the period of performance, and the fair value of the award is
measured as of the date performance is complete, which is the vesting date.
Refer to Note 1 of Notes to Consolidated Financial Statements for details
regarding the Company's significant accounting policies.
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Overall Corporate Results
Year Ended December 31,
2021 2020
(In thousands)
Revenue
Property and Casualty:
American Southern $ 73,868 $ 69,179
Life and Health:
Bankers Fidelity 125,702 127,144
Corporate and Other (16 ) (975 )
Total revenue $ 199,554 $ 195,348
Income before income taxes
Property and Casualty:
American Southern $ 9,292 $ 10,436
Life and Health:
Bankers Fidelity 3,726 12,430
Corporate and Other (7,716 ) (7,363 )
Income before income taxes $ 5,302 $ 15,503
Net income $ 4,281 $ 12,169
Management also considers and evaluates performance by analyzing the non-GAAP
measure operating income or 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 income tax
expense, which is 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 or
unrealized investment gains or losses, 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).
A reconciliation of net income, the most directly comparable GAAP measure, to
operating income (loss) is as follows:
Year Ended December 31,
2021 2020
(In thousands)
Reconciliation of Non-GAAP Financial Measure
Net income$ 4,281 $ 12,169 Income tax expense 1,021 3,334 Realized investment gains, net (4,903 ) (7,420 )
Unrealized (gains) losses on equity securities, net (1,894 ) 3,431
Non-GAAP operating income (loss)
$ (1,495 ) $ 11,514
On a consolidated basis, the Company had net income of
per diluted share, in 2021, compared to net income of
per diluted share, in 2020. Operating loss was
to operating income of
was primarily due to less favorable loss experience in the life and health
operations, resulting from a significant increase in the number of claims
incurred in the Medicare supplement line of business. This increase in the
number of incurred claims was primarily attributable to the increase in
utilization of Medicare supplement insurance benefits, returning to historical
averages relative to the exceptionally low utilization experienced after the
onset of the COVID-19 pandemic when many policyholders were sheltered in place.
Total revenue was
Premium revenue increased to
The increase in premium revenue was primarily due to an increase in the
automobile physical damage line of business within the property and casualty
operations. Partially offsetting the increase in premium revenue was a decrease
in the Medicare supplement line of business in the life and health operations.
A more detailed analysis of the operating companies and other corporate
activities follows.
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UNDERWRITING RESULTS
American Southern
The following table summarizes, for the periods indicated, American Southern's
premiums, losses, expenses and underwriting ratios:
Year Ended December 31,
2021 2020
(Dollars in thousands)
Gross written premiums $ 75,914 $ 70,256
Ceded premiums (6,511 ) (5,890 )
Net written premiums $ 69,403 $ 64,366
Net earned premiums $ 67,982 $ 62,372
Insurance benefits and losses incurred 44,433 39,339
Commissions and underwriting expenses 20,143 19,404
Underwriting income $ 3,406 $ 3,629
Loss ratio 65.4 % 63.1 %
Expense ratio 29.6 31.1
Combined ratio 95.0 % 94.2 %
Gross written premiums at American Southern increased
during 2021 as compared to 2020. The increase in gross written premiums was
primarily attributable to an increase in premiums written in the automobile
physical damage line of business from existing agencies, as well as an increase
in gross written premiums in the general liability line of business as a result
of a new program that started in the second half of 2020.
Ceded premiums increased
2020. 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. Contributing to the increase in ceded premiums
was an increase in earned premiums in certain accounts within the automobile
physical damage and general liability lines of business, which are subject to
reinsurance. Also contributing to the ceded premium increase was a rate increase
on catastrophe reinsurance.
The following table summarizes, for the periods indicated, American Southern's
net earned premiums by line of business:
Year Ended December 31,
2021 2020
(In thousands)
Automobile liability $ 30,453 $ 30,312
Automobile physical damage 22,917 18,730
General liability 5,637 3,891
Surety 5,620 5,857
Other lines 3,355 3,582
Total $ 67,982 $ 62,372
Net earned premiums increased
2020. The increase in net earned premiums was primarily attributable to an
increase in automobile physical damage coverage resulting from existing agencies
and an increase in general liability as a result of a new program as previously
mentioned. Partially offsetting the increase in net earned premiums was a
decrease in the surety line of business primarily attributable to marketplace
competition, as well as a decrease in the other lines of business resulting from
the termination of a program. 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
million
insurance benefits and losses incurred were 65.4% in 2021 as compared to 63.1%
in 2020. The increase in the loss ratio was primarily due to less favorable loss
experience in the automobile physical damage line of business due to an increase
in frequency of claims resulting from both inclement weather throughout the year
and an increase in the number of insureds in 2021. Also contributing to the
increase in the loss ratio was an increase in the number of claims within the
surety line of business.
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Commissions and underwriting expenses increased
2021 as compared to 2020. As a percentage of premiums, these expenses were 29.6%
in 2021 as compared to 31.1% in 2020. The decrease in the expense ratio was
primarily due to the increase in earned premiums. Partially offsetting the
decrease in expense ratio was 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. In 2021,
variable commissions at American Southern increased
2020 due to improved loss ratios from certain accounts subject to variable
commissions.
In establishing reserves, American Southern initially reserves for losses at the
higher end of the reasonable range if no other value within the range is
determined to be more probable. Selection of such an initial loss estimate is an
attempt by management to give recognition that initial claims information
received generally is not conclusive with respect to legal liability, is
generally not comprehensive with respect to magnitude of loss and generally,
based on historical experience, will develop more adversely as time passes and
more information becomes available. However, as a result, American Southern
generally experiences reserve redundancies when analyzing the development of
prior year losses in the current period. At
estimates developed in connection with the loss reserves for American Southern
indicated that reserves could be as much as 12.2% lower or as much as 3.1%
higher. Development from prior years' reserves has historically reduced the
current year loss ratio; however, such reduction in the current year loss ratio
is generally offset by the reserves established in the current year for current
period losses. Management believes that such differences will continue in future
periods, but is unable to determine if or when incremental redundancies will
increase or decrease until the underlying losses are ultimately settled.
Contingent commissions, if contractually applicable, are ultimately payable to
participating agents based on the underlying profitability of a particular
insurance contract or a group of insurance contracts, and are periodically
evaluated and accrued as earned. In each of 2021 and 2020, approximately 47% of
American Southern's earned premium provides for contractual commission
arrangements which compensate the company's agents in relation to the loss
ratios of the business they write. By structuring its business in this manner,
American Southern provides its agents with an economic incentive to place
profitable business with American Southern. In periods in which loss reserves
reflect favorable development from prior years' reserves, there is generally a
highly correlated increase in commission expense also related to the prior year
business. Accordingly, favorable loss development from prior years, while
anticipated to continue in future periods, is not an indicator of significant
additional profitability in the current year.
Bankers Fidelity
The following summarizes, for the periods indicated, Bankers Fidelity's
premiums, losses and expenses:
Year Ended December 31,
2021 2020
(Dollars in thousands)
Medicare supplement $ 162,400 $ 174,525
Other health products 10,364 9,218
Life insurance 10,624 9,348
Gross earned premiums 183,388 193,091
Ceded premiums (67,154 ) (71,924 )
Net earned premiums 116,234 121,167
Insurance benefits and losses incurred 87,261 80,537
Commissions and underwriting expenses 34,715 34,177
Total expenses
121,976 114,714 Underwriting income (loss)$ (5,742 ) $ 6,453 Loss ratio 75.1 % 66.5 % Expense ratio 29.9 28.2 Combined ratio 105.0 % 94.7 %
Net earned premium revenue at Bankers Fidelity decreased
during 2021 as compared to 2020. Gross earned premiums from the Medicare
supplement line of business decreased
compared to 2020, due primarily to non-renewals exceeding the level of new
business writings. Other health product premiums increased
12.4%, during 2021 as compared to 2020, 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
13.6%, in 2021 from 2020 due to an increase in the group life product premiums.
Partially offsetting this increase was a decline 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
in ceded premiums was due to a decrease in Medicare supplement premiums subject
to reinsurance.
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Insurance benefits and losses incurred increased
2021 as compared to 2020. As a percentage of premiums, benefits and losses were
75.1% in 2021 as compared to 66.5% in 2020. The increase in the loss ratio was
primarily due to an increase in the number of claims incurred in the Medicare
supplement line of business. During 2021, utilization of Medicare supplement
insurance benefits increased, returning to historical averages relative to the
exceptionally low utilization experienced after the onset of the COVID-19
pandemic when many policyholders were sheltered in place. Also contributing to
the increase in the loss ratio was an increase in both the group and individual
life lines of business.
Commissions and underwriting expenses increased
2021 as compared to 2020. As a percentage of earned premiums, these expenses
were 29.9% in 2021 as compared to 28.2% in 2020. The increase in the expense
ratio was primarily due to the amortization of deferred acquisition costs
("DAC") exceeding the level of additions to DAC. The increase in the net
amortization of DAC during 2021 is primarily due to non-renewals exceeding the
level of new business writings in the Medicare supplement line of business, as
previously mentioned. Also contributing to the increase in the expense ratio was
an increase in expenses related to servicing the Medicare supplement line of
business.
Net Investment Income and Realized Gains
Investment income increased
The increase in investment income was primarily attributable to an increase in
the equity in earnings from investments in the Company's limited partnerships
and limited liability companies of
The Company had net realized investment gains of
compared to net realized investment gains of
realized investment gains in 2021 were primarily attributable to gains of
million
company as well as gains from the sale of a number of the Company's investments
in fixed maturities. The net realized investment gains in 2020 were primarily
attributable to gains of
a certain limited liability company as well as gains from the sale of a number
of the Company's investments in fixed maturities. Management continually
evaluates the Company's investment portfolio and, as may be determined to be
appropriate, makes adjustments for impairments and/or will divest investments.
See Note 2 of Notes to Consolidated Financial Statements.
Unrealized Gains (Losses) on
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. The Company recognized net unrealized gains on equity securities of
the years ended
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 decreased
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") 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.
Income Taxes
The primary differences between the effective tax rate and the federal statutory
income tax rate for 2021 resulted from the adjustment for prior years' estimates
to actual that are generally updated at the completion of the third quarter of
each fiscal year and were
Also contributing to differences between the effective tax rate and the federal
statutory income tax rate were permanent differences related to meals and
entertainment and vested stock and club dues. Another contributing factor was
the dividends-received deduction ("DRD"). The current estimated DRD is adjusted
as underlying factors change and can vary from estimates based on, but not
limited to, actual distributions from investments as well as the amount of the
Company's taxable income.
The primary differences between the effective tax rate and the federal statutory
income tax rate for 2020 resulted from permanent differences related to meals
and entertainment and vested stock and club dues. Also contributing to
differences between the effective tax rate and the federal statutory income tax
rate were adjustment for prior years' estimates to actual that are generally
updated at the completion of the third quarter of each fiscal year and were
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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
2021
investments.
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
Parent's insurance subsidiaries had an aggregate statutory surplus of
million
The Parent provides certain administrative, purchasing and other services to
each of its subsidiaries. The amount charged to and paid by the subsidiaries for
these services was
In addition, the Parent has a formal tax-sharing agreement with each of its
insurance subsidiaries. A net total of
to the Parent under the tax sharing agreement in 2021 and 2020, respectively.
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
million
4, 2032
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
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. 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
("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
redemption value of
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.
The Company had accrued, but unpaid, dividends on the Series D Preferred Stock
of
Company paid Series D Preferred Stock dividends of
Home Loan Bank of Atlanta
financial flexibility. As a member, BFLIC can obtain access to low-cost funding
and also receive dividends on FHLB stock. The membership arrangement established
initial credit availability of five percent of statutory admitted assets, or
approximately
upon the amount of funds borrowed from the FHLB. As of
has pledged bonds having an amortized cost of
may be required to post additional acceptable forms of collateral for any
borrowings that it makes in the future from the FHLB. As of 2021, BFLIC does
not have any outstanding borrowings from the FHLB.
On
"Credit Agreement") with
Agreement provides for an unsecured
matures on
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
Credit Agreement.
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Cash and cash equivalents increased from
during 2021 was primarily attributable to an increase in cash provided by
investing activities of
maturity of securities exceeding investment purchases. Also contributing to the
increase in cash was net cash provided by operating activities of
Partially offsetting the increase were dividends paid on common stock of
million
million
The Company believes that existing cash balances as well as the dividends, fees,
and tax-sharing payments it expects to receive from its subsidiaries and, if
needed, additional borrowings from financial institutions, will enable the
Company to meet its liquidity requirements for the 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.
Expected Impact of COVID-19 on the Company's Financial Condition and Results of
Operations
The duration and ultimate impact of the COVID-19 pandemic remains unknown at
this time and it is not possible for us to reliably estimate the impact on the
financial condition, operating results or liquidity of the Company and its
operating subsidiaries in future periods. However, we do not currently expect a
significant decline in liquidity or operating results as a result of the
disruption caused by the ongoing COVID-19 pandemic. To date, the most
significant impact of COVID-19 on the Company's financial position has been
volatility in the fair value of the Company's fixed maturity and equity
investments due to disruption in the financial markets.
We expect that earned premiums could be adversely impacted by a weakened economy
leading to a slowdown in new sales and reduced retention of insureds.
Additionally, a number of states have issued bulletins that either encourage or
require premium leniency such as extension of grace periods or moratoriums on
cancellation of policies for non-payment. The Company does not expect a
significant reduction or delay in payments and continues to monitor state
requirements as they develop.
For the Company's property and casualty operations, the majority of premium
revenue is derived from automobile liability and automobile physical damage
lines of business written on a multi-year contract basis with state and local
governments. Although we cannot predict with any certainty at this time, we do
not expect a significant level of cancellations or non-renewals of our property
and casualty contracts in the short term but recognize that a prolonged economic
slowdown could adversely affect future results. However, the Company expects
the aforementioned decline in usage to be temporary in nature.
Benefits and losses in our property and casualty operations could be adversely
impacted as a result of disruption caused by the COVID-19 pandemic. However,
due to the nature of our primary product lines, the impact is not currently
expected to be material. As a result, we do not currently expect a material
adverse effect on operating results or liquidity in the property and casualty
operations.
The majority of premium revenue in our life and health operations are derived
from the senior market segment of the population, or those individuals age
sixty-five and up, who maintain Medicare supplement and to a lesser extent,
whole life insurance policies with the Company. We expect that earned premiums
could be adversely impacted by an economic slowdown related to the COVID-19
pandemic and individual, business and government responses thereto, which could
lead to a decline in new sales and reduced retention of insureds. As a result,
we currently anticipate that the life and health operations may experience a
marginal decline in earned premiums although the actual impact cannot be
predicted with certainty at this time.
Unforeseen infectious diseases that impact large portions of a population can
have an adverse impact on mortality and morbidity, and resultant benefits and
losses incurred by the Company's life and health operations. Accordingly, the
Company could incur higher costs, potentially similar to prior influenza
seasons, as it relates to life insurance claims. During 2020, the Company's
individual policyholders were subject to various degrees of shelter in place
orders. As a result, the Company experienced lower utilization of certain
accident and health benefits, particularly in the Medicare supplement line of
business. However, during 2021, utilization of policyholder benefits have
returned to historical averages. As a result, and although the ultimate impact
cannot be predicted with certainty at this time, the Company does not expect
significant adverse development in total benefits and losses incurred in its
life and health operations.
New Accounting Pronouncements
See "Recently Issued Accounting Standards" in Note 1 of Notes to Consolidated
Financial Statements.
Impact of Inflation
Insurance premiums are established before the amount of losses and loss
adjustment expenses, or the extent to which inflation may affect such losses and
expenses, are known. Consequently, in establishing its premiums, the Company
attempts to anticipate the potential impact of inflation. If, for competitive
reasons, premiums cannot be increased to anticipate inflation, this cost would
be absorbed by the Company. Inflation also affects the rate of investment return
on the Company's investment portfolio with a corresponding effect on investment
income. To date, inflation has not had a material effect on the Company's
results of operations in any of the periods presented.
Alliance For Health Policy – Discussion
Quitman man with past fraud conviction sentenced in CARES Act fraud case [The Moultrie Observer, Ga.]
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