Atlantic American Corp.
Annual Report 2014

Plain-text annual report

TABLE OF CONTENTSUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 0-3722ATLANTIC AMERICAN CORPORATION(Exact name of registrant as specified in its charter)Georgia58-1027114(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)4370 Peachtree Road, N.E.,Atlanta, Georgia30319(Address of principal executive offices)(Zip Code)(Registrant’s telephone number, including area code) (404) 266-5500Securities registered pursuant to section 12(b) of the Act:Title of each className of exchangeCommon Stock, par valueNASDAQ Global Market$1.00 per shareSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No ☒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 of1934 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 suchfiling requirements for the past 90 days.Yes ☒No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files).Yes ☒No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not containedherein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):Large accelerated filer oAccelerated filer oNon-accelerated filer oSmaller reporting company ☒(Do not check if a smaller reporting company)Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No ☒The aggregate market value of voting and nonvoting common stock held by non-affiliates of the registrant as of June 30, 2014, the last businessday of the registrant’s most recently completed second fiscal quarter, was $17,958,941. For purposes hereof, beneficial ownership is determined underrules adopted pursuant to Section 13 of the Securities Exchange Act of 1934, and the foregoing excludes value ascribed to common stock that may bedeemed beneficially owned by the directors and executive officers, and 10% or greater stockholders, of the registrant, some of whom may not bedeemed to be affiliates upon judicial determination. On March 17, 2015 there were 20,582,006 shares of the registrant’s common stock, par value $1.00per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCE1. Portions of the registrant’s Proxy Statement for the 2015 Annual Meeting of Shareholders, to be filed with the Securities and ExchangeCommission within 120 days of the registrant’s fiscal year end, have been incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of thisForm 10-K.TABLE OF CONTENTSTABLE OF CONTENTSPagePART I Item 1.Business 1 The Company 1 Marketing 2 Underwriting 4 Policyholder and Claims Services 4 Reserves 5 Reinsurance 8 Competition 9 Ratings 9 Regulation 10 NAIC Ratios 10 Risk-Based Capital 11 Investments 11 Employees 12 Financial Information by Industry Segment 12 Available Information 12 Executive Officers of the Registrant 12 Forward-Looking Statements 13 Item 1A.Risk Factors 13 Item 1B.Unresolved Staff Comments 13 Item 2.Properties 13 Item 3.Legal Proceedings 14 Item 4.Mine Safety Disclosures 14 PART IIItem 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of EquitySecurities 15 Item 6.Selected Financial Data 16 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 25 Item 8.Financial Statements and Supplementary Data 26 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51 Item 9A.Controls and Procedures 51 Item 9B.Other Information 51 PART IIIItem 10.Directors, Executive Officers and Corporate Governance 52 Item 11.Executive Compensation 52 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 52 Item 13.Certain Relationships and Related Transactions, and Director Independence 52 Item 14.Principal Accountant Fees and Services 52 PART IV Item 15.Exhibits, Financial Statement Schedules 53 TABLE OF CONTENTSPART IItem 1.BusinessThe CompanyAtlantic American Corporation, a Georgia corporation incorporated in 1968 (the “Parent” or “Company”), is a holdingcompany that operates through its subsidiaries in well-defined specialty markets within the life and health and property andcasualty insurance industries. The Parent’s principal operating subsidiaries are American Southern Insurance Company andAmerican Safety Insurance Company (together known as “American Southern”) within the property and casualty insuranceindustry and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “BankersFidelity”) within the life and health insurance industry. Each of American Southern and Bankers Fidelity is managed separatelybased upon the type of products it offers, and is evaluated on its individual performance. The Company’s strategy is to focus onwell-defined geographic, demographic and/or product niches within the insurance marketplace. Each of American Southern andBankers Fidelity operates with relative autonomy, which structure is designed to allow for quick reaction to market opportunities.The Parent has no significant business operations of its own and relies on fees, dividends and other distributions from itsoperating subsidiaries as the principal source of cash flow to meet its obligations. Additional information regarding the cash flowand liquidity needs of the Parent can be found in the Liquidity and Capital Resources section of Management’s Discussion andAnalysis of Financial Condition and Results of Operations.Property and Casualty OperationsAmerican Southern comprises the Company’s property and casualty operations and its primary product lines are as follows:Business Automobile Insurance policies provide bodily injury and/or property damage liability coverage, uninsuredmotorist coverage and physical damage coverage for commercial accounts.General Liability Insurance policies cover bodily injury and property damage liability for both premises and completedoperations exposures for general classes of business.Property Insurance policies provide for payment of losses on business personal property caused by fire or other multipleperils.Surety Bonds are contracts under which one party, the insurance company issuing the surety bond, guarantees to a thirdparty that the primary party will fulfill an obligation in accordance with a contractual agreement. This obligation may involvemeeting a contractual commitment, paying a debt or performing certain duties.American Southern provides tailored business automobile insurance coverage, on a multi-year contract basis, to stategovernments, local municipalities and other large motor pools and fleets (“block accounts”) that can be specifically rated andunderwritten. The size of the block accounts insured by American Southern are generally such that individual class experience canbe determined, which allows for customized policy terms and rates. American Southern is licensed to do business in 32 states andthe District of Columbia. While the majority of American Southern’s premiums are derived from its automobile lines of business,American Southern also offers business personal property, inland marine and general liability coverages. Additionally, AmericanSouthern directly provides surety bond coverage for school bus transportation and subdivision construction, as well asperformance and payment bonds.1TABLE OF CONTENTSThe following table summarizes, for the periods indicated, the allocation of American Southern’s net earned premiums fromeach of its principal product lines:Year Ended December 31,20142013(In thousands)Automobile liability$26,438 $24,259 Automobile physical damage 11,633 8,365 General liability 3,577 3,521 Property 3,697 2,699 Surety 7,309 7,007 Total$52,654 $45,851 Life and Health OperationsBankers Fidelity comprises the life and health operations of the Company and offers a variety of life and supplemental healthproducts with a focus on the senior markets. Products offered by Bankers Fidelity include ordinary and term life insurance,Medicare supplement and other accident and health insurance products. Health insurance products, primarily Medicare supplementinsurance, accounted for 89.2% of Bankers Fidelity’s net earned premiums in 2014 while life insurance, including both whole andterm life insurance policies, accounted for the balance. In terms of the number of policies written in 2014, 80.9% were healthinsurance policies and 19.1% were life insurance policies.The following table summarizes, for the periods indicated, the allocation of Bankers Fidelity’s net earned premiums from eachof its principal product lines followed by a brief description of the principal products:Year Ended December 31,20142013(In thousands)Life insurance$10,887 $11,139 Medicare supplement 85,197 83,979 Other accident and health 4,750 4,661 Total health insurance 89,947 88,640 Total$100,834 $99,779 Life Insurance products include non-participating individual term and whole life insurance policies with a variety ofriders and options. Policy premiums are dependent upon a number of factors, including issue age, level of coverage andselected riders or options.Medicare Supplement Insurance includes 8 of the 11 standardized Medicare supplement policies created under theMedicare Improvements for Patients and Providers Act of 2008 (“MIPPA”), which are designed to provide insurance coveragefor certain expenses not covered by the Medicare program, including copayments and deductibles.Other Accident and Health Insurance coverages include several policies providing for the payment of standard benefitsin connection with the treatment of diagnosed cancer and other critical illnesses, as well as a number of other policiesproviding nursing facility care, accident expense, hospital indemnity and disability coverages.MarketingProperty and Casualty OperationsA portion of American Southern’s business is marketed through a small number of specialized, experienced independentagents. American Southern’s agent selection process is actively managed by internal marketing personnel with oversight frommanagement. Senior management carefully reviews all new programs prior to acceptance. Most of American Southern’s agents arepaid an up-front commission with the potential for2TABLE OF CONTENTSadditional commissions by participating in a profit sharing arrangement that is directly linked to the profitability of the underlyingbusiness. American Southern also solicits business from governmental entities. As an experienced writer of insurance policies forcertain governmental programs, the company actively pursues this market on a direct basis. Much of this business is priced bymeans of competitive bid situations and there can be no assurance with respect to ultimate profitability or that the company canobtain or retain such business at the time of a specific contract renewal.Life and Health OperationsBankers Fidelity markets its policies through three distribution channels all of which utilize commissioned, independentagents. The three channels utilized include traditional independent agents, broker-agents typically interested in a specific productof Bankers Fidelity and special market agents who promote workplace, association and/or branded products.Bankers Fidelity has implemented an agent qualification process and had 2,440 licensed agents as of December 31, 2014. Theagents generally concentrate their sales activities in both the accident and health or life insurance product lines. During 2014,approximately 693 of the licensed agents wrote policies on behalf of Bankers Fidelity.Bankers Fidelity, in an effort to motivate all of its licensed agents to market its products, offers the following: competitiveproducts and commission structures, efficient claims service, prompt payment of commissions that vest immediately, simplifiedpolicy issuance procedures, periodic sales incentive programs and, as described below, for traditional independent agents,protected sales territories determined based on specific counties and/or zip codes.In the traditional independent agent arrangement, Bankers Fidelity enters into contractual arrangements with various regionalsales directors and general agents responsible for marketing and other sales activities, who may also, in turn, recommendappointment of other independent agents. The standard agreements set forth the commission arrangements and are terminablewithout cause by either party upon notice. Regional sales directors and general agents receive an override commission on salesmade by agents sponsored by them. Management believes utilizing experienced agents, as well as independent general agents whorecruit and train their own agents, is cost effective. All independent agents are compensated primarily on a commission basis. Usingindependent agents also enables Bankers Fidelity to effectively expand or contract its sales force without incurring significantexpense.With the traditional independent agents, the company utilizes a lead generation system that rewards qualified agents withleads in accordance with certain production criteria. In addition, a protected territory is established for qualified agents, whichentitles them to all leads produced within that territory. The territories are zip code or county based and encompass sufficientgeographic territory designed to produce an economically serviceable senior population. The Company believes that offering alead generation system solves an agent’s most important dilemma -- prospecting -- and allows Bankers Fidelity to build long-termrelationships with agents who view Bankers Fidelity as their primary company. In addition, management believes that BankersFidelity’s product line is less sensitive to competitor pricing and commissions because of the perceived value of the protectedterritory and the lead generation system. In protected geographical areas, production per agent has historically compared favorablyto unprotected areas served by the general brokerage division.Products of Bankers Fidelity compete directly with products offered by other insurance companies, and agents may representmultiple insurance companies. Broker-agents generally are not interested in developing relationships with any one particularinsurance company but are more interested in matching a specific product with the specific needs of their clients. These agents,while a source of business, do not participate in the company’s lead generation system, but can qualify for other incentives thatBankers Fidelity offers to its traditional independent agents.Bankers Fidelity also has a number of agents, some of whom belong to marketing organizations that solicit business fromvarious groups including employers, trade associations and/or other organizations. Depending on the group’s needs, these agentsmay target one specific product or a group of Bankers Fidelity’s products to market to a group’s members. These agents also do notparticipate in the company’s lead generation system, but can also qualify for other incentives that Bankers Fidelity offers to itstraditional independent agents.3TABLE OF CONTENTSUnderwritingProperty and Casualty OperationsAmerican Southern specializes in underwriting various risks that are sufficiently large enough to establish separate classexperience, relying upon the underwriting expertise of its agents.During the course of the policy life, extensive use is made of risk management representatives to assist commercialunderwriters in identifying and correcting potential loss exposures and to physically inspect new accounts. The underwritingresults from each insured are reviewed on an individual basis periodically. When results are below expectations, management takescorrective action which may include adjusting rates, revising underwriting standards, adjusting commissions paid to agents, and/oraltering or declining to renew accounts at expiration.Life and Health OperationsBankers Fidelity issues a variety of products for both life and health insurance markets, with a focus on senior life productstypically with small face amounts of between $3,000 and $50,000, and Medicare supplement insurance. The majority of itsproducts utilize “Yes” or “No” applications that are underwritten on a non-medical basis. Bankers Fidelity offers products to allage groups; however, its primary marketing focus is the senior market which is generally defined as individuals 65 years of age orolder. For life products offered to other than the senior market, Bankers Fidelity may require medical information, such as medicalexaminations, subject to published age guidelines and coverage limits. Approximately 95% of the annualized premiums for bothlife and health insurance sold during 2014 were derived from insurance written on a non-medical basis. For the senior market,Bankers Fidelity offers life products primarily on a simplified policy issue basis with coverage amounts up to $50,000 for preferredrates, up to $35,000 for standard rates and up to $20,000 for graded death benefits and modified rates. Bankers Fidelity retains amaximum coverage amount of $100,000 with respect to any individual life policy (see “Reinsurance”).Applications for insurance are reviewed to determine the face amount, age, medical history and any other necessaryinformation. Bankers Fidelity utilizes information obtained directly from the insured, the Medical Information Bureau (“M.I.B.”),paramedical testing, and/or medical records. Bankers Fidelity may also utilize investigative services to supplement andsubstantiate information. For certain limited coverages, Bankers Fidelity has adopted simplified policy issuance procedures bywhich an application containing a variety of health related questions is submitted. For these plans, Bankers Fidelity obtains M.I.B.and prescription drug utilization reports and conducts a telephone interview, however, will generally not request paramedicaltesting or medical records.Policyholder and Claims ServicesThe Company believes that prompt, efficient policyholder and claims services are essential to its continued success inmarketing its insurance products (see “Competition”). Additionally, the Company believes that its insureds are particularlysensitive to claims processing time and to the accessibility of qualified staff to answer inquiries. Accordingly, the Company’spolicyholder and claims services seek to offer expeditious disposition of service requests by providing toll-free access for allcustomers, 24-hour claim reporting services, and direct computer links with some of its largest accounts. The Company also utilizesan automatic call distribution system to ensure that 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 servicerepresentative training modules.Property and Casualty OperationsAmerican Southern controls its claims costs by utilizing an in-house staff of claims supervisors to investigate, verify, negotiateand settle claims. Upon notification of an occurrence purportedly giving rise to a claim, a claim file is established. The claimsdepartment then conducts a preliminary investigation, determines whether an insurable event has occurred and, if so, updates thefile for the findings and any required reserve adjustments. Frequently, independent adjusters and appraisers are utilized to serviceclaims which require on-site inspections.4TABLE OF CONTENTSLife and Health OperationsInsureds may obtain claim forms by calling the claims department customer service group or through Bankers Fidelity’swebsite. To shorten claim processing time, a letter detailing all supporting documents that are required to complete a claim for aparticular policy is sent to the customer along with the correct claim form. With respect to life policies, the claim is entered intoBankers Fidelity’s claims system when the proper documentation is received. Properly documented claims are generally paidwithin three to nine business days of receipt. With regard to Medicare supplement policies, the claim is either directly billed toBankers Fidelity by the provider or sent electronically through a Medicare clearing house.ReservesThe following table sets forth information concerning the Company’s reserves for losses and claims and reserves for lossadjustment expenses (“LAE”) for the periods indicated:20142013(In thousands)Balance at January 1$63,018 $62,873 Less: Reinsurance receivable on unpaid losses (14,314) (18,743)Net balance at January 1 48,704 44,130 Incurred related to: Current year 104,225 97,904 Prior years(1) (483) (1,657)Total incurred 103,742 96,247 Paid related to: Current year 72,443 66,705 Prior years 27,680 24,968 Total paid 100,123 91,673 Net balance at December 31 52,323 48,704 Plus: Reinsurance receivable on unpaid losses 14,302 14,314 Balance at December 31$66,625 $63,018 (1)Favorable loss development from property and casualty operations for the years ended December 31, 2014 and 2013 was$0.2 million and $2.5 million, respectively. See Note 3 of Notes to Consolidated Financial Statements.Reserves are set by line of business within each of the subsidiaries. At December 31, 2014, approximately 83% of the reservesrelated to property and casualty losses and approximately 17% related to life and health losses. The Company’s property andcasualty operations incur losses which may take extended periods of time to evaluate and settle. Issues with respect to legalliability, actual loss quantification, legal discovery and ultimate subrogation, among other factors, may influence the initial andsubsequent estimates of loss. In the property and casualty operations, the Company’s general practice is to reserve at the higher endof the determined reasonable range of loss if no other value within the range is determined to be more probable. The Company’slife and health operations generally incur losses which are more readily quantified. Medical claims received are recorded in casereserves based on contractual terms using the submitted billings as a basis for determination. Life claims are recorded based oncontract value at the time of notification to the Company; although policy reserves related to such contracts have been previouslyestablished. Individual case reserves are established by a claims processor on each individual claim and are periodically reviewedand adjusted as new information becomes known during the course of handling a claim. Regular internal periodic reviews are alsoperformed by management to ensure that loss reserves are established and revised timely relative to the receipt of new or additionalinformation. Lines of business for which loss data (e.g. paid losses and case reserves) emerge over a long period of time are referredto as long-tail lines of business. Lines of business for which loss data emerge more quickly are referred to as short-tail lines ofbusiness. The Company’s long-tail line of business generally consists of its general liability coverage while the short-tail lines ofbusiness generally consist of property and automobile coverages.5TABLE OF CONTENTSThe Company’s actuaries regularly review reserves for both current and prior accident years using the most current claimsdata. These reviews incorporate a variety of actuarial methods (discussed in Critical Accounting Policies) and judgments andinvolve a disciplined analysis. For most lines of business, certain actuarial methods and specific assumptions are deemed moreappropriate based on the current circumstances affecting that line of business. These selections incorporate input from claimspersonnel and operating management on reported loss cost trends and other factors that could affect the reserve estimates.For long-tail lines of business, the emergence of paid losses and case reserves is less credible in the early periods, andaccordingly may not be indicative of ultimate losses. For these lines, methods which incorporate a development patternassumption are given less weight in calculating incurred but not reported (“IBNR”) reserves for the early periods of loss emergencebecause such a low percentage of ultimate losses are reported in that time frame. Accordingly, for any given accident year, the rateat which losses on long-tail lines of business emerge in the early periods is generally not as reliable an indication of ultimate lossesas it would be for shorter-tail lines of business. The estimation of reserves for these lines of business in the early periods of lossemergence is therefore largely influenced by statistical analyses and application of prior accident years’ loss ratios, afterconsidering changes to earned pricing, loss costs, mix of business, ceded reinsurance and other factors that are expected to affectthe estimated ultimate losses. For later periods of loss emergence, methods which incorporate a development pattern assumptionare given more weight in estimating ultimate losses. For short-tail lines of business, the emergence of paid loss and case reserves ismore credible in the early periods and is more likely to be indicative of ultimate losses. The method used to set reserves for theselines of business is based upon utilization of a historical development pattern for reported losses. IBNR reserves for the current yearare set as the difference between the estimated fully developed ultimate losses for each year, less the established, related casereserves and cumulative related payments. IBNR reserves for prior accident years are similarly determined, again relying on anindicated, historical development pattern for reported losses.Based on the results of regular reserve estimate reviews, the Company determines the appropriate reserve adjustment, if any, torecord in each period. If necessary, recorded reserve estimates are changed after consideration of numerous factors, including, butnot limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement ordeterioration of actuarial indication in the period, the maturity of the accident year, trends observed over the recent past and thelevel of volatility within a particular line of business. In general, changes are made more quickly to recognize changes in estimatesto ultimate losses in mature accident years and less volatile lines of business.Estimating case reserves and ultimate losses involves various considerations which differ according to the line of business. Inaddition, changes in legislative and regulatory environments may impact loss estimates. General liability claims may have a longpattern of loss emergence. Given the broad nature of potential general liability coverages, investigative time periods may beextended and questions of coverage may exist. Such uncertainties create greater imprecision in estimating required levels of lossreserves. The property and automobile lines of business generally have less variable reserve estimates than other lines. This islargely due to the coverages having relatively shorter periods of loss emergence. Estimates, however, can still vary due to a numberof factors, including interpretations of frequency and severity trends. Severity trends can be impacted by changes in internal claimhandling and reserving practices in addition to changes in the external environment. These changes in claim practices increase theuncertainty in the interpretation of case reserve data, which increases the uncertainty in recorded reserve levels.Components of the Company’s reserves for losses and claims by product line at December 31, 2014 were as follows:CaseIBNRTotal(In thousands)Business automobile$20,397 $15,111 $35,508 Personal automobile/physical damage 1,333 329 1,662 General & other liability 2,299 7,711 10,010 Other lines (including life) 4,310 3,462 7,772 Medicare supplement 127 9,508 9,635 Unallocated loss adjustment reserves — 2,038 2,038 Total reserves for losses and claims$28,466 $38,159 $66,625 6TABLE OF CONTENTSThe Company’s policy is to record reserves for losses and claims in amounts which approximate actuarial best estimates ofultimate values. Actuarial best estimates do not necessarily represent the midpoint value determined using the various actuarialmethods; however, such estimates will fall between the estimated low and high end reserve values. The range of estimatesdeveloped in connection with the December 31, 2014 actuarial review indicated that reserves could be as much as 12.5% lower oras much as 10.7% higher. In the opinion of management, recorded reserves represent the best estimate of outstanding losses,although significant judgments are made in the derivation of reserve estimates and revisions to such estimates are expected to bemade in future periods. Any such revisions could be material, and may materially adversely affect the Company’s financialcondition and results of operations in any future period.Property and Casualty OperationsAmerican Southern maintains loss reserves representing estimates of amounts necessary for payment of losses and LAE, andwhich are not discounted. IBNR reserves are also maintained for future development. These loss reserves are estimates, based onknown facts and circumstances at a given date, of amounts the Company expects to pay on incurred claims. All balances arereviewed periodically by the Company’s independent consulting actuary. Reserves for LAE are intended to cover the ultimatecosts of settling claims, including investigation and defense of any lawsuits resulting from such claims. Loss reserves for reportedclaims are based on a case-by-case evaluation of the type of claim involved, the circumstances surrounding the claim, and thepolicy provisions relating to the type of loss along with anticipated future development. The LAE for claims reported and claimsnot reported is based on historical statistical data and anticipated future development. Inflation and other factors which may affectclaim payments are implicitly reflected in the reserving process through analysis and consideration of cost trends and reviews ofhistorical reserve results.American Southern establishes reserves for claims based upon: (a) management’s estimate of ultimate liability and claimsadjusters’ evaluations of unpaid claims reported prior to the close of the accounting period, (b) estimates of IBNR claims based onpast experience, and (c) estimates of LAE. If no value is determined to be more probable in estimating a loss after considering allfactors, the Company’s general practice is to reserve at the higher end of the determined reasonable range of loss. The estimatedliability is periodically reviewed and updated, and changes to the estimated liability are recorded in the statement of operations inthe period in which such changes become known.The following table sets forth the development of reserves for unpaid losses and claims determined using generally acceptedaccounting principles of American Southern’s insurance lines from 2004 through 2014. Specifically excluded from the table arethe life and health division’s claims reserves, which are included in the consolidated loss and claims reserves. The top line of thetable represents the estimated cumulative amount of losses and LAE for claims arising in all prior years that were unpaid at thebalance sheet date for each of the indicated periods, including an estimate of IBNR losses at the applicable date. The amountsrepresent initial reserve estimates at the respective balance sheet dates for the current and all prior years. The next portion of thetable shows the cumulative amounts paid with respect to claims in each succeeding year. The lower portion of the table shows there-estimated amounts of previously recorded reserves based on experience as of the end of each succeeding year.The reserve estimates are modified as more information becomes known about the frequency and severity of claims forindividual years. The “cumulative redundancy” for each year represents the aggregate change in such year’s estimates through theend of 2014. Furthermore, the amount of the redundancy for any year represents the cumulative amount of the changes from initialreserve estimates for such year. Operations for any year may be affected, favorably or unfavorably, by the amount of the change inthe estimate for such years; however, because such analysis is based on the reserves for unpaid losses and claims, beforeconsideration of reinsurance, the total indicated redundancies may not ultimately be reflected in the Company’s net income.Further, conditions and7TABLE OF CONTENTStrends that have affected development of reserves in the past may not necessarily occur in the future and there could be futureevents or actions that impact future development which have not existed in the past. Accordingly, the accurate prediction of futureredundancies based on the data in the following table is not possible.Year Ended December 31,20142013201220112010200920082007200620052004(Dollars In thousands)Reserve forLosses andLAE$55,017 $51,200 $52,764 $49,478 $46,092 $42,248 $44,928 $43,994 $45,655 $43,593 $42,310 Cumulative paidas of: One year later 21,577 25,352 18,959 15,183 10,486 13,627 11,630 18,010 14,254 16,521 Two years later 37,128 34,805 25,333 17,462 19,003 21,187 24,793 23,967 24,217 Three years later 41,967 34,266 23,231 22,197 23,993 29,338 27,235 28,775 Four years later 37,720 29,254 24,016 25,733 30,853 29,179 31,019 Five years later 31,125 28,898 27,160 31,486 30,629 31,594 Six years later 30,286 31,659 32,415 30,961 32,149 Seven years later 32,489 35,695 31,346 32,248 Eight years later 36,277 33,776 32,403 Nine years later 33,874 34,237 Ten years later 34,244 Ultimate lossesand LAEreestimated asof: End of year$55,017 $51,200 $52,764 $49,478 $46,092 $42,248 $44,928 $43,994 $45,655 $43,593 $42,310 One year later 47,169 47,639 44,180 39,999 32,563 31,649 33,663 35,590 34,897 37,280 Two years later 49,966 46,109 38,859 30,562 28,386 29,903 34,163 32,929 34,108 Three years later 48,386 39,153 30,288 27,570 29,077 33,499 31,560 33,338 Four years later 41,339 31,798 28,169 29,162 32,753 32,043 33,370 Five years later 33,508 30,883 30,156 33,049 32,085 33,090 Six years later 31,696 33,091 33,933 32,192 32,960 Seven years later 33,804 36,262 31,836 32,986 Eight years later 36,817 34,167 32,726 Nine years later 34,384 34,587 Ten years later 34,621 Cumulativeredundancy $4,031 $2,798 $1,092 $4,753 $8,740 $13,232 $10,190 $8,838 $9,209 $7,689 7.9% 5.3% 2.2% 10.3% 20.7% 29.5% 23.2% 19.4% 21.1% 18.2%Note: This analysis is based on reserves for unpaid losses and claims, before consideration of reinsurance; therefore the totalindicated redundancies may not ultimately be reflected in the Company’s net income.Life and Health OperationsBankers Fidelity establishes liabilities for future policy benefits to meet projected future obligations under outstandingpolicies. These reserves are calculated to satisfy policy and contract obligations as they mature. The amount of reserves forinsurance 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 modifications to reflect actual experience. The use ofsignificantly different assumptions, or actual results that differ significantly from our estimates, could materially adversely affectour liquidity, results of operations or financial condition. See Note 3 of Notes to Consolidated Financial Statements.ReinsuranceThe Company’s insurance subsidiaries from time to time purchase reinsurance from unaffiliated insurers and reinsurers toreduce their potential liability on individual risks and to protect against catastrophic losses. In a reinsurance transaction, aninsurance company transfers, or “cedes,” a portion or all of its exposure on insurance policies to a reinsurer. The reinsurer assumesthe exposure in return for a portion of the premiums. The ceding of insurance does not legally discharge the insurer from primaryliability for the full amount of the policies written by it, and the ceding company will incur a loss if the reinsurer fails to meet itsobligations under the reinsurance agreement.8TABLE OF CONTENTSProperty and Casualty OperationsAmerican Southern’s basic reinsurance treaties generally cover all claims in excess of specified per occurrence limitations.Limits per occurrence within the reinsurance treaties are as follows: Fire - $125,000 excess of $50,000 retention; Inland marine andcommercial automobile physical damage - $125,000 excess of $75,000 retention; and automobile liability and general liability -excess coverage of $2.0 million less retentions that may vary from $100,000 to $150,000 depending on the account. AmericanSouthern maintains a property catastrophe treaty with a $5.7 million limit excess of $300,000 retention. American Southern alsoissues individual surety bonds with face amounts generally up to $1.5 million, and limited to $5.0 million in aggregate peraccount, that are not reinsured.Life and Health OperationsBankers Fidelity has entered into reinsurance contracts ceding the excess of its retention to several primary reinsurers.Maximum retention by Bankers Fidelity on any one individual in the case of life insurance policies is $100,000. At December 31,2014, $19.0 million of the $258.0 million of life insurance in force at Bankers Fidelity was reinsured under a mix of coinsuranceand yearly renewable term agreements. Certain prior year reinsurance agreements also remain in force although they no longerprovide reinsurance for new business.CompetitionCompetition for insurance products is based on many factors including premiums charged, terms and conditions of coverage,service provided, financial ratings assigned by independent rating agencies, claims services, reputation, perceived financialstrength and the experience of the organization in the line of business being written.Property and Casualty OperationsThe businesses in which American Southern engages are highly competitive. The principal areas of competition are pricingand service. Many competing property and casualty companies, which have been in business longer than American Southern, offermore diversified lines of insurance and have substantially greater financial resources. Management believes, however, that thepolicies it sells are competitive with those providing similar benefits offered by other insurers doing business in the states in whichAmerican Southern operates. American Southern attempts to develop strong relationships with its agents and, consequently,believes it is better positioned for new opportunities and programs with those agents.Life and Health OperationsThe life and health insurance business also remains highly competitive and includes a large number of insurance companies,many of which have substantially greater financial resources than Bankers Fidelity or the Company. Bankers Fidelity offers lifeinsurance products, Medicare supplement and other accident and health insurance products with a focus on the senior market.Bankers Fidelity believes that its primary competitors are Americo Life, GTL, Lincoln Heritage, Medico, Monumental, Mutual ofOmaha, New Era, Standard Life, Transamerica and United Healthcare. Bankers Fidelity competes with these as well as other insurerson the basis of premium rates, policy benefits and service to policyholders. Bankers Fidelity also competes with other insurers toattract and retain the allegiance of its independent agents through commission and sales incentive arrangements, accessibility andmarketing assistance, lead programs, reputation, and market expertise. In order to better compete, Bankers Fidelity actively seeksopportunities in niche markets, developing long-term relationships with a select number of independent marketing organizationspromoting worksite marketing and selective association endorsements. Bankers Fidelity has a track record of successfullycompeting in its chosen markets by establishing relationships with independent agents and providing proprietary marketinginitiatives as well as providing outstanding service to policyholders. Bankers Fidelity believes that it competes effectively on thebases of policy benefits, services and market segmentation.RatingsRatings of insurance companies are not designed for investors and do not constitute recommendations to buy, sell, or hold anysecurity. Ratings are important measures within the insurance industry, and higher ratings should have a favorable impact on theability of a company to compete in the marketplace.9TABLE OF CONTENTSEach year A.M. Best Company, Inc. (“A.M. Best”) publishes Best’s Insurance Reports, which includes assessments and ratingsof all insurance companies. A.M. Best’s ratings, which may be revised quarterly, fall into fifteen categories ranging from A++(Superior) to F (in liquidation). A.M. Best’s ratings are based on a detailed analysis of the statutory financial condition andoperations of an insurance company compared to the industry in general.American Southern. American Southern Insurance Company and its wholly-owned subsidiary, American Safety InsuranceCompany, are each, as of the date of this report, rated “A” (Excellent) by A.M. Best.Bankers Fidelity. Bankers Fidelity Life Insurance Company and its wholly-owned subsidiary, Bankers Fidelity AssuranceCompany, are each, as of the date of this report, rated “A-” (Excellent) by A.M. Best.RegulationIn common with all domestic insurance companies, the Company’s insurance subsidiaries are subject to regulation andsupervision in the jurisdictions in which they do business. Statutes typically delegate regulatory, supervisory, and administrativepowers to state insurance commissioners. The method of such regulation varies, but regulation relates generally to the licensing ofinsurers and their agents, the nature of and limitations on investments, approval of policy forms, reserve requirements, the standardsof solvency to be met and maintained, deposits of securities for the benefit of policyholders, and periodic examinations of insurersand trade practices, among other things. The Company’s products generally are subject to rate regulation by state insurancecommissions, which require that certain minimum loss ratios be maintained. Certain states also have insurance holding companylaws which require registration and periodic reporting by insurance companies controlled by other corporations licensed to transactbusiness within their respective jurisdictions. The Company’s insurance subsidiaries are subject to such legislation and areregistered as controlled insurers in those jurisdictions in which such registration is required. Such laws vary from state to state, buttypically require periodic disclosure concerning the corporation which controls the registered insurers and all subsidiaries of suchcorporations, as well as prior notice to, or approval by, the state insurance commissioners of intercorporate transfers of assets(including payments of dividends by the insurance subsidiaries in excess of specified amounts) within the holding companysystem.Most states require that rate schedules and other information be filed with the state’s insurance regulatory authority, eitherdirectly or through a ratings organization with which the insurer is affiliated. The regulatory authority may disapprove a rate filingif it determines that the rates are inadequate, excessive, or discriminatory. The Company has historically experienced no significantregulatory resistance to its applications for rate adjustments; however, the Company cannot provide any assurance that it will notreceive any objections to any applications in the future.A state may require that acceptable securities be deposited for the protection either of policyholders located in those states orof all policyholders. As of December 31, 2014, securities with an amortized cost of $10.6 million were on deposit either directlywith various state authorities or with third parties pursuant to various custodial agreements on behalf of the Company’s insurancesubsidiaries.Virtually all of the states in which the Company’s insurance subsidiaries are licensed to transact business require participationin their respective guaranty funds designed to cover claims against insolvent insurers. Insurers authorized to transact business inthese jurisdictions are generally subject to assessments of up to 4% of annual direct premiums written in that jurisdiction to paysuch claims, if any. The likelihood and amount of any future assessments cannot be estimated until an insolvency has occurred.NAIC RatiosThe National Association of Insurance Commissioners (the “NAIC”) was established to, among other things, provideguidelines to assess the financial strength of insurance companies for state regulatory purposes. The NAIC conducts annual reviewsof 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 stateand 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 thosemost likely to require analysis by state regulators. However, according to the NAIC, it10TABLE OF CONTENTSmay not be unusual for a financially sound company to have several ratios outside the “usual” range, and in normal years the NAICexpects 15% of the companies it tests to be outside the “usual” range in four or more categories.For the year ended December 31, 2014, American Southern and Bankers Fidelity Life Insurance Company were bothindividually within the NAIC “usual” range for all 13 financial ratios.Risk-Based CapitalRisk-based capital (“RBC”) is a metric used by ratings agencies and regulators as an early warning tool to identify weaklycapitalized companies for the purpose of initiating further regulatory action. The RBC calculation determines the amount ofadjusted capital needed by a company to avoid regulatory action. “Authorized Control Level Risk-Based Capital” (“ACL”) iscalculated, and if a company’s adjusted capital is 200% or lower than ACL, it is subject to regulatory action. At December 31,2014, the Company’s insurance subsidiaries exceeded the RBC regulatory levels.InvestmentsInvestment income represents a significant portion of the Company’s operating and total income. Insurance companyinvestments are subject to state insurance laws and regulations which limit the concentration and types of investments. Thefollowing table provides information on the Company’s investments as of the dates indicated.December 31,20142013AmountPercentAmountPercent(Dollars in thousands)Fixed maturities: U.S. Treasury securities and obligations of U.S. Government agencies andauthorities$33,898 14.1%$17,240 7.6%States, municipalities and political subdivisions 11,459 4.8 7,611 3.3 Public utilities 8,101 3.4 7,620 3.3 All other corporate bonds 160,630 66.8 166,481 72.7 Redeemable preferred stock 800 0.3 2,351 1.0 Total fixed maturities(1) 214,888 89.4 201,303 87.9 Common and non-redeemable preferred stocks(2) 18,924 7.9 21,890 9.6 Policy loans(3) 2,202 0.9 2,369 1.0 Other invested assets(4) 2,995 1.3 2,123 0.9 Real estate 38 0.0 38 0.0 Investments in unconsolidated trusts 1,238 0.5 1,238 0.6 Total investments$240,285 100.0%$228,961 100.0%(1)Fixed maturities are carried on the balance sheet at estimated fair value. Certain fixed maturities do not have publiclyquoted prices, and are carried at estimated fair value as determined by management. Total adjusted cost of fixedmaturities was $207.6 million as of December 31, 2014 and $201.2 million as of December 31, 2013.(2)Equity securities are carried on the balance sheet at estimated fair value. Total adjusted cost of equity securities was$12.0 million as of December 31, 2014 and $12.4 million as of December 31, 2013.(3)Policy loans are valued at historical cost.(4)Other invested assets are accounted for using the equity method. Total cost of other invested assets was $3.0 million as ofDecember 31, 2014 and $2.1 million as of December 31, 2013.Estimated fair values are determined as discussed in Note 1 of Notes to Consolidated Financial Statements.11TABLE OF CONTENTSResults of the Company’s investment portfolio for periods shown were as follows:Year Ended December 31,20142013(Dollars in thousands)Average investments(1)$246,508 $241,278 Net investment income 9,831 10,335 Average yield on investments 4.0% 4.3%Realized investment gains, net 1,571 8,741 (1)Calculated as the average of cash and investment balances (at amortized cost) at the beginning of the year and at the endof each of the succeeding four quarters.Management’s recent investment strategy has been a continued focus on quality, diversification and higher yielding corporatebonds and preferred stocks; but at the same time shortening up on maturities to give recognition to the rise and potential futureincreases in longer-term interest rates.EmployeesThe Company and its subsidiaries employed 145 people at December 31, 2014. Of the 145 people employed at December 31,2014, 139 were full-time.Financial Information by Industry SegmentEach of American Southern and Bankers Fidelity operate with relative autonomy and each company is evaluated on itsindividual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelityoperates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as well as frominvestment income. Substantially all revenue other than that in the corporate and other segment is from external sources. See Note13 of Notes to Consolidated Financial Statements.Available InformationThe Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments tothose reports and other information with the Securities and Exchange Commission (the “SEC”). The public can read and obtaincopies of those materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The publicmay obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintainsa website that contains reports, proxy and information statements and other information regarding issuers like the Company thatfile electronically with the SEC. The address of the SEC’s web site is www.sec.gov. In addition, as soon as reasonably practicableafter such materials are filed with or furnished to the SEC by the Company, the Company makes copies available to the public, freeof charge, on or through its web site at www.atlam.com. Neither the Company’s website, nor the information appearing on thewebsite, is included, incorporated into, or a part of, this report.Executive Officers of the RegistrantThe table below and the information following the table set forth, for each executive officer of the Company as of December31, 2014, his name, age, positions with the Company and business experience for the past five years, as well as any prior service tothe Company.NameAgePositions with the CompanyDirector orOfficer SinceHilton H. Howell, Jr.52Chairman of the Board, President & CEO1992John G. Sample, Jr.58Senior Vice President, CFO and Secretary2002Officers are elected annually and serve at the discretion of the board of directors.Mr. Howell has been President and Chief Executive Officer of the Company since May 1995, and prior thereto served asExecutive Vice President of the Company from October 1992 to May 1995. He has been a Director of the Company since October1992 and effective February 24, 2009, began serving as Chairman of the board of directors. He is also a director, and serves as chiefexecutive officer, of Gray Television, Inc.12TABLE OF CONTENTSMr. Sample has served as Senior Vice President and Chief Financial Officer of the Company since July 2002 and Secretarysince May 2010. Prior to joining the Company in July 2002, he had been a partner of Arthur Andersen LLP since 1990. Mr. Sampleis also a director of 1st Franklin Financial Corporation.Forward-Looking StatementsCertain of the statements contained herein are forward-looking statements within the meaning of the federal securities laws.These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of1995, Section 27A of the Securities Exchange Act of 1933, and Section 21E of the Securities Exchange Act of 1934, and includeestimates and assumptions related to, among other things, general economic, competitive, operational and legislativedevelopments. The forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond theCompany’s control and have been made based upon management’s current expectations and beliefs concerning futuredevelopments and their potential effect upon the Company. There can be no assurance that future developments will be inaccordance with management’s expectations or that the effect of future developments on the Company will be those anticipated bymanagement. Actual results could differ materially from those expected by the Company, depending on the occurrence or outcomeof various factors. These factors include, among others: significant changes in general economic conditions; disruption to thefinancial markets; unanticipated increases in the rate, number and amounts of claims outstanding; the possible occurrence ofterrorist attacks; the level of performance of reinsurance companies under reinsurance contracts and the availability, pricing andadequacy of reinsurance to protect the Company against losses; changes in the stock markets, interest rates or other financialmarkets, including the potential effect on the Company’s statutory capital levels; the uncertain effect on the Company ofregulatory and market-driven changes in practices relating to the payment of incentive compensation to brokers, agents and otherproducers; the incidence and severity of catastrophes, both natural and man-made; stronger than anticipated competitive activity;unfavorable judicial or legislative developments; the potential effect of regulatory developments, including those which couldincrease the Company’s business costs and required capital levels; the Company’s ability to distribute its products throughdistribution channels, both current and future; the uncertain effect of emerging claim and coverage issues; the effect of assessmentsand other surcharges for guaranty funds and other mandatory pooling arrangements; and risks related to cybersecurity matters, suchas breaches of our computer network or the loss of unauthorized access to the data we maintain. Many of such factors are beyondthe Company’s ability to control or predict. As a result, the Company’s actual financial condition and results of operations coulddiffer materially from those expressed in any forward-looking statements made by the Company. Undue reliance should not beplaced upon forward-looking statements contained herein. The Company does not intend to publicly update any forward-lookingstatements that may be made from time to time by, or on behalf of, the Company.Item 1A.Risk FactorsAs a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K (a“smaller reporting company”), we have elected to comply with certain scaled disclosure reporting obligations, and therefore do nothave to provide the information required by this Item.Item 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesLeased Properties. The Company leases space for its principal offices and for some of its insurance operations in an officebuilding located in Atlanta, Georgia, from Delta Life Insurance Company under a lease which continues until either party provideswritten notice of cancellation at least twelve months in advance of the actual termination date. The lease, which commenced onNovember 1, 2007, provides for rent adjustments on every fifth anniversary of the commencement date. Under the current terms ofthe lease, the Company occupies approximately 49,586 square feet of office space. Delta Life Insurance Company, the owner of thebuilding, is controlled by an affiliate of the Company. The terms of the lease are believed by Company management to becomparable to terms which could be obtained by the Company from unrelated parties for comparable rental property.13TABLE OF CONTENTSAmerican Southern leases space for its office in a building located in Atlanta, Georgia. The lease term expires May 31, 2019.Under the terms of the lease, American Southern occupies approximately 17,014 square feet.The Company believes that its current properties are in good condition, and are sufficient for the operations of its business.Item 3.Legal ProceedingsFrom time to time, the Company and its subsidiaries are, and expect to continue to be, involved in various claims and lawsuitsarising in the ordinary course of business, both as a liability insurer defending third-party claims brought against insureds and as aninsurer defending coverage claims brought against it. The Company accounts for such exposures through the establishment of lossand loss adjustment expense reserves. We do not expect that the ultimate liability, if any, with respect to such ordinary-courseclaims litigation, after consideration of provisions made for probable losses and costs of defense, will be material to the Company’sconsolidated financial condition, although the results of such litigation could be material to the consolidated results of operationsfor any given period.Item 4.Mine Safety DisclosuresNot applicable.14TABLE OF CONTENTSPART IIItem 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity SecuritiesThe Company’s common stock is quoted on the Nasdaq Global Market (Symbol: AAME). As of March 17, 2015, there were3,516 shareholders of record. The following table sets forth, for the periods indicated, the high and low sales prices of theCompany’s common stock as reported on the Nasdaq Global Market.Year Ended December 31,HighLow2014 1st quarter$4.13 $3.50 2nd quarter 4.02 3.23 3rd quarter 4.38 3.63 4th quarter 4.05 3.50 2013 1st quarter$3.45 $2.52 2nd quarter 4.19 3.01 3rd quarter 4.05 3.54 4th quarter 4.13 3.64 During 2014, the Company paid an annual cash dividend of $0.02 per share and a special cash dividend of $0.02 per share. Inaddition, on March 25, 2015, the Company’s board of directors declared an annual cash dividend of $0.02 per share that is payableto shareholders of record as of the close of business on April 13, 2015. Payment of dividends in the future will be at the discretionof the Company’s board of directors and will depend upon the financial condition, capital requirements, earnings of the Company,any restrictions contained in any agreements by which the Company is bound, as well as other factors as the board of directors maydeem relevant. The Company’s primary recurring source of cash for the payment of dividends is dividends from its subsidiaries;although as of December 31, 2014, the Parent held unrestricted cash and investment balances of approximately $19.7 million.Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Company by itsinsurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s InsuranceCommissioner. In 2015, dividend payments to the Parent by the insurance subsidiaries in excess of $7,640 would require priorapproval.Issuer Purchases of Equity SecuritiesOn May 6, 2014, the board of directors of the Company approved a plan that allows for the repurchase of up to 750,000 sharesof the Company’s common stock (the “Repurchase Plan”) on the open market or in privately negotiated transactions, as determinedby an authorized officer of the Company. Any such repurchases can be made from time to time in accordance with applicablesecurities laws and other requirements.15TABLE OF CONTENTSThe table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthlybasis during the three month period ended December 31, 2014.PeriodTotalNumber ofSharesPurchasedAveragePrice Paidper ShareTotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orProgramsMaximumNumber ofShares thatMay Yet bePurchasedUnder thePlans orProgramsOctober 1 – October 31, 2014 13,939 $4.01 13,939 462,073 November 1 – November 30, 2014 9,440 3.89 9,440 452,633 December 1 – December 31, 2014 17,982 3.94 17,982 434,651 Total 41,361 $3.95 41,361 Other than pursuant to the Repurchase Plan, no purchases of common stock of the Company were made by or on behalf of theCompany during the periods described above.Stock Performance GraphAs a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and thereforedo not have to provide the information required by this Item.Item 6.Selected Financial DataAs a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and thereforedo not have to provide the information required by this Item.Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following is management’s discussion and analysis of the financial condition and results of operations of AtlanticAmerican Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) forthe years ended December 31, 2014 and 2013. This discussion should be read in conjunction with the consolidated financialstatements and notes thereto included elsewhere herein.Atlantic American is an insurance holding company whose operations are conducted primarily through its insurancesubsidiaries: American Southern Insurance Company and American Safety Insurance Company (together known as “AmericanSouthern”) in the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company and Bankers FidelityAssurance Company (together known as “Bankers Fidelity”) in the life and health insurance industry. Each operating company ismanaged separately, offers different products and is evaluated on its individual performance.Critical Accounting PoliciesThe accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”) and, in management’s belief, conform to general practices within the insurance industry. Thefollowing is an explanation of the Company’s accounting policies and the resultant estimates considered most significant bymanagement. These accounting policies inherently require significant judgment and assumptions and actual operating resultscould differ significantly from management’s estimates determined using these policies. Atlantic American does not expect thatchanges in the estimates determined using these policies will have a material effect on the Company’s financial condition orliquidity, although changes could have a material effect on its consolidated results of operations.Unpaid loss and loss adjustment expenses comprised 31% of the Company’s total liabilities at December 31, 2014. Thisliability includes estimates for: 1) unpaid losses on claims reported prior to December 31, 2014, 2) future development on thosereported claims, 3) unpaid ultimate losses on claims incurred prior to December 31, 2014 but not yet reported and 4) unpaid lossadjustment expenses for reported and unreported claims incurred prior to December 31, 2014. Quantification of loss estimates foreach of these components involves a significant16TABLE OF CONTENTSdegree of judgment and estimates may vary, materially, from period to period. Estimated unpaid losses on reported claims aredeveloped based on historical experience with similar claims by the Company. Development on reported claims, estimates ofunpaid ultimate losses on claims incurred prior to December 31, 2014 but not yet reported, and estimates of unpaid loss adjustmentexpenses are developed based on the Company’s historical experience, using actuarial methods to assist in the analysis. TheCompany’s actuaries develop ranges of estimated development on reported and unreported claims as well as loss adjustmentexpenses using various methods, including the paid-loss development method, the reported-loss development method, the paidBornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method. Any single method used to estimate ultimate losseshas inherent advantages and disadvantages due to the trends and changes affecting the business environment and the Company’sadministrative policies. Further, external factors, such as legislative changes, medical cost inflation, and others may directly orindirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustment expenses. The Company’s approach is toselect an estimate of ultimate losses based on comparing results of a variety of reserving methods, as opposed to total reliance onany single method. Unpaid loss and loss adjustment expenses are reviewed periodically for significant lines of business, and whencurrent results differ from the original assumptions used to develop such estimates, the amount of the Company’s recorded liabilityfor unpaid loss and loss adjustment expenses is adjusted. In the event the Company’s actual reported losses in any period arematerially in excess of the previously estimated amounts, such losses, to the extent reinsurance coverage does not exist, could havea material adverse effect on the Company’s results of operations.Future policy benefits comprised 33% of the Company’s total liabilities at December 31, 2014. These liabilities relateprimarily to life insurance products and are based upon assumed future investment yields, mortality rates, and withdrawal rates aftergiving effect to possible risks of adverse deviation. The assumed mortality and withdrawal rates are based upon the Company’sexperience. If actual results differ from the initial assumptions, the amount of the Company’s recorded liability could requireadjustment.Deferred acquisition costs comprised 9% of the Company’s total assets at December 31, 2014. Deferred acquisition costs arecommissions, premium taxes, and other costs that vary with and are primarily related to the acquisition of new and renewalbusiness and are generally deferred and amortized. The deferred amounts are recorded as an asset on the balance sheet andamortized to expense in a systematic manner. Traditional life insurance and long-duration health insurance deferred policyacquisition costs are amortized over the estimated premium-paying period of the related policies using assumptions consistent withthose used in computing the related liability for policy benefit reserves. Deferred acquisition costs for property and casualtyinsurance and short-duration health insurance are amortized over the effective period of the related insurance policies. Deferredpolicy acquisition costs are expensed when such costs are deemed not to be recoverable from future premiums (for traditional lifeand long-duration health insurance) and from the related unearned premiums and investment income (for property and casualty andshort-duration health insurance). Assessments of recoverability for property and casualty and short-duration health insurance areextremely sensitive to the estimates of a subsequent year’s projected losses related to the unearned premiums. Projected lossestimates for a current block of business for which unearned premiums remain to be earned may vary significantly from theindicated losses incurred in any previous calendar year.Receivables are amounts due from reinsurers, insureds and agents, and any sales of investment securities not yet settled, andcomprised 8% of the Company’s total assets at December 31, 2014. Insured and agent balances are evaluated periodically forcollectibility. Annually, the Company performs an analysis of the creditworthiness of the reinsurers with whom the Companycontracts using various data sources. Failure of reinsurers to meet their obligations due to insolvencies, disputes or otherwise couldresult in uncollectible amounts and losses to the Company. Allowances for uncollectible amounts are established, as and when aloss has been determined probable, against the related receivable. Losses are recognized by the Company when determined on aspecific account basis and a general provision for loss is made based on the Company’s historical experience.Cash and investments comprised 81% of the Company’s total assets at December 31, 2014. Substantially all of the Company’sinvestments are in bonds and common and preferred stocks, the values of which are subject to significant market fluctuations. TheCompany carries all investments as available for sale and, accordingly, at their estimated fair values. The Company owns certainfixed maturities that do not have publicly quoted values, but had an estimated fair value as determined by management of $2.2million at December 31, 2014. Such values inherently involve a greater degree of judgment and uncertainty and thereforeultimately greater price17TABLE OF CONTENTSvolatility than the value of securities with publicly quoted market values. On occasion, the value of an investment may decline to avalue below its amortized purchase price and remain at such value for an extended period of time. When an investment’s indicatedfair value has declined below its cost basis for a period of time, the Company evaluates such investment for an other thantemporary impairment. The evaluation for an other than temporary impairment is a quantitative and qualitative process, which issubject 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 financialcondition or near term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, theCompany considers, among other factors, management’s intent and ability to hold the securities until price recovery, the nature ofthe investment and the expectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of itsobligations in accordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent tocontinue to do so, as well as ratings actions that may affect the issuer’s credit status. If an other than temporary impairment isdeemed to exist, then the Company will write down the amortized cost basis of the investment to its estimated fair value. While anysuch write down does not impact the reported value of the investment in the Company’s balance sheet, it is reflected as a realizedinvestment loss in the Company’s consolidated statements of operations in the period incurred.The Company determines the fair values of certain financial instruments based on the fair value hierarchy established inAccounting Standards Codification (“ASC”) 820-10-20, Fair Value Measurements and Disclosures (“ASC 820-10-20”). The fairvalues of fixed maturities and equity securities are largely determined by either independent methods prescribed by the NationalAssociation of Insurance Commissioners, which do not differ materially from nationally quoted market prices, when available, orindependent broker quotations. See Note 2 and Note 14 of the accompanying notes to consolidated financial statements withrespect to assets and liabilities carried at fair value and information about the inputs used to value those financial instruments, byhierarchy level, in accordance with ASC 820-10-20.Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financialreporting purposes and the amounts that are recognized for tax purposes. These deferred income taxes are measured by applyingcurrently enacted tax laws and rates. Valuation allowances are recognized to reduce the deferred tax asset to the amount that isdeemed more likely than not to be realized. In assessing the likelihood of realization, management considers estimates of futuretaxable income and tax planning strategies.Refer to Note 1 of “Notes to Consolidated Financial Statements” for details regarding the Company’s significant accountingpolicies.Overall Corporate ResultsYear Ended December 31,20142013(In thousands)Revenue Property and Casualty: American Southern$57,636 $53,938 Life and Health: Bankers Fidelity 107,046 110,069 Corporate and Other 1,639 1,362 Total revenue$166,321 $165,369 Income (loss) before income taxes Property and Casualty: American Southern$5,012 $7,630 Life and Health: Bankers Fidelity 5,153 9,262 Corporate and Other (5,261) (5,686)Income before income taxes$4,904 $11,206 Net income$4,430 $11,022 18TABLE OF CONTENTSManagement also considers and evaluates performance by analyzing the non-GAAP measure, operating income, and believesit is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” results of theCompany before considering certain items that are either beyond the control of management (such as taxes, which are subject totiming, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected toregularly impact the Company’s operational results (such as any realized investment and other gains, which are not a part of theCompany’s primary operations and are, to an extent, subject to discretion in terms of timing of realization).A reconciliation of net income to operating income is as follows:Year Ended December 31,20142013(In thousands)Reconcilation of Net Income to non-GAAP Measurement Net income$4,430 $11,022 Income tax expense 474 184 Realized investment gains, net (1,571) (8,741)Gain on purchase of debt securities(1) (750) — Operating income$2,583 $2,465 (1)Gain from the purchase of $7.5 million of the Company’s junior subordinated deferrable interest debentures (“JuniorSubordinated Debentures”). See Note 6 of Notes to Consolidated Financial Statements.On a consolidated basis, the Company had net income of $4.4 million, or $0.19 per diluted share, in 2014, compared to netincome of $11.0 million, or $0.48 per diluted share, in 2013. The decrease in net income during 2014 was primarily due to adecrease in realized investment gains. In 2014, realized investments gains decreased by $7.2 million as the Company sold severalhigher yielding, longer-term investments in 2013 in order to shorten the average maturity of its investment portfolio. Operatingincome was $2.6 million in 2014 compared to $2.5 million in 2013. The slight increase in operating income during 2014 wasprimarily attributable to increased profitability in the property and casualty operations as well as lower interest expense due toboth the expiration in March 2013 of an interest rate collar and the decrease in August 2014 of the outstanding balance of theCompany’s Junior Subordinated Debentures. Partially offsetting the increase in operating income were increases in agency andunderwriting related expenses, including increased hiring to support worksite product and distribution initiatives as well as theamortization of unearned compensation from stock awards. Further, investment income also decreased due not only to the sale ofthe higher yielding, longer-term investments in 2013 discussed previously but also the reinvestment of such proceeds at lowerinterest rates.Total revenue was $166.3 million in 2014 as compared to $165.4 million in 2013. Premium revenue increased to $153.5million in 2014 from $145.6 million in 2013. The increase in premium revenue was primarily attributable to an increase incommercial automobile earned premiums in the property and casualty operations resulting from a significant state contract whichincepted in 2013. Also included in total revenue were net realized investment gains of $1.6 million in 2014 compared to netrealized investment gains of $8.7 million in 2013. The magnitude of realized investment gains and losses in any year is a functionof the timing of trades of investments relative to the markets themselves as well as the recognition of any other than temporaryimpairments on investments.Total expenses were $161.4 million in 2014 as compared to $154.2 million in 2013. As a percentage of premiums, insurancebenefits and losses incurred and commissions and underwriting expenses were 95.8% and 96.8% in 2014 and 2013, respectively.A more detailed analysis of the operating companies and other corporate activities follows.19TABLE OF CONTENTSUNDERWRITING RESULTSAmerican SouthernThe following table summarizes, for the periods indicated, American Southern’s premiums, losses, expenses and underwritingratios:Year Ended December 31,20142013(Dollars in thousands)Gross written premiums$56,165 $58,327 Ceded premiums (5,847) (7,553)Net written premiums$50,318 $50,774 Net earned premiums$52,654 $45,851 Net losses and loss adjustment expenses 38,179 30,197 Underwriting expenses 14,445 16,111 Underwriting income (loss)$30 $(457)Loss ratio 72.5% 65.9%Expense ratio 27.4 35.1 Combined ratio 99.9% 101.0%Gross written premiums at American Southern decreased $2.2 million, or 3.7%, during 2014 as compared to 2013. Thedecrease in gross written premiums was primarily attributable to a decrease of $11.0 million in commercial automobile writtenpremiums resulting from the cancellation of an agency in 2014 due to unfavorable loss experience. Partially offsetting the decreasein gross written premiums in 2014 were increases in commercial automobile and property business from new and existingprograms. In an effort to increase gross written premiums, diversify its business and offset the decrease in business writings fromcancelled agencies, American Southern continually evaluates new underwriting programs. In both 2014 and 2013, AmericanSouthern’s five principal states in terms of written premiums were Alabama, Florida, Georgia, South Carolina, and Texas, whichaccounted for approximately 70% and 67% of total written premiums for 2014 and 2013, respectively.Ceded premiums decreased $1.7 million, or 22.6%, during 2014 as compared to 2013. American Southern’s ceded premiumsare determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.However, the change in ceded premiums was disproportionate to the increase in earned premiums due to the execution of a separatereinsurance agreement to specifically reinsure the commercial automobile business in a state contract awarded to AmericanSouthern in 2013. Otherwise, the decrease in ceded premiums during 2014 was primarily attributable to the decline in commercialautomobile earned premiums from the agency cancellation discussed previously.The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:Year Ended December 31,20142013(In thousands)Automobile liability$26,438 $24,259 Automobile physical damage 11,633 8,365 General liability 3,577 3,521 Property 3,697 2,699 Surety 7,309 7,007 Total$52,654 $45,851 Net earned premiums increased $6.8 million, or 14.8%, during 2014 as compared to 2013. The increase in net earnedpremiums was primarily attributable to the increase in commercial automobile earned premiums from20TABLE OF CONTENTSthe state contract referenced previously. Also contributing were increases in general liability, property and surety earned premiumsfrom both new and existing programs. Partially offsetting the increase in net earned premiums was the decrease in commercialautomobile business from the agency cancellation discussed previously. Premiums are earned ratably over their respective policyterms, and therefore premiums earned in the current year are related to policies written during both the current year andimmediately preceding year.The performance of an insurance company is often measured by its combined ratio. The combined ratio represents thepercentage of losses, loss adjustment expenses and other expenses that are incurred for each dollar of premium earned by thecompany. A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates anunderwriting loss. The combined ratio is divided into two components, the loss ratio (the ratio of losses and loss adjustmentexpenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).Net losses and loss adjustment expenses at American Southern increased $8.0 million, or 26.4%, during 2014 as compared to2013. As a percentage of premiums, net losses and loss adjustment expenses were 72.5% in 2014 compared to 65.9% in 2013. Theincrease in the loss ratio was due to increased losses, which were anticipated, in the commercial automobile line of businessprimarily from the state contract referenced previously. Also contributing to the increase in the loss ratio were increased losses inall other primary lines of business during 2014 as compared to 2013.Underwriting expenses decreased $1.7 million, or 10.3%, during 2014 as compared to 2013. As a percentage of premiums,underwriting expenses were 27.4% in 2014 compared to 35.1% in 2013. The decrease in the expense ratio was primarily due toAmerican Southern’s variable commission structure, which compensates the company’s agents in relation to the loss ratios of thebusiness they write. During periods in which the loss ratio increases, commissions and underwriting expenses will generallydecrease, and conversely, during periods in which the loss ratio decreases, commissions and underwriting expenses will generallyincrease. In 2014, these commission accruals at American Southern decreased $1.6 million as compared to 2013 due to unfavorableloss experience. Also contributing to the decrease in the expense ratio was the increase in earned premiums coupled with arelatively consistent level of fixed general and administrative expenses.In establishing reserves, American Southern initially reserves for losses at the higher end of the reasonable range if no othervalue within the range is determined to be more probable. Selection of such an initial loss estimate is an attempt by management togive recognition that initial claims information received generally is not conclusive with respect to legal liability, is generally notcomprehensive with respect to magnitude of loss and generally, based on historical experience, will develop more adversely astime passes and more information becomes available. However, as a result, American Southern generally experiences reserveredundancies when analyzing the development of prior year losses in a current period. At December 31, 2014, the range ofestimates developed in connection with the loss reserves for American Southern indicated that reserves could be as much as 14.1%lower or as much as 12.0% 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 currentperiod losses. American Southern’s estimated net reserve redundancies for the years ended December 31, 2014 and 2013 were $0.2million and $2.5 million, respectively. To the extent reserve redundancies vary between years, there is an incremental impact onthe results of operations of American Southern and the Company. The indicated redundancy in 2014 was $2.3 million less thanthat in 2013. After considering the impact on contingent commissions and other related accruals, the $2.3 million decrease in theredundancy resulted in a decrease in income from operations before tax of approximately $1.4 million in 2014 as compared to2013. Management believes that such differences will continue in future periods but is unable to determine if or when incrementalredundancies will increase or decrease, until the underlying losses are ultimately settled.Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability ofa particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued as earned.Approximately 57% of American Southern’s earned premium provides for contractual commission arrangements which compensatethe company’s agents in relation to the loss ratios of the business they write. By structuring its business in this manner, AmericanSouthern provides its agents with an economic incentive to place profitable business with American Southern. In periods in whichloss reserves reflect21TABLE OF CONTENTSfavorable development from prior years’ reserves, there is generally a highly correlated increase in commission expense also relatedto the prior year business. Accordingly, favorable loss development from prior years, while anticipated to continue in futureperiods, is not an indicator of significant additional profitability in the current year.Bankers FidelityThe following summarizes, for the periods indicated, Bankers Fidelity’s premiums, losses and expenses:Year Ended December 31,20142013(Dollars in thousands)Medicare supplement$85,197 $83,979 Other health products 4,750 4,661 Life insurance 10,887 11,139 Total earned premiums 100,834 99,779 Insurance benefits and losses 68,016 70,175 Underwriting expenses 33,877 30,632 Total expenses 101,893 100,807 Underwriting loss$(1,059)$(1,028)Loss ratio 67.5% 70.3%Expense ratio 33.6 30.7 Combined ratio 101.1% 101.0%Premium revenue at Bankers Fidelity increased $1.1 million, or 1.1%, during 2014 as compared to 2013. Premiums from theMedicare supplement line of business increased $1.2 million, or 1.5%, in 2014 as compared to 2013, due primarily to theimplementation of rate increases on renewal business, as appropriate. Other health product premiums increased $0.1 million, or1.9%, during 2014 as compared to 2013, primarily as a result of new sales of the company’s short-term care products. Premiumsfrom the life insurance line of business decreased $0.3 million, or 2.3%, in 2014 from 2013 due to the redemption and settlement ofexisting policy obligations exceeding the level of new sales activity. In 2014, the company’s five principal states in terms ofpremium revenue were Georgia, Indiana, Ohio, Pennsylvania, and Tennessee, which accounted for approximately 44% of totalpremiums for 2014. The company’s five principal states in terms of premium revenue in 2013 were Georgia, Missouri, Indiana,Ohio and Pennsylvania, and accounted for approximately 46% of the total premiums in that period.Benefits and losses decreased $2.2 million, or 3.1%, during 2014 as compared to 2013. As a percentage of premiums, benefitsand losses were 67.5% in 2014 compared to 70.3% in 2013. The decrease in the loss ratio was primarily attributable to morefavorable loss experience in the Medicare supplement line of business.Underwriting expenses increased $3.2 million, or 10.6%, during 2014 as compared to 2013. As a percentage of earnedpremiums, these expenses were 33.6% in 2014 compared to 30.7% in 2013. The increase in the expense ratio was primarilyattributable to increases in agency and underwriting related expenses, including increased hiring to support worksite product anddistribution initiatives. Partially offsetting the increase in the expense ratio was a decrease in general advertising expenses as wellas a decrease in actuarial consulting fees due to less utilization of consulting actuaries in the development of the company’sworksite products.Investment Income and Realized GainsInvestment income decreased $0.4 million, or 4.1%, in 2014 as compared to 2013. The decrease in investment income wasprimarily attributable to sales during 2013 of a number of the Company’s higher yielding, longer-term fixed maturities due tomanagement’s decision to shorten the average maturity of the portfolio. The Company generally has not been able to reinvest theproceeds from such sales at equivalent interest rates.22TABLE OF CONTENTSThe Company had net realized investment gains of $1.6 million in 2014 compared to net realized investment gains of $8.7million in 2013. The net realized investment gains in 2014 resulted from the disposition of several of the Company’s investmentsin fixed maturities. The net realized investment gains in 2013 were primarily due to the sale of a number of the Company’sinvestments in longer-term fixed maturities discussed previously. During 2014, the Company recorded investment impairmentsdue to other than temporary declines in values of $0.2 million on certain of its investments in non-redeemable preferred stocks.While the impairments did not impact the carrying value of these investments, they resulted in realized losses which reducedreported realized gains. There were no impairments recorded in 2013. Management continually evaluates the Company’sinvestment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will divestinvestments. See Note 2 of Notes to Consolidated Financial Statements.Interest ExpenseInterest expense decreased $0.3 million, or 15.3%, in 2014 as compared to 2013. The decrease in interest expense wasprimarily due to the termination of the Company’s zero cost interest rate collar with Wells Fargo Bank, National Association(“Wells Fargo”) on March 4, 2013, the stated maturity date, by its terms. The interest rate collar had a London Interbank OfferedRate (“LIBOR”) floor of 4.77%. As a result of interest rates remaining below the LIBOR floor, the Company was making paymentsto Wells Fargo under the interest rate collar through the maturity date. Also contributing to the decrease in interest expense was adecrease in the outstanding amount of Junior Subordinated Debentures. On August 4, 2014, the Company acquired $7.5 million ofprincipal amount Junior Subordinated Debentures, which decreased the outstanding balance to $33.7 million and resulted inprospectively lower interest expense.Other ExpensesOther expenses (commissions, underwriting expenses, and other expenses) increased $1.7 million, or 3.3%, in 2014 ascompared to 2013. The increase in other expenses was primarily attributable to increases in agency and underwriting relatedexpenses in the life and health operations, amortization of deferred acquisition costs exceeding deferrals due to lower levels of newbusiness as well as the increase of $0.4 million in amortization of unearned compensation from stock awards. Further, there wasalso an increase in severance expense of $0.1 million related to an increase in the number of employee separations in 2014 ascompared to 2013. Partially offsetting the increase in other expenses was the $1.6 million decrease in commission accruals atAmerican Southern due to recent increased loss experience. The majority of American Southern’s business is structured in a waythat agents are compensated based upon the loss ratios of the business they place with the company. During periods in which theloss ratio increases, commissions and underwriting expenses will generally decrease, and conversely, during periods in which theloss ratio decreases, commissions and underwriting expenses will generally increase. As a percentage of earned premiums, otherexpenses were 34.9% in 2014 as compared with 35.6% in 2013. The decrease in the expense ratio was primarily due to the decreasein commission accruals at American Southern discussed previously.Income TaxesThe primary differences between the effective tax rate and the federal statutory income tax rate resulted from the dividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”) and the change in deferred tax asset valuationallowance. The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but notlimited to, actual distributions from investments as well as the amount of the Company’s taxable income. The SLD varies inamount and is determined at a rate of 60 percent of the tentative life insurance company taxable income (“LICTI”). The SLD forany taxable year is reduced (but not below zero) by 15 percent of the tentative LICTI for such taxable year as it exceeds $3.0million and is ultimately phased out at $15.0 million. The change in deferred tax asset valuation allowance was due to theunanticipated utilization of certain capital loss carryforward benefits that had been previously reduced to zero through an existingvaluation allowance reserve.Liquidity and Capital ResourcesThe primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutorycapital and surplus levels, and meeting debt service requirements. Current and expected patterns of claim frequency and severitymay change from period to period but generally are expected to23TABLE OF CONTENTScontinue within historical ranges. The Company’s primary sources of cash are written premiums, investment income and proceedsfrom the sale and maturity of its invested assets. The Company believes that, within each operating company, total invested assetswill be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, future premium receipts andreinsurance collections will be adequate to fund the payment of claims and expenses as needed.Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from thesubsidiaries. The cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debtservice requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by theCompany’s board of directors from time to time. At December 31, 2014, the Parent had approximately $19.7 million of unrestrictedcash and investments.Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations andare restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individualinsurance subsidiaries. At December 31, 2014, the Parent’s insurance subsidiaries had an aggregate statutory surplus of $73.0million. Dividends were paid to Atlantic American by its subsidiaries totaling $6.5 million and $6.6 million in 2014 and 2013,respectively.The Parent provides certain administrative, purchasing and other services to each of its subsidiaries. The amounts charged toand paid by the subsidiaries for these services were $7.5 million and $6.3 million in 2014 and 2013, respectively. In addition, theParent has a formal tax-sharing agreement with each of its insurance subsidiaries. A net total of $4.7 million and $2.6 million werepaid to the Parent under the tax sharing agreements in 2014 and 2013, respectively. As a result of the Parent’s tax loss, it isanticipated that the tax sharing agreements will continue to provide the Parent with additional funds to assist in meeting its cashflow obligations.The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representingundivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in JuniorSubordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature onDecember 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company,and have an interest rate of three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. At December31, 2014, the effective interest rate was 4.29%. The obligations of the Company with respect to the issuances of the trust preferredsecurities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferredsecurities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior SubordinatedDebenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. TheCompany has not made such an election.The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividendand tax sharing payments from the operating subsidiaries, or from potential future financing arrangements.At December 31, 2014, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding.All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstandingshares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share(payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and arecumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate ofapproximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that suchadjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtainingprior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currentlyconvertible. The Company redeemed 10,000 shares of the Series D Preferred Stock in 2014 and 5,000 shares of the Series DPreferred Stock in 2013 at the stated value of $100 per share, for aggregate payments of $1.0 million and $0.5 million, respectively.As of December 31, 2014 and 2013, the Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of $17,722and $20,945, respectively. In each of 2014 and 2013, the Company paid $0.5 million in Series D Preferred Stock dividends.Cash and cash equivalents decreased from $33.1 million at December 31, 2013 to $16.4 million at December 31, 2014. Thedecrease in cash and cash equivalents during 2014 was primarily attributable to an24TABLE OF CONTENTSincreased level of investing exceeding normal sales and maturities, additions to property and equipment of $4.1 million, thepurchase of Junior Subordinated Debentures for treasury for $6.8 million, the redemption of 10,000 shares of the Series D PreferredStock for $1.0 million, dividends paid on the Company’s common stock and Series D Preferred Stock of $0.8 million and $0.5million, respectively, and the purchase of shares for treasury for $2.6 million. Partially offsetting the decrease was the net cashprovided by operations of $4.5 million during 2014.The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects toreceive from its subsidiaries and, if needed, additional borrowings from financial institutions, will enable the Company to meet itsliquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatoryauthorities, which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources oroperations.New Accounting PronouncementsSee “Recently Issued Accounting Standards” in Note 1 of Notes to Consolidated Financial Statements.Impact of InflationInsurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflationmay affect such losses and expenses, are known. Consequently, the Company attempts, in establishing its premiums, to anticipatethe potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost wouldbe absorbed by the Company. Inflation also affects the rate of investment return on the Company’s investment portfolio with acorresponding effect on investment income. To date, inflation has not had a material effect on the Company’s results of operationsin any of the periods presented.Off-Balance Sheet ArrangementsIn the normal course of business, the Company has structured borrowings that, in accordance with accounting principlesgenerally accepted in the United States of America, are recorded on the Company’s balance sheet at an amount that differs from theultimate contractual obligation. See Note 6 of Notes to Consolidated Financial Statements.Contractual ObligationsAs a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and thereforedo not have to provide the table of contractual obligations required by this Item.Item 7A.Quantitative and Qualitative Disclosures About Market RiskAs a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and thereforedo not have to provide the information required by this Item.25TABLE OF CONTENTSItem 8.Financial Statements and Supplementary DataINDEX TO FINANCIAL STATEMENTSPageATLANTIC AMERICAN CORPORATION Report of Independent Registered Public Accounting Firm 27 Consolidated Balance Sheets as of December 31, 2014 and 2013 28 Consolidated Statements of Operations for the years ended December 31, 2014 and 2013 29 Consolidated Statements of Comprehensive Income for the years ended December 31, 2014 and 2013 30 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014 and 2013 31 Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013 32 Notes to Consolidated Financial Statements 33 26TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersAtlantic American CorporationAtlanta, GeorgiaWe have audited the accompanying consolidated balance sheets of Atlantic American Corporation as of December 31, 2014and 2013 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows forthe years then ended. In connection with our audits of the financial statements, we have also audited Schedules II, III, IV and VI.These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements and schedules based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of Atlantic American Corporation at December 31, 2014 and 2013, and the results of its operations and its cash flows forthe years then ended, in conformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financialstatements taken as a whole, present fairly, in all material respects, the information set forth therein.BDO USA, LLPAtlanta, GeorgiaMarch 27, 201527TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED BALANCE SHEETSDecember 31,20142013(Dollars in thousands,except per share data)ASSETS Cash and cash equivalents$16,375 $33,102 Investments 240,285 228,961 Receivables: Reinsurance 14,348 14,314 Insurance premiums and other, net of allowance for doubtful accounts of $439 and $339 in2014 and 2013, respectively 10,728 9,343 Deferred income taxes, net — 363 Deferred acquisition costs 26,981 27,509 Other assets 5,747 3,245 Intangibles 2,544 2,544 Total assets$317,008 $319,381 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds$164,094 $162,373 Accounts payable and accrued expenses 13,586 14,843 Deferred income taxes, net 1,395 — Junior subordinated debenture obligations, net (Note 6) 33,738 41,238 Total liabilities 212,813 218,454 Commitments and contingencies (Note 7) Shareholders’ equity: Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 and 65,000 shares issued and outstanding in 2014 and 2013,respectively; $5,500 and $6,500 redemption value in 2014 and 2013, respectively 55 65 Common stock, $1 par, 50,000,000 shares authorized; 22,400,894 shares issued; 20,600,039 and 21,117,874 shares outstanding in 2014 and2013, respectively 22,401 22,401 Additional paid-in capital 56,491 57,103 Retained earnings 21,866 18,738 Accumulated other comprehensive income 9,279 6,204 Unearned stock grant compensation (460) (485)Treasury stock, at cost, 1,800,855 and 1,283,020 shares in 2014 and 2013, respectively (5,437) (3,099)Total shareholders’ equity 104,195 100,927 Total liabilities and shareholders’ equity$317,008 $319,381 The accompanying notes are an integral part of these consolidated financial statements.28TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONSYear Ended December 31,20142013(Dollars in thousands,except per share data)Revenue: Insurance premiums$153,488 $145,630 Investment income 10,367 10,809 Realized investment gains, net 1,571 8,741 Other income (Note 6) 895 189 Total revenue 166,321 165,369 Benefits and expenses: Insurance benefits and losses incurred 106,195 100,372 Commissions and underwriting expenses 40,923 40,556 Interest expense 1,607 1,898 Other expense 12,692 11,337 Total benefits and expenses 161,417 154,163 Income before income taxes 4,904 11,206 Income tax expense 474 184 Net income 4,430 11,022 Preferred stock dividends (468) (482)Net income applicable to common shareholders$3,962 $10,540 Basic earnings per common share$.19 $.50 Diluted earnings per common share$.19 $.48 The accompanying notes are an integral part of these consolidated financial statements.29TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEYear Ended December 31,20142013(Dollars in thousands)Net income$4,430 $11,022 Other comprehensive income (loss): Available-for-sale securities: Gross unrealized holding gain (loss) arising in the period 6,302 (11,965)Related income tax effect (2,206) 4,188 Less: reclassification adjustment for net realized gains included in net income(1) (1,571) (8,741)Related income tax effect(2) 550 3,059 Net effect on other comprehensive income (loss) 3,075 (13,459)Derivative financial instrument: Fair value adjustment to derivative financial instrument — 141 Related income tax effect — (49)Net effect on other comprehensive income (loss) — 92 Total other comprehensive income (loss), net of tax 3,075 (13,367)Total comprehensive income (loss)$7,505 $(2,345)(1)Realized gains on available-for-sale securities recognized in realized investment gains, net on the accompanyingconsolidated statements of operations.(2)Income tax effect on reclassification adjustment for net realized gains included in income tax expense on theaccompanying consolidated statements of operations.The accompanying notes are an integral part of these consolidated financial statements.30TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYPreferredStockCommonStockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncomeUnearnedStockGrantCompensationTreasuryStockTotal(Dollars in thousands)Balance, December 31, 2012$70 $22,401 $57,180 $8,621 $19,571 $— $(2,107)$105,736 Net income — — — 11,022 — — — 11,022 Other comprehensive loss, net oftax — — — — (13,367) — — (13,367)Preferred stock redeemed (5) — (495) — — — — (500)Dividends on common stock — — — (423) — — — (423)Dividends on preferred stock — — — (482) — — — (482)Restricted stock grants — — 393 — — (704) 311 — Amortization of unearnedcompensation — — — — — 219 — 219 Purchase of 371,220 shares fortreasury — — — — — — (1,416) (1,416)Issuance of 72,552 shares understock plans — — 25 — — — 113 138 Balance, December 31, 2013 65 22,401 57,103 18,738 6,204 (485) (3,099) 100,927 Net income — — — 4,430 — — — 4,430 Other comprehensive income, netof tax — — — — 3,075 — — 3,075 Preferred stock redeemed (10) — (990) — — — — (1,000)Dividends on common stock — — — (834) — — — (834)Dividends on preferred stock — — — (468) — — — (468)Restricted stock grants — — 328 — — (559) 231 — Amortization of unearnedcompensation — — — — — 584 — 584 Purchase of 687,964 shares fortreasury — — — — — — (2,603) (2,603)Issuance of 21,629 shares understock plans — — 50 — — — 34 84 Balance, December 31, 2014$55 $22,401 $56,491 $21,866 $9,279 $(460)$(5,437)$104,195 The accompanying notes are an integral part of these consolidated financial statements.31TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSYear Ended December 31,20142013(Dollars in thousands)Cash flows from operating activities: Net income$4,430 $11,022 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 10,678 8,960 Acquisition costs deferred (10,150) (10,336)Realized investment gains, net (1,571) (8,741)Gain on purchase of debt securities (Note 6) (750) — Increase in insurance reserves and policyholder funds 1,721 7,815 Compensation expense related to share awards 584 219 Depreciation and amortization 932 600 Deferred income tax expense (benefit) 102 (329)(Increase) decrease in receivables, net (1,419) 1,448 (Decrease) increase in other liabilities (47) 2,292 Other, net (57) 70 Net cash provided by operating activities 4,453 13,020 Cash flows from investing activities: Proceeds from investments sold 75,441 108,745 Proceeds from investments matured, called or redeemed 1,916 11,414 Investments purchased (82,836) (112,466)Additions to property and equipment (4,127) (1,338)Acquisition of Bankers Fidelity Assurance, net of $1,317 acquired — (2,540)Net cash (used in) provided by investing activities (9,606) 3,815 Cash flows from financing activities: Payment for debt securities (Note 6) (6,750) — Redemption of Series D preferred stock (1,000) (500)Payment of dividends on Series D preferred stock (471) (483)Payment of dividends on common stock (834) (423)Proceeds from shares issued under stock plans 84 138 Purchase of shares for treasury (2,603) (1,416)Net cash used in financing activities (11,574) (2,684) Net (decrease) increase in cash (16,727) 14,151 Cash and cash equivalents at beginning of year 33,102 18,951 Cash and cash equivalents at end of year$16,375 $33,102 Supplemental cash flow information: Cash paid for interest$1,649 $1,961 Cash paid for income taxes$445 $536 The accompanying notes are an integral part of these consolidated financial statements.32TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share amounts)Note 1. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe accompanying consolidated financial statements have been prepared in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”) which, for insurance companies, differ in some respects from the statutoryaccounting practices prescribed or permitted by regulatory authorities. These financial statements include the accounts of AtlanticAmerican Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). Allsignificant intercompany accounts and transactions have been eliminated in consolidation. Operating results achieved in anyhistorical period are not necessarily indicative of results to be expected in any future period.At December 31, 2014, the Parent owned four insurance subsidiaries, Bankers Fidelity Life Insurance Company and itswholly-owned subsidiary, Bankers Fidelity Assurance Company (“BFAC”) (together known as “Bankers Fidelity”), and AmericanSouthern Insurance Company and its wholly-owned subsidiary, American Safety Insurance Company (together known as“American Southern”), in addition to one non-insurance subsidiary, xCalibre Risk Services, Inc. BFAC was acquired on December18, 2013. The results of operations of BFAC are included from the date of acquisition. The Parent has issued a guarantee of allliabilities of Bankers Fidelity.Premium Revenue and Cost RecognitionLife insurance premiums are recognized as revenue when due; accident and health insurance premiums are recognized asrevenue over the premium paying period and property and casualty insurance premiums are recognized as revenue over the periodof the contract in proportion to the amount of insurance protection provided. Benefits and expenses are accrued as incurred and areassociated with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. For traditionallife insurance and long-duration health insurance, this association is accomplished by the provision of a future policy benefitsreserve and the deferral and subsequent amortization of the costs of acquiring business, “deferred policy acquisition costs”(principally commissions, premium taxes, and other incremental direct costs of issuing policies). Deferred policy acquisition costsare amortized over the estimated premium-paying period of the related policies using assumptions consistent with those used incomputing the policy benefits reserve. The Company provides for insurance benefits and losses on accident, health, and property-casualty claims based upon estimates of projected ultimate losses. Deferred policy acquisition costs for property and casualtyinsurance and short-duration health insurance are amortized over the effective period of the related insurance policies. Contingentcommissions, if contractually applicable, are ultimately payable to agents based on the underlying profitability of a particularinsurance contract or a group of insurance contracts, and are periodically evaluated and accrued as earned. In periods in whichrevisions are made to the estimated loss reserves related to the particular insurance contract or group of insurance contracts subjectto such commissions, corresponding adjustments are also made to the related accruals. Deferred policy acquisition costs areexpensed when such costs are deemed not to be recoverable from future premiums (for traditional life and long-duration healthinsurance) and from the related unearned premiums and investment income (for property and casualty and short-duration healthinsurance).IntangiblesIntangibles consist of goodwill and other indefinite-lived intangibles. Goodwill represents the excess of cost over the fairvalue of net assets acquired and is not amortized. Other indefinite-lived intangibles represent the value of licenses acquired in the2013 acquisition of BFAC (Note 16) and are not amortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverse conditions exist that could indicate impairment. Conditions that could triggerimpairment include, but are not limited to, a significant change in business climate that could affect the value of the related asset,an adverse action, or an assessment by a regulator. No impairment of the Company’s recorded intangibles was identified during theperiods presented.33TABLE OF CONTENTSInvestmentsThe Company’s investments in both fixed maturities, which include bonds and redeemable preferred stocks, and equitysecurities, which include common and non-redeemable preferred stocks, are classified as “available-for-sale” and, accordingly, arecarried at fair value with the after-tax difference from amortized cost, as adjusted if applicable, reflected in shareholders’ equity as acomponent of accumulated other comprehensive income or loss. The fair values for fixed maturities and equity securities arelargely determined by either independent methods prescribed by the National Association of Insurance Commissioners (“NAIC”),which do not differ materially from publicly quoted market prices, when available, or independent broker quotations. TheCompany owns certain fixed maturities that do not have publicly quoted market values, but had an estimated fair value asdetermined by management of $2,214 at December 31, 2014. Such values inherently involve a greater degree of judgment anduncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market values. Policyloans and real estate are carried at historical cost. Other invested assets are comprised of investments in limited partnerships,limited liability companies, and real estate joint ventures, and are accounted for using the equity method. If the value of a commonstock, preferred stock, other invested asset, or publicly traded bond declines below its cost or amortized cost, if applicable, and thedecline is considered to be other than temporary, a realized loss is recorded to reduce the carrying value of the investment to itsestimated fair value, which becomes the new cost basis. The evaluation for an other than temporary impairment is a quantitativeand qualitative process, which is subject to risks and uncertainties in the determination of whether declines in the fair value ofinvestments are other than temporary. Potential risks and uncertainties include, among other things, changes in general economicconditions, an issuer’s financial condition or near term recovery prospects and the effects of changes in interest rates. In evaluatinga potential impairment, the Company considers, among other factors, management’s intent and ability to hold the securities untilprice recovery, the nature of the investment and the expectation of prospects for the issuer and its industry, the status of an issuer’scontinued satisfaction of its obligations in accordance with their contractual terms, and management’s expectation as to theissuer’s ability and intent to continue to do so, as well as ratings actions that may affect the issuer’s credit status. Premiums anddiscounts related to investments are amortized or accreted over the life of the related investment as an adjustment to yield using theeffective interest method. Dividends and interest income are recognized when earned or declared. The cost of securities sold isbased on specific identification. Unrealized gains (losses) in the value of invested assets are accounted for as a direct increase(decrease) in accumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effecton net income.Income TaxesDeferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities arerecovered or paid. They arise from differences between the financial reporting and tax basis of assets and liabilities and are adjustedfor changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount ofincome taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance isrecognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a deferred taxasset will not be realized.Earnings Per Common ShareBasic earnings per common share are based on the weighted average number of common shares outstanding during therelevant period. Diluted earnings per common share are based on the weighted average number of common shares outstandingduring the relevant period, plus options and share awards outstanding using the treasury stock method and the assumed conversionof the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per common share amounts are presented on adiluted basis.Cash and Cash EquivalentsCash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities with originalmaturities of three months or less from date of purchase.Recently Issued Accounting StandardsIn January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary34TABLE OF CONTENTSItems (“ASU 2015-01”). The main objective of ASU 2015-01 is to identify, evaluate, and improve areas of GAAP for which cost andcomplexity can be reduced while maintaining or improving the usefulness of the information provided to users of financialstatements. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. Presently, if an event or transaction meets thecriteria for extraordinary classification, an entity is required to segregate the extraordinary item from results of ordinary operationsand show the item separately in the income statement, net of tax, after income from continuing operations. The entity also isrequired to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinaryitem. Although the amendments in ASU 2015-01 will eliminate requirements for reporting entities to consider whether anunderlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature oroccur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequentlyoccurring. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Areporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financialstatements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. TheCompany adopted ASU 2015-01 effective January 1, 2014. Since ASU 2015-01 was a disclosure only update, its adoption did nothave a material impact on the Company’s financial condition or results of operations.Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements and related disclosures in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant estimates andassumptions are used in developing and evaluating deferred income taxes, deferred acquisition costs, insurance reserves,investments, and commitments and contingencies, among others, and actual results could differ materially from management’sestimates.35TABLE OF CONTENTSNote 2. InvestmentsThe following tables set forth the carrying value, gross unrealized gains, gross unrealized losses and amortized cost of theCompany’s investments, aggregated by type and industry, as of December 31, 2014 and December 31, 2013.Investments were comprised of the following:2014CarryingValueGrossUnrealizedGainsGrossUnrealizedLossesAmortizedCostFixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Governmentagencies and authorities$33,898 $1,459 $30 $32,469 Obligations of states and political subdivisions 11,459 681 — 10,778 Corporate securities: Utilities and telecom 13,980 2,355 — 11,625 Financial services 59,224 3,404 588 56,408 Other business – diversified 70,139 2,076 1,830 69,893 Other consumer – diversified 25,388 332 547 25,603 Total corporate securities 168,731 8,167 2,965 163,529 Redeemable preferred stocks: Financial services 608 8 — 600 Other consumer – diversified 192 — — 192 Total redeemable preferred stocks 800 8 — 792 Total fixed maturities 214,888 10,315 2,995 207,568 Equity securities: Common and non-redeemable preferred stocks: Utilities and telecom 1,403 439 — 964 Financial services 6,083 739 — 5,344 Other business – diversified 226 179 — 47 Other consumer – diversified 11,212 5,598 — 5,614 Total equity securities 18,924 6,955 — 11,969 Other invested assets 2,995 — — 2,995 Policy loans 2,202 — — 2,202 Real estate 38 — — 38 Investments in unconsolidated trusts 1,238 — — 1,238 Total investments$240,285 $17,270 $2,995 $226,010 36TABLE OF CONTENTS2013CarryingValueGrossUnrealizedGainsGrossUnrealizedLossesAmortizedCostFixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Governmentagencies and authorities$17,240 $576 $210 $16,874 Obligations of states and political subdivisions 7,611 402 17 7,226 Corporate securities: Utilities and telecom 16,532 1,353 7 15,186 Financial services 50,531 1,736 320 49,115 Other business – diversified 70,326 870 2,906 72,362 Other consumer – diversified 36,712 391 1,745 38,066 Total corporate securities 174,101 4,350 4,978 174,729 Redeemable preferred stocks: Financial services 2,159 4 41 2,196 Other consumer – diversified 192 — — 192 Total redeemable preferred stocks 2,351 4 41 2,388 Total fixed maturities 201,303 5,332 5,246 201,217 Equity securities: Common and non-redeemable preferred stocks: Utilities and telecom 1,474 510 — 964 Financial services 5,761 514 560 5,807 Other business – diversified 178 131 — 47 Other consumer – diversified 14,477 8,863 — 5,614 Total equity securities 21,890 10,018 560 12,432 Other invested assets 2,123 — — 2,123 Policy loans 2,369 — — 2,369 Real estate 38 — — 38 Investments in unconsolidated trusts 1,238 — — 1,238 Total investments$228,961 $15,350 $5,806 $219,417 Bonds having an amortized cost of $10,615 and $10,101 and included in the tables above were on deposit with insuranceregulatory authorities at December 31, 2014 and 2013, respectively, in accordance with statutory requirements.37TABLE OF CONTENTSThe following table sets forth the carrying value, amortized cost, and net unrealized gains (losses) of the Company’sinvestments aggregated by industry as of December 31, 2014 and 2013.20142013CarryingValueAmortizedCostUnrealizedGainsCarryingValueAmortizedCostUnrealizedGains (Losses)U.S. Treasury securities and obligations of U.S.Government agencies and authorities$33,898 $32,469 $1,429 $17,240 $16,874 $366 Obligations of states and political subdivisions 11,459 10,778 681 7,611 7,226 385 Utilities and telecom 15,383 12,589 2,794 18,006 16,150 1,856 Financial services 65,915 62,352 3,563 58,451 57,118 1,333 Other business – diversified 70,365 69,940 425 70,504 72,409 (1,905)Other consumer – diversified 36,792 31,409 5,383 51,381 43,872 7,509 Other investments 6,473 6,473 — 5,768 5,768 — Investments$240,285 $226,010 $14,275 $228,961 $219,417 $9,544 The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was ina continuous unrealized loss position as of December 31, 2014 and 2013.2014Less than 12 months12 months or longerTotalFair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury securities and obligations ofU.S. Government agencies and authorities$3,695 $7 $2,692 $23 $6,387 $30 Corporate securities 43,996 1,604 9,293 1,361 53,289 2,965 Total temporarily impaired securities$47,691 $1,611 $11,985 $1,384 $59,676 $2,995 2013Less than 12 months12 months or longerTotalFair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury securities and obligations ofU.S. Government agencies and authorities$8,326 $210 $— $— $8,326 $210 Obligations of states and politicalsubdivisions 1,018 17 — — 1,018 17 Corporate securities 92,049 3,714 6,938 1,264 98,987 4,978 Redeemable preferred stocks 704 41 — — 704 41 Common and non-redeemable preferredstocks 3,724 560 — — 3,724 560 Total temporarily impaired securities$105,821 $4,542 $6,938 $1,264 $112,759 $5,806 The evaluation for an other than temporary impairment is a quantitative and qualitative process, which is subject to risks anduncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potential risks anduncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition or near termrecovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Company considers, amongother factors, management’s intent and ability to hold the securities until price recovery, the nature of the investment and theexpectation of prospects for the issuer and its industry, the status of an issuer’s continued satisfaction of its obligations inaccordance with their contractual terms, and management’s expectation as to the issuer’s ability and intent to continue to do so, aswell as ratings actions that may affect the issuer’s credit status.38TABLE OF CONTENTSDuring the years ended December 31, 2014 and 2013, the Company recorded impairments related to the followinginvestments.20142013Common and non-redeemable preferred stocks$196 $— As of December 31, 2014, securities in an unrealized loss position primarily included certain of the Company’s investments infixed maturities within the other diversified business, other diversified consumer and financial services sectors. Securities in anunrealized loss position reported in the other diversified business sector included gross unrealized losses of $1,416 related toinvestments in fixed maturities in the oil and gas industry. The Company does not currently intend to sell nor does it expect to berequired to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation of receipt ofcontractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as wellas the Company’s evaluation of other relevant factors, including those described above, the Company has deemed these securitiesto be temporarily impaired as of December 31, 2014.The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fairvalue to measure the value of its financial instruments and information about the inputs used to value those financial instruments.The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.Level 1Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company hasthe ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteriainclude cash equivalents and exchange traded common stocks.Level 2Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets orliabilities. The Company’s financial instruments valued using Level 2 criteria include significantly all of its fixedmaturities, which consist of U.S. Treasury securities and U.S. Government securities, obligations of states and politicalsubdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fairvalue measurements using Level 2 criteria, the Company utilizes various external pricing sources.Level 3Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (includingassumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readilyobservable from objective sources. The Company’s financial instruments valued using Level 3 criteria consist of alimited number of fixed maturities. As of December 31, 2014 and 2013, the value of the Company’s fixed maturitiesvalued using Level 3 criteria was $2,214 and $1,991, respectively. The use of different criteria or assumptionsregarding data may have yielded materially different valuations.As of December 31, 2014, financial instruments carried at fair value were measured on a recurring basis as summarized below:Assets:QuotedPrices inActiveMarketsfor IdenticalAssets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)TotalFixed maturities$— $212,674 $2,214 $214,888 Equity securities 13,148 5,776 — 18,924 Cash equivalents 15,009 — — 15,009 Total$28,157 $218,450 $2,214 $248,821 39TABLE OF CONTENTSAs of December 31, 2013, financial instruments carried at fair value were measured on a recurring basis as summarized below:Assets:QuotedPrices inActiveMarketsfor IdenticalAssets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)TotalFixed maturities$— $199,312 $1,991 $201,303 Equity securities 16,406 5,484 — 21,890 Cash equivalents 31,618 — — 31,618 Total$48,024 $204,796 $1,991 $254,811 The following is a roll-forward of the Company’s financial instruments measured at fair value on a recurring basis usingsignificant unobservable inputs (Level 3) from January 1, 2013 to December 31, 2014.FixedMaturitiesDerivative(Liability)Balance, January 1, 2013$2,124 $(141)Total unrealized gains (losses) included in comprehensive income (133) 141 Balance, December 31, 2013 1,991 — Total unrealized gains included in comprehensive income 223 — Balance, December 31, 2014$2,214 $— The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations ofmultiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair valueare based on future estimated cash flows (based on current cash flows) discounted at reasonable estimated rates of interest. There areno assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. governmentagency strips to support repayment of the principal. Other qualitative and quantitative information received from the originalunderwriter of the pooled offerings is also considered, as applicable. The Company’s derivative financial instrument was an interestrate collar which terminated on March 4, 2013, the stated maturity date, by its terms.The amortized cost and carrying value of fixed maturities at December 31, 2014 and 2013 by contractual maturity were asfollows. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligationswith or without call or prepayment penalties.20142013CarryingValueAmortizedCostCarryingValueAmortizedCostDue in one year or less$1,000 $1,000 $— $— Due after one year through five years 16,523 15,891 11,709 11,097 Due after five years through ten years 114,620 112,381 108,358 107,846 Due after ten years 64,990 61,704 76,882 77,884 Varying maturities 17,755 16,592 4,354 4,390 Totals$214,888 $207,568 $201,303 $201,217 Investment income was earned from the following sources:20142013Fixed maturities$9,720 $9,890 Equity securities 510 632     Other 137 287 Total investment income 10,367 10,809 Less investment expenses, included in other expenses (536) (474) Net investment income$9,831 $10,335 40TABLE OF CONTENTSA summary of realized investment gains (losses) follows:2014FixedMaturitiesEquitySecuritiesTotalGains$2,449 $— $2,449 Losses (665) (213) (878)Realized investment gains, net$1,784 $(213)$1,571 2013FixedMaturitiesEquitySecuritiesTotalGains$8,521 $293 $8,814 Losses (45) (28) (73)Realized investment gains, net$8,476 $265 $8,741 Proceeds from the sales of investments were as follows:20142013Fixed maturities$75,244 $107,728 Equity securities — 972 Other investments 197 45 Total proceeds$75,441 $108,745 The Company’s bond portfolio included 83% investment grade securities, as defined by the NAIC, at December 31, 2014.Note 3. Insurance Reserves and Policyholder FundsThe following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims andloss adjustment expenses.Amount of InsuranceIn Force, Net2014201320142013Future policy benefits Life insurance policies: Ordinary$53,555 $52,915 $235,856 $237,694 Mass market 2,475 2,715 3,148 3,504 Individual annuities 130 135 — — 56,160 55,765 $239,004 $241,198 Accident and health insurance policies 14,685 14,099 70,845 69,864 Unearned premiums 24,544 27,415 Losses, claims and loss adjustment expenses 66,625 63,018 Other policy liabilities 2,080 2,076 Total insurance reserves and policyholder funds$164,094 $162,373 Annualized premiums for accident and health insurance policies were $88,956 and $91,359 at December 31, 2014 and 2013,respectively.Future Policy BenefitsLiabilities for life insurance future policy benefits are based upon assumed future investment yields, mortality rates, andwithdrawal rates after giving effect to possible risks of unexpected claim experience. The assumed mortality and withdrawal ratesare based upon the Company’s experience. The interest rates assumed for41TABLE OF CONTENTSlife, accident and health future policy benefits are generally: (i) 2.5% to 5.5% for issues prior to 1977, (ii) 7% graded to 5.5% for1977 through 1979 issues, (iii) 9% for 1980 through 1987 issues, (iv) 5% to 7% for 1988 through 2009 issues, (v) 4% for 2010through 2012 issues, and (vi) 3.5% for 2013 to 2014 issues.Loss and Claim ReservesLoss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate ofultimate liability and claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b)estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. Theestimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in thestatement of operations in the year in which such changes are known.Activity in the liability for unpaid loss and claim reserves is summarized as follows:20142013Balance at January 1$63,018 $62,873 Less: Reinsurance receivable on unpaid losses (14,314) (18,743)Net balance at January 1 48,704 44,130 Incurred related to: Current year 104,225 97,904 Prior years (483) (1,657)Total incurred 103,742 96,247 Paid related to: Current year 72,443 66,705 Prior years 27,680 24,968 Total paid 100,123 91,673 Net balance at December 31 52,323 48,704 Plus: Reinsurance receivable on unpaid losses 14,302 14,314 Balance at December 31$66,625 $63,018 Prior years’ development was primarily the result of better than expected development on prior years IBNR reserves for certainlines of business.Following is a reconciliation of total incurred claims to total insurance benefits and losses incurred:20142013Total incurred claims$103,742 $96,247 Cash surrender value and matured endowments 1,574 1,215 Benefit reserve changes 879 2,910 Total insurance benefits and losses incurred$106,195 $100,372 Note 4. ReinsuranceIn accordance with general practice in the insurance industry, portions of the life, property and casualty insurance written bythe Company are reinsured; however, the Company remains liable with respect to reinsurance ceded should any reinsurer be unableor unwilling to meet its obligations. Approximately 99% of the Company’s reinsurance receivables were due from two reinsurers asof December 31, 2014. Reinsurance receivables of $1,218 were due from Swiss Reinsurance Corporation, rated “AA-” by Standard& Poor’s and “A+” (Superior) by A.M. Best and $12,986 were due from General Reinsurance Corporation, rated “AA+” by Standard& Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against reinsurance receivables,if appropriate.42TABLE OF CONTENTSThe effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows:20142013Direct premiums written$138,276 $141,313 Assumed premiums written 18,231 16,702 Ceded premiums written (5,890) (7,607)Net premiums written$150,617 $150,408 Direct premiums earned$141,212 $141,720 Assumed premiums earned 18,166 11,517 Ceded premiums earned (5,890) (7,607)Net premiums earned$153,488 $145,630 Provision for benefits and losses incurred$110,912 $105,828 Reinsurance loss recoveries (4,717) (5,456)Insurance benefits and losses incurred$106,195 $100,372 Components of reinsurance receivables were as follows:20142013Receivable on unpaid losses$14,302 $14,314 Receivable on paid losses 46 — Total reinsurance receivables$14,348 $14,314 Note 5. Income TaxesTotal income taxes were allocated as follows:20142013Total tax expense on income$474 $184 Tax expense (benefit) on components of shareholders’ equity: Net unrealized gains (losses) on investment securities 1,656 (7,247)Fair value adjustment to derivative financial instrument — 49 Total tax expense (benefit) on shareholders’ equity 1,656 (7,198)Total tax expense (benefit)$2,130 $(7,014)A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income taxexpense is as follows:20142013Federal income tax provision at statutory rate of 35%$1,717 $3,922 Dividends-received deduction (115) (149)Small life insurance company deduction (600) (586)Other 53 50 Change in asset valuation allowance due to change in judgment relating to realizability of deferredtax assets (651) (3,059)Adjustment for prior years’ estimates to actual 70 6 Income tax expense$474 $184 43TABLE OF CONTENTSThe primary differences between the effective tax rate and the federal statutory income tax rate resulted from the dividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”) and the change in deferred tax asset valuationallowance. The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but notlimited to, actual distributions from investments as well as the amount of the Company’s taxable income. The SLD varies inamount and is determined at a rate of 60 percent of the tentative life insurance company taxable income (“LICTI”). The SLD forany taxable year is reduced (but not below zero) by 15 percent of the tentative LICTI for such taxable year as it exceeds $3,000 andis ultimately phased out at $15,000. The change in deferred tax asset valuation allowance was due to the unanticipated utilizationof certain capital loss carryforward benefits that had been previously reserved.Deferred tax liabilities and assets at December 31, 2014 and 2013 were comprised of the following:20142013Deferred tax liabilities: Deferred acquisition costs$(2,832)$(3,766)Deferred and uncollected premiums (704) (734)Net unrealized investment gains (4,997) (3,341)Other (37) (8)Total deferred tax liabilities (8,570) (7,849)Deferred tax assets: Net operating loss carryforwards 20 844 Insurance reserves 4,676 5,109 Capital loss carryforwards — 2,177 Impaired assets 1,474 1,406 Alternative minimum tax credit 239 309 Bad debts and other 766 576 Total deferred tax assets 7,175 10,421 Asset valuation allowance — (2,209)Net deferred tax asset (liability)$(1,395)$363 The components of income tax expense were:20142013Current - Federal$372 $513 Deferred - Federal 753 2,730 Change in deferred tax asset valuation allowance (651) (3,059)Total$474 $184 As of December 31, 2014, the Company had regular federal net operating loss carryforwards (“NOLs”) of approximately $58expiring in 2032. Currently, the Company believes that deferred income tax benefits relating to the NOLs will be realized.However, expected realization of the NOLs is assessed periodically based on the Company’s then current and anticipated results ofoperations, and amounts could increase or decrease if estimates of future taxable income change.At December 31, 2013, a valuation allowance of $2,209 was established against deferred income tax benefits relatingprimarily to capital loss carryforwards that may not be realized. During 2014, the valuation allowance was decreased to zero. Thedecrease was primarily due to the write off of certain expired capital loss carryforward benefits that had been previously reservedfor through an existing valuation allowance.The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries.Note 6. Junior Subordinated DebenturesThe Company has two unconsolidated Connecticut statutory business trusts, which exist for the exclusive purposes of: (i)issuing trust preferred securities (“Trust Preferred Securities”) representing undivided beneficial44TABLE OF CONTENTSinterests in the assets of the trusts; (ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinateddeferrable interest debentures (“Junior Subordinated Debentures”) of Atlantic American; and (iii) engaging in only those activitiesnecessary or incidental thereto.The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2014 and 2013, was asfollows:Atlantic AmericanStatutory Trust IAtlantic AmericanStatutory Trust IIJUNIOR SUBORDINATED DEBENTURES(1)(2) Principal amount owed$18,042 $23,196 Balance December 31, 2014$18,042 $23,196 Less: Treasury debt(3) — (7,500)Net balance December 31, 2014$18,042 $15,696 Net balance December 31, 2013$18,042 $23,196 Coupon rateLIBOR + 4.00%LIBOR + 4.10%Interest payableQuarterlyQuarterlyMaturity dateDecember 4, 2032May 15, 2033Redeemable by issuerYesYesTRUST PREFERRED SECURITIESIssuance dateDecember 4, 2002May 15, 2003Securities issued17,50022,500Liquidation preference per security$1 $1 Liquidation value17,50022,500Coupon rateLIBOR + 4.00%LIBOR + 4.10%Distribution payableQuarterlyQuarterlyDistribution guaranteed by(4)AtlanticAtlanticAmericanAmericanCorporationCorporation(1)For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments ofinterest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’respective maturity dates. During any such period, interest will continue to accrue and the Company may not declare orpay any cash dividends or distributions on, or purchase, the Company’s common stock nor make any principal, interest orpremium payments on or repurchase any debt securities that rank equally with or junior to the Junior SubordinatedDebentures. The Company has the right at any time to dissolve each of the trusts and cause the Junior SubordinatedDebentures to be distributed to the holders of the Trust Preferred Securities.(2)The Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debtof the Parent and are effectively subordinated to all existing and future liabilities of its subsidiaries.(3)On August 4, 2014, the Company acquired $7,500 of the Junior Subordinated Debentures. Consideration tendered, uponsettlement, was $6,750 plus accrued interest resulting in a gain of $750 recognized in other income on the accompanyingconsolidated statements of operations in 2014.(4)The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, includingpayment of the redemption price and any accumulated and unpaid distributions to the extent of available funds and upondissolution, winding up or liquidation.Note 7. Commitments and ContingenciesLitigationFrom time to time, the Company is, and expects to continue to be, involved in various claims and lawsuits incidental to and inthe ordinary course of its business. In the opinion of management, any such known claims are not expected to have a material effecton the financial condition or results of operations of the Company.45TABLE OF CONTENTSOperating Lease CommitmentsThe Company’s rental expense, including common area charges, for operating leases was $1,229 and $1,215 in 2014 and2013, respectively. The Company’s future minimum base lease obligations under non-cancelable operating leases are as follows:Year Ending December 31,2015$896 2016 435 2017 446 2018 457 2019 193 Thereafter — Total$2,427 Note 8. Benefit PlansEquity Incentive PlanOn May 1, 2012, the Company’s shareholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Planauthorizes the grant of up to 2,000,000 stock options, stock appreciation rights, restricted shares, restricted stock units,performance shares, performance units and other awards for the purpose of providing the Company’s non-employee directors,consultants, officers and other employees incentives and rewards for superior performance. In 2014, a total of 148,500 restrictedshares, with an estimated fair value of $559, were issued to officers under the 2012 Plan. In 2013, a total of 200,000 restrictedshares, with an estimated fair value of $704, were issued to officers and directors under the 2012 Plan. The estimated fair value ofthe restricted shares issued under the 2012 Plan for 2014 and 2013 was based on the common stock price at date of grant.A summary of the status of the Company’s stock options at December 31, 2014 and 2013 is as follows:20142013OptionsSharesWeightedAverageExercisePriceSharesWeightedAverageExercisePriceOptions outstanding, beginning of year — $ — 77,000 $1.59 Options exercised — — (62,500) 1.59 Options canceled or expired — — (14,500) 1.59 Options outstanding, end of year — — — — Options available for future grant 1,651,500 1,800,000 401(k) PlanThe Company initiated an employees’ savings plan (the “Plan”) qualified under Section 401(k) of the Internal Revenue Codein May 1995. The Plan covers substantially all of the Company’s employees. Effective January 1, 2009, the Company modified thePlan such that the Plan would operate on a safe harbor basis. Under the Plan, employees may defer up to 50% of theircompensation, not to exceed the annual deferral limit. The Company’s total matching contribution for 2014 and 2013 was $186and $173, respectively, and consisted of a contribution equal to 50% of up to the first 4% of each participant’s contributions. Inaddition to the matching contribution, the Company also provided a 3% safe harbor non-elective contribution in 2014 and 2013 of$391 and $369, respectively. The employer match and safe harbor contribution were made in cash.Agent Stock Purchase PlanThe Company initiated a nonqualified stock purchase plan (the “Agent Stock Purchase Plan”) in May 2012. The purpose ofthe Agent Stock Purchase Plan is to promote and advance the interests of the Company and its stockholders by providingindependent agents who qualify as participants with an opportunity to purchase the46TABLE OF CONTENTScommon stock of the Company. Under the Agent Stock Purchase Plan, payment for shares of common stock of the Company ismade by either deduction from an agent’s commission payment or a direct cash payment. Stock purchases are made at the end ofeach calendar quarter at the then current market value.Note 9. Preferred StockThe Company had 55,000 and 65,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December31, 2014 and 2013, respectively. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controllingshareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at arate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of theCompany) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into anaggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided thatsuch adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock withoutobtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is notcurrently convertible. The Company redeemed 10,000 shares of the Series D Preferred Stock in 2014 and 5,000 shares of the SeriesD Preferred Stock in 2013 at the stated value of $100 per share, for aggregate payments of $1,000 and $500, respectively. As ofDecember 31, 2014 and 2013, the Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of $18 and $21,respectively. During 2014 and 2013, the Company paid Series D Preferred Stock dividends of $471 and 483, respectively.Note 10. Earnings Per Common ShareA reconciliation of the numerator and denominator of the earnings per common share calculations is as follows:For the Year Ended December 31, 2014IncomeShares(In thousands)Per ShareAmountBasic and Diluted Earnings Per Common Share Net income before preferred stock dividends$4,430 20,818 Less preferred stock dividends (468) — Net income applicable to common shareholders$3,962 20,818 $.19 For the Year Ended December 31, 2013IncomeShares(In thousands)Per ShareAmountBasic Earnings Per Common Share Net income before preferred stock dividends$11,022 21,236 Less preferred stock dividends (482) — Net income applicable to common shareholders 10,540 21,236 $.50 Diluted Earnings Per Common Share Effect of dilutive stock options — 10 Effect of Series D Preferred Stock 482 1,629 Net income applicable to common shareholders$11,022 22,875 $.48 The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common sharecalculation for 2014 since its impact would have been antidilutive.Note 11. Statutory ReportingThe assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects fromstatutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differencesbetween SAP and GAAP are that under SAP: (i) certain assets that are non-admitted assets are eliminated from the balance sheet; (ii)acquisition costs for policies are expensed as47TABLE OF CONTENTSincurred, while they are deferred and amortized over the estimated life of the policies under GAAP; (iii) the provision that is madefor deferred income taxes is different than under GAAP; (iv) the timing of establishing certain reserves is different than underGAAP; and (v) certain valuation allowances attributable to certain investments are different.The amount of reported statutory net income and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for theyears ended December 31 was as follows:20142013Life and Health, net income$2,738 $3,013 Property and Casualty, net income 4,813 6,224 Statutory net income$7,551 $9,237 Life and Health, surplus$34,004 $34,530 Property and Casualty, surplus 39,012 39,092 Statutory surplus$73,016 $73,622 Under the insurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Parent by itsinsurance subsidiaries are subject to certain limitations without the prior approval of the applicable state’s InsuranceCommissioner. The Parent received dividends of $6,468 and $6,646 in 2014 and 2013, respectively, from its subsidiaries. In 2015,dividend payments to the Parent by the insurance subsidiaries in excess of $7,640 would require prior approval.Note 12. Related Party TransactionsIn the normal course of business the Company has engaged in transactions with entities affiliated with the controllingshareholder of the Company. These transactions include the leasing of office space as well as certain investing and financingactivities. At December 31, 2014, two members of the Company’s board of directors, including our chairman, president and chiefexecutive officer, were considered to be affiliates of the majority shareholder, who is also a member of the Company’s board ofdirectors.The Company leases approximately 49,586 square feet of office and covered garage space from one such controlled entity.During the years ended December 31, 2014 and 2013, the Company paid $852 and $864, respectively, under this lease.Certain financing for the Company has also been provided by this entity in the form of an investment in the Series D PreferredStock (See Note 9). During the years ended December 31, 2014 and 2013, the Company paid this entity $471 and $483,respectively, in dividends on the Series D Preferred Stock. During the years ended December 31, 2014 and 2013, the Companyredeemed $1,000 and $500, respectively, of the Series D Preferred Stock.Certain members of the Company’s management and board of directors are shareholders and on the board of directors of GrayTelevision, Inc. (“Gray”). As of December 31, 2014 and 2013, the Company owned 880,272 shares of Gray Class A common stockand 106,000 shares of Gray common stock. The aggregate carrying value of these investments in Gray at December 31, 2014 and2013 was $9,242 and $12,942, respectively.Note 13. Segment InformationThe Parent’s primary insurance subsidiaries operate with relative autonomy and each company is evaluated based on itsindividual performance. American Southern operates in the property and casualty insurance market, while Bankers Fidelityoperates in the life and health insurance market. Each segment derives revenue from the collection of premiums, as well as frominvestment income. Substantially all revenue other than that in the corporate and other segment is from external sources.48TABLE OF CONTENTS2014AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums$52,654 $100,834 $— $— $153,488 Insurance benefits and losses incurred 38,179 68,016 — — 106,195 Expenses deferred (7,845) (2,305) — — (10,150)Amortization and depreciation expense 8,646 2,457 507 — 11,610 Other expenses 13,644 33,725 15,601 (9,208) 53,762 Total expenses 52,624 101,893 16,108 (9,208) 161,417 Underwriting income (loss) 30 (1,059) Investment income 4,447 5,507 2,152 (1,739) 10,367 Other income 8 11 7,595 (7,469) 145 Operating income (loss) 4,485 4,459 (6,361) — 2,583 Net realized gains 527 694 350 — 1,571 Gain on purchase of debt securities (Note 6) — — 750 — 750 Income (loss) before income taxes$5,012 $5,153 $(5,261)$— $4,904 Total revenues$57,636 $107,046 $10,847 $(9,208)$166,321 Intangibles$1,350 $1,194 $— $— $2,544 Total assets$129,517 $161,729 $139,271 $(113,509)$317,008 2013AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums$45,851 $99,779 $— $— $145,630 Insurance benefits and losses incurred 30,197 70,175 — — 100,372 Expenses deferred (7,106) (3,230) — — (10,336)Amortization and depreciation expense 7,440 2,120 — — 9,560 Other expenses 15,777 31,742 15,076 (8,028) 54,567 Total expenses 46,308 100,807 15,076 (8,028) 154,163 Underwriting loss (457) (1,028) Investment income 4,308 5,920 2,338 (1,757) 10,809 Other income 12 40 6,408 (6,271) 189 Operating income (loss) 3,863 4,932 (6,330) — 2,465 Net realized gains 3,767 4,330 644 — 8,741 Income (loss) before income taxes$7,630 $9,262 $(5,686)$— $11,206 Total revenues$53,938 $110,069 $9,390 $(8,028)$165,369 Intangibles$1,350 $1,194 $— $— $2,544 Total assets$126,861 $156,484 $141,304 $(105,268)$319,381 Note 14. Disclosures About Fair Value of Financial InstrumentsThe estimated fair values have been determined by the Company using available market information from various marketsources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary tointerpret market data and to develop the estimates of fair value. Although management is not aware of any factors that wouldsignificantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amountswhich the Company could realize in a current market exchange. The use of different market assumptions and/or estimationmethodologies may have a material effect on the estimated fair value amounts.49TABLE OF CONTENTS20142013Level inFair ValueHierarchy(1)CarryingAmountEstimatedFair ValueCarryingAmountEstimatedFair ValueAssets: Cash and cash equivalentsLevel 1$16,375 $16,375 $33,102 $33,102 Fixed maturities(1) 214,888 214,888 201,303 201,303 Equity securities(1) 18,924 18,924 21,890 21,890 Other invested assetsLevel 3 2,995 2,995 2,123 2,123 Policy loansLevel 2 2,202 2,202 2,369 2,369 Real estateLevel 2 38 38 38 38 Investments in unconsolidated trustsLevel 2 1,238 1,238 1,238 1,238 Liabilities: Junior Subordinated Debentures, netLevel 2 33,738 33,738 41,238 41,238 (1)See Note 2 for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.The following describes the methods and assumptions used by the Company in estimating fair values:Cash and Cash EquivalentsThe carrying amount approximates fair value due to the short-term nature of the instruments.Fixed Maturities and Common and Non-Redeemable Preferred StocksThe carrying amount is determined in accordance with methods prescribed by the NAIC, which do not differ materially frompublicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances ofpooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniquesused to measure fair value are based on future estimated cash flows discounted at a reasonably estimated rate of interest. Otherqualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, asapplicable.Non-publicly Traded Invested AssetsThe fair value of investments in certain limited partnerships which are included in other invested assets on the consolidatedbalance sheet were determined by officers of those limited partnerships.Junior Subordinated DebenturesThe fair value is estimated based on the quoted market prices for similar issues and the current rates offered for debt havingsimilar returns and remaining maturities.Note 15. Accumulated Other Comprehensive IncomeThe following table sets forth the balance of each component of accumulated other comprehensive income as of December 31,2014 and 2013, and the changes in the balance of each component thereof during 2014.UnrealizedGains onAvailable-for-SaleSecuritiesBalance, December 31, 2013$6,204 Other comprehensive income before reclassifications 4,096 Amounts reclassified from accumulated other comprehensive income (1,021)Net current-period other comprehensive income 3,075 Balance, December 31, 2014$9,279 50TABLE OF CONTENTSNote 16. AcquisitionsOn December 18, 2013, the Company acquired 100% of the outstanding stock of Direct Life Insurance Company (“DLIC”) for$3,857 and changed the name of the company to Bankers Fidelity Assurance Company. The acquisition will allow BankersFidelity to offer additional similar products to those it already writes permitting greater diversification of product and pricing aswell as opportunity for future expansion in other states. The purchase was not significant to the financial position or results ofoperations of the Company in 2013 and DLIC had no significant recent operations prior to acquisition. In connection with theacquisition the following assets and liabilities were acquired:2013Cash and cash equivalents$1,317 Investments 2,123 Receivables 7 Intangibles 416 Total assets$3,863 Accounts payable and accrued expenses$6 Total liabilities$6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresAs of the end of the period covered by this report, an evaluation was performed under the supervision and with theparticipation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined in Rules 13a-25(e) and 15d-15(e) of the SecuritiesExchange Act of 1934). Based on that evaluation, our management, including the Chief Executive Officer and Chief FinancialOfficer, concluded that our disclosure controls and procedures were effective as of that date.Management of the Company is responsible for establishing and maintaining adequate internal control over financialreporting for the Company. Our internal control over financial reporting system has been designed to provide reasonable assuranceregarding the reliability and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. Management recognizes that there are inherent limitations in the effectiveness of any internal controlsystem. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.Furthermore, the application of any evaluations of effectiveness on future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statementpreparation and presentation.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in theupdated 2013 Internal Control – Integrated Framework. Based on that evaluation, management believes that internal control overfinancial reporting as such term is defined in Exchange Act Rule 13a-15(f) was effective as of December 31, 2014.There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2014 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.This Annual Report does not include an attestation report of the Company’s independent registered public accounting firmregarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sindependent registered public accounting firm pursuant to certain rules of the Securities and Exchange Commission that exemptsmaller reporting companies, including the Company, from such requirement.Item 9B. Other InformationNone.51TABLE OF CONTENTSPART IIIWith the exception of certain information relating to the Executive Officers of the Company, which is provided in Part Ihereof, the information relating to securities authorized for issuance under equity compensation plans and the information relatingto the Company’s Code of Ethics, each of which is included below, all information required by Part III (Items 10, 11, 12, 13 and 14of Form 10-K) is incorporated by reference to the sections entitled “Election of Directors”, “Security Ownership of CertainBeneficial Owners and Management”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Executive Compensation”, “Certain Relationships and Related Transactions, and Director Independence” and “Ratification of Independent Registered PublicAccounting Firm” to be contained in the Company’s definitive proxy statement in connection with the Company’s AnnualMeeting of Shareholders to be held on May 5, 2015, to be filed with the SEC within 120 days of the Company’s fiscal year end.Equity Compensation Plan InformationThe following table sets forth, as of December 31, 2014, the number of securities issuable upon exercise of outstandingoptions, warrants and rights, the weighted average exercise price thereof and the number of securities remaining available for futureissuance under the Company’s equity compensation plans:Plan CategoryNumber ofSecurities to BeIssued UponExercise ofOutstandingOptions, Warrantsand RightsWeighted-AverageExercise Price ofOutstandingOptions, Warrantsand RightsNumber of SecuritiesRemaining Availablefor Future IssuanceUnder EquityCompensation Plans(Excluding SecuritiesReflected in the FirstColumn)Equity compensation plans approved by security holders — $— 1,651,500 Equity compensation plans not approved by security holders(1) — — — Total — $— 1,651,500 (1)All the Company’s equity compensation plans have been approved by the Company’s shareholders.The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principalaccounting officer or controller, or any persons performing similar functions, as well as its directors and other employees. A copy ofthis Code of Ethics has been filed as an exhibit to this annual report on Form 10-K.52TABLE OF CONTENTSPART IVItem 15. Exhibits and Financial Statement Schedules(a) List of documents filed as part of this report:1.Financial Statements:See Index to Financial Statements contained in Item 8 hereof.2.Financial Statement Schedules:Schedule II -Condensed financial information of the registrantSchedule III -Supplementary insurance information of the registrantSchedule IV -Reinsurance information for the registrantSchedule VI -Supplemental information concerning property-casualty insurance operations of the registrantSchedules other than those listed above are omitted as they are not required or are not applicable, or the required information isshown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because theinformation is not applicable.3.Exhibits *:3.1-Restated Articles of Incorporation of the registrant, as amended [incorporated by reference to Exhibit 3.1 to theregistrant’s Form 10-K for the year ended December 31, 2008].3.2-Bylaws of the registrant, as amended [incorporated by reference to Exhibit 3.2 to the registrant’s Form 10-K for theyear ended December 31, 2008].10.01-Management Agreement between the registrant and Atlantic American Life Insurance Company and BankersFidelity Life Insurance Company dated July 1, 1993 [incorporated by reference to Exhibit 10.41 to the registrant’sForm 10-Q for the quarter ended September 30, 1993].10.02-Tax allocation agreement dated January 28, 1994, between registrant and registrant’s subsidiaries [incorporated byreference to Exhibit 10.44 to the registrant’s Form 10-K for the year ended December 31, 1993].10.03**-Atlantic American Corporation 2012 Nonqualified Stock Purchase Plan [incorporated by reference to Exhibit 99.1to the registrant’s Form S-8 (File No. 333-183207) filed on August 10, 2012].10.04**-Atlantic American Corporation 2012 Equity Incentive Plan [incorporated by reference to Exhibit 10.1 toregistrant’s Form 10-Q for the quarter ended March 31, 2013].10.05**-Summary Terms of Consulting Arrangement between Bankers Fidelity Life Insurance Company and William H.Whaley, M.D. [incorporated by reference to Exhibit 10.06 to the registrant’s Form 10-K for the year endedDecember 31, 2010].10.06-Lease Agreement between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company,Atlantic American Corporation and Delta Life Insurance Company dated as of November 1, 2007 [incorporated byreference to Exhibit 10.10 to the registrant’s Form 10-K for the year ended December 31, 2007].10.07-First Amendment to Lease Agreement between Georgia Casualty & Surety Company, Bankers Fidelity LifeInsurance Company, Atlantic American Corporation and Delta Life Insurance Company dated as of March 31, 2008[incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q for the quarter ended March 31, 2008].14.1-Code of Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Form 10-K for the year ended December31, 2003].21.1-Subsidiaries of the registrant.23.1-Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.31.1-Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2-Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1-Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.53TABLE OF CONTENTS101.INS-XBRL Instance Document.101.SCH-XBRL Taxonomy Extension Schema.101.CAL-XBRL Taxonomy Extension Calculation Linkbase.101.DEF-XBRL Taxonomy Extension Definition Linkbase.101.LAB-XBRL Taxonomy Extension Label Linkbase.101.PRE-XBRL Taxonomy Extension Presentation Linkbase.*The registrant agrees to furnish to the Commission upon request a copy of any instruments defining the rights of securityholders of the registrant that may be omitted from filing in accordance with the Commission’s rules and regulations.**Management contract, compensatory plan or arrangement required to be filed pursuant to Part IV, Item 15(c) of Form 10-K and Item 601 of Regulation S-K.54TABLE OF CONTENTSSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.ATLANTIC AMERICAN CORPORATION(Registrant) By:/s/ John G. Sample, Jr.John G. Sample, Jr.Senior Vice President and Chief Financial Officer Date: March 27, 2015Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated.SignatureTitleDate/s/ Hilton H. Howell, Jr.President, Chief Executive Officer andChairman of the Board (Principal Executive Officer)March 27, 2015HILTON H. HOWELL, JR. /s/ John G. Sample, Jr.Senior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)March 27, 2015JOHN G. SAMPLE, JR. /s/ Edward E. ElsonDirectorMarch 27, 2015EDWARD E. ELSON /s/ Robin R. HowellDirectorMarch 27, 2015ROBIN R. HOWELL /s/ Samuel E. HudginsDirectorMarch 27, 2015SAMUEL E. HUDGINS /s/ Harriett J. RobinsonDirectorMarch 27, 2015HARRIETT J. ROBINSON /s/ Joseph M. ScheererDirectorMarch 27, 2015JOSEPH M. SCHEERER /s/ Scott G. ThompsonDirectorMarch 27, 2015SCOTT G. THOMPSON /s/ William H. Whaley, M.D.DirectorMarch 27, 2015WILLIAM H. WHALEY, M.D. /s/ Dom H. WyantDirectorMarch 27, 2015DOM H. WYANT55TABLE OF CONTENTSSchedule IIPage 1 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only)BALANCE SHEETSASSETSDecember 31,20142013(In thousands)Cash and cash equivalents$5,947 $13,936 Investments 13,766 18,043 Investment in subsidiaries 113,509 105,268 Investments in unconsolidated trusts 1,238 1,238 Income taxes receivable from subsidiaries 2,271 4,530 Other assets 5,113 2,676 Total assets$141,844 $145,691 LIABILITIES AND SHAREHOLDERS’ EQUITY Deferred tax liability, net$2,055 $297 Other payables 1,856 3,229 Junior subordinated debentures 33,738 41,238 Total liabilities 37,649 44,764 Shareholders’ equity 104,195 100,927 Total liabilities and shareholders’ equity$141,844 $145,691 See accompanying report of independent registered public accounting firm.II-1TABLE OF CONTENTSSchedule IIPage 2 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only)STATEMENTS OF OPERATIONSYear Ended December 31,20142013(In thousands)REVENUE Fee income from subsidiaries$7,469 $6,271 Distributed earnings from subsidiaries 6,468 6,646 Other 1,622 1,330 Total revenue 15,559 14,247 GENERAL AND ADMINISTRATIVE EXPENSES 12,478 11,106 INTEREST EXPENSE 1,607 1,898 1,474 1,243 INCOME TAX BENEFIT(1) (2,040) (4,504) 3,514 5,747 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES, NET 916 5,275 NET INCOME$4,430 $11,022 (1)Under the terms of a tax-sharing agreement, income tax provisions for the subsidiary companies are computed on aseparate company basis. Accordingly, the Company’s income tax benefit results from the utilization of the Parent’sseparate return loss to reduce the consolidated taxable income of the Company.See accompanying report of independent registered public accounting firm.II-2TABLE OF CONTENTSSchedule IIPage 3 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only)STATEMENTS OF CASH FLOWSYear Ended December 31,20142013(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income$4,430 $11,022 Adjustments to reconcile net income to net cash provided by operating activities: Realized investment gains, net (350) (644)Gain on purchase of debt securities (Note 6) (750) — Depreciation and amortization 507 117 Compensation expense related to share awards 584 219 Equity in undistributed earnings of consolidated subsidiaries (916) (5,275)Decrease (increase) in intercompany taxes 2,259 (2,541)Deferred income tax expense (benefit) 102 (329)(Decrease) increase in other liabilities (164) 846 Other, net 4 161 Net cash provided by operating activities 5,706 3,576 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold, called or matured 2,106 5,568 Investments purchased — (4,438)Capital contribution to subsidiaries (100) (200)Additions to property and equipment (4,127) (1,192)Net cash used in investing activities (2,121) (262) CASH FLOWS FROM FINANCING ACTIVITIES: Payment for debt securities (Note 6) (6,750) — Redemption of Series D preferred stock (1,000) (500)Payment of dividends on Series D preferred stock (471) (483)Payment of dividends on common stock (834) (423)Proceeds from shares issued under stock plans 84 138 Purchase of shares for treasury (2,603) (1,416)Net cash used in financing activities (11,574) (2,684) Net (decrease) increase in cash (7,989) 630 Cash and cash equivalents at beginning of year 13,936 13,306 Cash and cash equivalents at end of year$5,947 $13,936 Supplemental disclosure: Cash paid for interest$1,649 $1,961 Cash paid for income taxes$445 $536 Intercompany tax settlement from subsidiaries$4,695 $2,574 See accompanying report of independent registered public accounting firm.II-3TABLE OF CONTENTSSchedule IIIPage 1 of 2ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESSUPPLEMENTARY INSURANCE INFORMATIONSegmentDeferredAcquisitionCostsFuture PolicyBenefits,Losses,Claims andLossReservesUnearnedPremiumsOther PolicyClaims andBenefitsPayable(In thousands)December 31, 2014: Bankers Fidelity$24,360 $82,453 $3,884 $2,080 American Southern 2,621 55,017 20,660 — $26,981 $137,470(1)$24,544 $2,080 December 31, 2013: Bankers Fidelity$24,275 $81,682 $4,419 $2,076 American Southern 3,234 51,200 22,996 — $27,509 $132,882(2)$27,415 $2,076 (1)Includes future policy benefits of $70,845 and losses and claims of $66,625.(2)Includes future policy benefits of $69,864 and losses and claims of $63,018.See accompanying report of independent registered public accounting firm.III-1TABLE OF CONTENTSSchedule IIIPage 2 of 2ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESSUPPLEMENTARY INSURANCE INFORMATIONSegmentPremiumRevenueNetInvestmentIncomeBenefits,Claims,Losses andSettlementExpensesAmortizationof DeferredAcquisitionCostsOtherOperatingExpensesCasualtyPremiumsWritten(In thousands)December 31, 2014: Bankers Fidelity$100,834 $4,989 $68,016 $2,220 $31,657 $— American Southern 52,654 4,429 38,179 8,458 5,987 50,318 Other — 413 — — 6,900 — $153,488 $9,831 $106,195 $10,678 $44,544 $50,318 December 31, 2013: Bankers Fidelity$99,779 $5,466 $70,175 $1,820 $28,812 $— American Southern 45,851 4,288 30,197 7,140 8,971 50,774 Other — 581 — — 7,048 — $145,630 $10,335 $100,372 $8,960 $44,831 $50,774 See accompanying report of independent registered public accounting firm.III-2TABLE OF CONTENTSSchedule IVATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESREINSURANCEDirectAmountCeded ToOtherCompaniesAssumedFrom OtherCompaniesNetAmountsPercentage ofAmountAssumedTo Net(Dollars in thousands)Year ended December 31, 2014: Life insurance in force$257,988 $(18,984)$— $239,004 Premiums -- Bankers Fidelity$100,799 $(43)$78 $100,834 0.1%American Southern 40,413 (5,847) 18,088 52,654 34.4%Total premiums$141,212 $(5,890)$18,166 $153,488 11.8% Year ended December 31, 2013: Life insurance in force$259,723 $(18,525)$— $241,198 Premiums -- Bankers Fidelity$99,745 $(54)$88 $99,779 0.1%American Southern 41,975 (7,553) 11,429 45,851 24.9%Total premiums$141,720 $(7,607)$11,517 $145,630 7.9%See accompanying report of independent registered public accounting firm.IV-1TABLE OF CONTENTSSchedule VIATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESSUPPLEMENTAL INFORMATION CONCERNINGPROPERTY-CASUALTY INSURANCE OPERATIONSDeferredPolicyAcquisitionCostsReservesUnearnedPremiumsEarnedPremiumsNetInvestmentIncomeClaims and ClaimAdjustmentExpenses IncurredRelated ToAmortizationof DeferredAcquisitionCostsPaidClaimsand ClaimAdjustmentExpensesPremiumsWrittenYear EndedCurrentYearPriorYears(In thousands)December 31,2014$2,621 $55,017 $20,660 $52,654 $4,429 $38,337 $(158)$8,458 $34,336 $50,318 December 31,2013$3,234 $51,200 $22,996 $45,851 $4,288 $32,672 $(2,475)$7,140 $27,339 $50,774 VI-1EXHIBIT 21.1Subsidiaries of the RegistrantSubsidiaryState of Incorporation American Safety Insurance CompanyGeorgiaAmerican Southern Insurance CompanyKansasBankers Fidelity Life Insurance CompanyGeorgiaBankers Fidelity Assurance CompanyGeorgiaxCalibre Risk Services, Inc.GeorgiaEXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-183207 and 333-183210) of Atlantic American Corporation of our report dated March 27, 2015, relating to the consolidated financial statementsand financial statement schedules of Atlantic American Corporation which appears in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaMarch 27, 2015EXHIBIT 31.1CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Hilton H. Howell, Jr., certify that:1.I have reviewed this annual report on Form 10-K of Atlantic American Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this reportis being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 27, 2015/s/ Hilton H. Howell, Jr.Hilton H. Howell, Jr.President and Chief Executive OfficerEXHIBIT 31.2CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John G. Sample, Jr., certify that:1.I have reviewed this annual report on Form 10-K of Atlantic American Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this reportis being prepared;b)designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; andb)any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 27, 2015/s/ John G. Sample, Jr.John G. Sample, Jr.Senior Vice President andChief Financial OfficerEXHIBIT 32.1Certifications Pursuant to §906 of the Sarbanes-Oxley Act of 2002Pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, in connection with the filing ofthe Annual Report on Form 10-K of Atlantic American Corporation (the “Company”) for the year ended December 31, 2014, asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of theCompany certifies, that, to such officer’s knowledge:(1)The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company as of the dates and for the periods expressed in the Report.Date: March 27, 2015/s/ Hilton H. Howell, Jr.Hilton H. Howell, Jr.President and Chief Executive OfficerDate: March 27, 2015/s/ John G. Sample, Jr.John G. Sample, Jr.Senior Vice President and Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to the Company and will be retained bythe Company and furnished to the Securities and Exchange Commission or its staff upon request.

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