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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-3722
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ATLANTIC AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-1027114
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4370 Peachtree Road, N.E.,
Atlanta, Georgia 30319
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (404) 266-5500
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of class)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this Form
10-K. |X|
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The aggregate market value of common stock held by non-affiliates of the
registrant as of March 10, 2000, was $17,696,631. On March 10, 2000 there were
21,010,974 shares of the registrant's common stock, par value $1.00 per share,
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of registrant's Annual Report to Shareholders for the year ended
December 31, 1999 - Parts I, II and IV.
2. Portions of registrant's Proxy Statement for the Annual Meeting of
Shareholders, to be held on May 2, 2000, have been incorporated in Items 10, 11,
12 and 13 of Part III of this Form 10-K.
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1
TABLE OF CONTENTS
PART I Page
Item 1. Business................................................. 3
The Company........................................ 3
Casualty Operations................................ 3
Bankers Fidelity................................... 5
Marketing.......................................... 5
Underwriting....................................... 6
Policyholder and Claims Services................... 8
Reserves........................................... 9
Reinsurance........................................ 12
Competition........................................ 12
Rating............................................. 13
Regulation......................................... 13
NAIC Ratios........................................ 14
Risk-Based Capital................................. 14
Investments........................................ 15
Employees.......................................... 16
Financial Information by Industry Segment............ 16
Executive Officers of the Registrant................. 16
Forward-Looking Statements........................... 17
Item 2. Properties............................................... 17
Item 3. Legal Proceedings........................................ 17
Item 4. Submission of Matters to a Vote of Security Holders...... 17
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters........................... 18
Item 6. Selected Financial Data.................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 18
Item 7A.Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data.............. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................. 18
PART III
Item 10. Directors and Executive Officers of the Registrant....... 19
Item 11. Executive Compensation................................... 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................... 19
Item 13. Certain Relationships and Related Transactions........... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ................................................ 19
2
PART I
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.
3
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,
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(in thousands)
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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
======== ======== ========= ========= ========
4
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,
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(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.
5
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.
6
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.
7
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.
8
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.
9
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.
10
Year Ended December 31,
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(in thousands)
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------
Statutory reserve for $82,867 $78,320$ 78,444$ 74,115 $70,470 $65,970 $64,211 $59,720 $59,354 $59,720 $57,056(1)
losses and LAE
Cumulative paid as of:
One year later 26,454 24,247 25,445 29,538 18,133 24,247 22,478 24,964 26,624 24,523
Two years later 35,534 34,409 39,084 34,485 30,754 34,055 36,123 40,339 38,694
Three years later 39,579 43,597 39,091 42,480 36,757 42,980 46,301 47,086
Four years later 46,334 40,885 45,530 46,676 44,153 50,767 50,275
Five years later 42,551 46,805 49,082 53,079 50,607 53,115
Six years later 48,012 50,206 55,146 58,347 51,890
Seven years later 51,244 56,069 60,032 59,598
Eight years later 57,014 60,552 60,890
Nine years later 61,390 61,398
Ten years later 62,200
Ultimate losses and
LAE reestimated as of:
End of Year 82,867 78,320 78,444 74,115 70,470 65,970 64,211 59,720 59,354 61,279 57,056 (1)
One year later 74,985 68,338 67,772 70,778 56,945 61,054 58,371 61,705 61,335 61,256
Two years later 65,374 60,257 65,716 59,266 54,329 56,072 60,324 63,649 62,241
Three years later 58,693 61,121 57,047 60,145 50,916 59,397 63,258 63,466
Four years later 61,085 53,995 60,381 60,701 55,503 63,279 63,062
Five years later 54,732 58,217 61,685 65,761 60,233 63,757
Six years later 59,280 60,606 66,822 70,041 60,992
Seven years later 61,796 65,696 70,592 70,576
Eight years later 66,604 69,304 71,258
Nine years later 70,594 69,876
Ten years later 71,514
Cumulative
redundancy(deficiency) $ 3,335$ 13,070$ 15,422 $ 9,385 $11,238 $ 4,931 $ (2,076)$(7,250)$(9,315)$(14,458)
4.3% 16.7% 20.8% 13.3% 17.0% 7.7% -3.5% -12.2% -15.2% -25.3%
(1) Restated due to adjustment of $4.7 million for elimination of structured
annuities changed to reinsurance in 1990.
11
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.
12
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
13
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.
14
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.
December 31,
1999 1998 1997
AmountPercent AmountPercent AmountPercent
------------- ------------ -------------
(Dollars in thousands)
Fixed maturities:
Bonds:
U.S. Government agencies
and authorities $ 106,816 48.3% $ 86,535 43.9% $ 76,701 38.6%
States, municipalities and
political subdivisions 4,078 1.8 1,490 0.8 2,738 1.4
Public utilities 2,009 0.9 1,874 0.9 1,893 1.0
Convertibles and bonds with
warrants attached - NIL - NIL - NIL
All other corporate bonds 21,015 9.5 9,442 4.8 10,457 5.3
Certificates of deposit 3,082 1.4 2,286 1.2 395 0.2
-------- ----- ------ ---- ------ ----
Total fixed maturities(1) 137,000 61.9 101,627 51.6 92,184 46.5
Common and preferred stocks (2) 48,684 22.0 61,007 30.9 46,876 23.6
Mortgage, policy and
student loans (3) 7,394 3.3 8,119 4.19 9,536 4.8
Other invested assets (4) 5,717 2.6 4,822 2.4 3,941 2.0
Real estate 46 NIL 46 NIL 46 NIL
Short-term investments (5) 22,471 10.2 21,782 11.0 46,167 23.1
------ ----- ------- ----- -------- ------
Total investments $ 221,312 100.0% $ 197,403 100.0% $198,750 100.0%
========== ===== ======== ===== ======== ======
(1) Fixed maturities are carried on the balance sheet at market value. Total
cost of fixed maturities was $143.2 million as of December 31, 1999,
$100.6 million as of December 31, 1998, and $91.1 million as of December
31, 1997.
(2) Equity securities are valued at market. Total cost of equity securities
was $31.2 million as of December 31, 1999, $33.1 million as of December
31, 1998, and $18.4 million as of December 31, 1997.
(3) Mortgage loans and policy and student loans are valued at historical
cost.
(4) Investments in other invested assets which are traded are valued at
estimated market value; all others are carried at historical cost. Total
cost of other invested assets was $4.9 million as of December 31, 1999
and $5.0 million as of December 31, 1998.
(5) Short-term investments are valued at cost, which approximates market
value.
15
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.
16
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. 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. 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. 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.
17
PART II
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
1999
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
1998
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. 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. 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. 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. 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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
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].
19
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
20
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.
21
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
22
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
23
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
(in thousands)
Year Ended December 31,
----------------------------
1999 1998 1997
--------- --------- -------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 10,910 $ 8,558 $ 8,033
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Realized investment gains (239) (1,151) -
Depreciation and amortization 599 670 591
Equity in undistributed
earnings of consolidated
subsidiaries (1,870) (2,969) 692
Change in inter-company taxes (60) 201 (715)
Deferred income
tax benefit (6,997) - -
Increase (decrease) in
other liabilities 798 (11) (157)
Other, net 186 186 (245)
--------- --------- -------
Net cash provided by
operating activities 3,327 5,484 8,199
--------- ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Association
Casualty (24,475) - -
Capital contribution to
Georgia Casualty (2,000) - -
Additions to property and
equipment (446) (305) (536)
--------- --------- ---------
Net cash used in
investing activities (26,921) (305) (536)
--------- --------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of bank
financing 51,000 - 5,617
Preferred stock dividends to
affiliated shareholders - (315) (315)
Purchase of treasury shares (779) (1,447) (558)
Repayments of short-term
debt (2,400) - -
Retirements and payments of
long-term debt and notes
payable to affiliates (23,600) (2,600) (12,628)
Redemption of preferred stock - (1,000) -
Proceeds from exercise of stock
options 273 90 62
--------- --------- -------
Net cash provided by
(used in) financing activities 24,494 (5,272) (7,822)
--------- --------- ----------
Net increase (decrease) in cash 900 (93) (159)
Cash at beginning of year 130 223 382
--------- --------- -------
Cash at end of year $ 1,030 $ 130 $ 223
========= ========= =======
Supplemental disclosure:
Cash paid for interest $ 2,510 $2,143 $2,958
========= ========= =======
Cash paid for income taxes $ 131 $ 330 $ 85
========= ========= =======
Issuance of stock to acquire
SIA, Inc. $ - $ 66 $ 1,212
========= ========= =======
Issuance of stock to
acquire Association Casualty $ 8,483 $ - $ -
========= ========= =======
The notes to consolidated financial statements are an
integral part of these condensed statements.
Schedule III
Page 1 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
Future Policy
Benefits, Losses, Other Policy
Deferred Claims and Loss Unearned Claims and
Segment Acquisition Costs Reserves Premiums Benefits Payable
------- ---------------- ------------- -------- -----------------
December 31, 1999:
Bankers Fidelity.... $15,644 $ 46,427 $ 3,046 $ 2,120
American Southern... 1,401 48,751 12,235 1,795
Association Casualty... 1,478 30,000 9,241 288
Georgia Casualty.... 1,875 41,471 9,771 -0-
--------- -------- -------- -------
$20,398 $ 166,649(1) $ 34,293 $ 4.203
======== =========== ======== =======
December 31, 1998:
Bankers Fidelity.... $13,972 $ 44,510 $ 3,156 $ 2,065
American Southern... 1,378 46,952 11,830 1,629
Georgia Casualty.... 1,531 34,218 8,267 32
------- -------- --------- -------
$16,881 $ 125,680(2) $ 23,253 $ 3,726
======== ========== ========= ======
December 31, 1997:
Bankers Fidelity.... $13,412 $ 44,070 $ 2,631 $ 2,001
American Southern... 1,748 47,783 12,964 1,962
Georgia Casualty.... 1,323 34,056 8,817 34
------- -------- -------- -----
$16,483 $ 125,909(3) $ 24,412 $ 3,997
========= ============ ============= =====
-------------------------
(1)Includes future policy benefits of $40,093 and losses and claims of $126,556.
(2)Includes future policy benefits of $38,912 and losses and claims of $86,768.
(3)Includes future policy benefits of $39,188 and losses and claims of $86,721.
Schedule III
Page 2 of 2
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
Future Policy
Benefits, Amortization
Net Claims, Losses of Deferred Other Casualty
Premium Investment and Settlement Acquisition Operating Premiums
Segment Revenue Income Expenses Costs Expenses Written
------- --------- -------------- --------------- --------- ---------- ----------
December 31, 1999:
Bankers Fidelity.... $41,527 $ 4,676 $ 28,313 $ 1,766 $13,450$ -
American Southern... 38,166 4,614 26,934 5,068 4,588 38,530
Association Casualty..... 8,498 1,198 5,781 1,431 2,484 8,524
Georgia Casualty.... 19,403 2,095 16,535 3,682 4,268 20,870
Other............... - 4 - - 6,252 -
------- ------- -------- ------ ------ ------
$ 107,594 $12,587 $ 77,563 $11,947 $31,042 $ 67,924
=========== ======= ======== ========= ======= =======
December 31, 1998:
Bankers Fidelity.... $34,477 $ 4,540 $ 21,494 $ 2,110 $12,895 $ -
American Southern... 35,002 4,571 23,135 4,748 5,183 33,869
Georgia Casualty.... 21,813 2,048 16,216 3,737 3,522 21,265
Other............... - 8 - - 4,323 -
----------- ----------- ----------- ----------- ----------- -----------
$ 91,292 $11,167 $ 60,845 $10,595 $25,923 $ 55,134
=========== =========== =========== =========== =========== ===========
December 31, 1997:
Bankers Fidelity.... $26,967 $ 4,098 $ 15,576 $ 1,944 $10,044 $ -
American Southern... 41,799 4,735 30,182 4,932 4,997 38,282
Georgia Casualty.... 19,916 2,064 15,260 2,828 2,988 22,279
Other............... - 19 - - 4,293 -
------------ ---------- ---------- ---------- ---------- ----------
$88,682 $10,916 $ 61,018 $ 9,704 $22,322 $ 60,561
============ ============ ============ ============ ============ ============
Schedule IV
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
REINSURANCE
(in thousands)
Cede To Assumed Percentage of
Direct Other From Other Net Amount Assumed
Amount Companies Companies Amounts To Net
Year ended December 31, 1999:
Life insurance in
force $ 281,565 $ (26,790) $ - $254,775
======== ========= =========== ==========
Premiums --
Bankers Fidelity $ 41,407 $ (934) $ 1,054 $ 41,527 2.5%
American Southern 17,158 (5,384) 26,392 38,166 69.2%
Association Casualty 9,273 (775) - 8,498 -
Georgia Casualty 23,831 (5,966) 1,538 19,403 7.9%
--------- ------ ------- --------- -----
Total premiums $ 91,699 $ (13,059) $ 28,984 $ 107,594 26.9%
=========== =========== =========== =========== ========
Year ended December 31, 1998:
Life insurance in
force $ 275,557 $ (16,941) $ - $ 258,616
Premiums --
Bankers Fidelity $ 34,929 $ (2,236) $ 1,784 $ 34,477 5.2%
American Southern 19,306 (5,215) 20,911 35,002 59.7%
Georgia Casualty 24,625 (3,206) 394 21,813 1.8%
----------- ------- ------- --------- ------
Total premiums $ 78,860 $ (10,657) $ 23,089 $ 91,292 25.3%
=========== ======== ======== ========= ======
Year ended December 31, 1997:
Life insurance in
force $ 267,749 $ (11,767) $ - $ 255,982
========= ======== =========== ==========
Premiums
Bankers Fidelity $ 27,427 $ (460) $ - $26,967 -
American Southern 22,471 (6,039) 25,367 41,799 60.7%
Georgia Casualty 22,884 (2,968) - 19,916 -
----------- ------- --------- ------- -----
Total premiums $ 72,782 $ (9,467) $ 25,367 $ 88,682 28.6%
========== ========= ========== =========== =======
Schedule VI
ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)
Paid
Claims and Claim
Adjustment Expenses Amortization Claims
Incurred Related of and
Year Ended Deferred Net To Deferred Claim
Policy Unearned Earned Investment Current Prior Acquisition Adjustment Premiums
Acquisition Reserves Premium Premium Income Year Years Costs Expenses Written
---------- -------- ------- -------- ------- ----- ------ --------- ---------- --------
December 31, $ 4,754 $120,222 $ 31,247 $ 66,067 $ 7,907 $ 51,520 $(1,941) $10,181 $46,595 $67,924
1999 ====== ======== ======== ======= ======= ======= ======= ===== ======= ======
December 31, $ 2,909 $81,170 $ 20,097 $ 56,815 $ 6,619 $ 47,579 $(7,168) $ 8,485 $39,699 $55,135
1998 ======== ========== ======= ======= ====== ====== ======= ======== ======= =======
December 31, $ 3,071 $ 81,839 $ 21,781 $ 61,715 $ 6,799 $ 49,163 $(3,003) $ 7,760 $41,883 $60,562
1997 ======= ======= ========= ======= ====== ======= ======= ====== ======== ========