Atlantic American Corp.
Annual Report 2017

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, 2017or oTRANSITION 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 value$1.00 per shareNASDAQ Global MarketSecurities 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 Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing 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 DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or forsuch shorter 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2of the Exchange Act. (Check one):Large accelerated filer  oAccelerated filer  oNon-accelerated filer  oSmaller reporting company ☒ (Do not check if a smaller reporting company) Emerging growth company  o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  oIndicate 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 common stock held by non-affiliates of the registrant as of June 30, 2017, the last business day of the registrant’smost recently completed second fiscal quarter, was $15,787,219. For purposes hereof, beneficial ownership is determined under rules adoptedpursuant to Section 13 of the Securities Exchange Act of 1934, and the foregoing excludes value ascribed to common stock that may be deemedbeneficially owned by the directors and executive officers, and 10% or greater stockholders, of the registrant, some of whom may not be deemed to beaffiliates upon judicial determination. On March 14, 2018 there were 20,402,029 shares of the registrant’s common stock, par value $1.00 per share,outstanding.DOCUMENTS INCORPORATED BY REFERENCE1. Portions of the registrant’s Proxy Statement for the 2018 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 CONTENTS PagePART I Item 1.Business 1 The Company 1 Marketing 2 Underwriting 4 Policyholder and Claims Services 4 Reserves 5 Reinsurance 9 Competition 9 Ratings 10 Regulation 10 NAIC Ratios 11 Risk-Based Capital 11 Investments 11 Employees 12 Financial Information by Industry Segment 12 Available Information 12 Executive Officers of the Registrant 13 Forward-Looking Statements 13 Item 1A.Risk Factors 14 Item 1B.Unresolved Staff Comments 14 Item 2.Properties 14 Item 3.Legal Proceedings 14 Item 4.Mine Safety Disclosures 14 PART II Item 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 60 Item 9A.Controls and Procedures 60 Item 9B.Other Information 60 PART III Item 10.Directors, Executive Officers and Corporate Governance 61 Item 11.Executive Compensation 61 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 61 Item 13.Certain Relationships and Related Transactions, and Director Independence 61 Item 14.Principal Accountant Fees and Services 61 PART IV Item 15.Exhibits, Financial Statement Schedules 62 Item 16.Form 10-K Summary 63 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.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 inland marine and general liability coverages. Additionally, American Southern directly providessurety bond coverage for school bus transportation and subdivision construction, as well as performance and payment bonds.1 Year Ended December 31, 20172016 (In thousands)Automobile liability$29,370 $28,219 Automobile physical damage 9,972 10,192 General liability 2,953 3,009 Surety 8,441 8,999 Other lines 2,925 3,344 Total$53,661 $53,763 Year Ended December 31, 20172016 (In thousands)Life insurance$9,574 $9,974 Medicare supplement 93,652 84,107 Other accident and health 6,440 5,621 Total health insurance 100,092 89,728 Total$109,666 $99,702 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:Life and Health OperationsBankers Fidelity comprises the life and health operations of the Company and offers a variety of life and supplemental healthproducts. Products offered by Bankers Fidelity include ordinary and term life insurance, Medicare supplement and other accidentand health insurance products. Health insurance products, primarily Medicare supplement insurance, accounted for 91% ofBankers Fidelity’s net earned premiums in 2017 while life insurance, including both whole and term life insurance policies,accounted for the balance. In terms of the number of policies written in 2017, 97% were health insurance policies and 3% were lifeinsurance 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: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 for additional commissions by participating in a profit sharing arrangement that isdirectly linked to the profitability2TABLE OF CONTENTSof the underlying business. American Southern also solicits business from governmental entities. As an experienced writer ofinsurance policies for certain governmental programs, the company actively pursues this market on a direct basis. Much of thisbusiness is priced by means of competitive bid situations and there can be no assurance with respect to ultimate profitability or thatthe company can obtain 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 are traditional independent agents, broker-agents typically interested in a specific product ofBankers Fidelity and special market agents who promote workplace, association and/or branded products.Bankers Fidelity utilizes an agent qualification process and had 7,423 licensed agents as of December 31, 2017. The agentsgenerally concentrate their sales activities in both the accident and health or life insurance product lines. During 2017,approximately 2,337 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 fieldmarketing groups, regional sales directors and general agents responsible for marketing and other sales activities, who may also, inturn, recommend appointment of other independent agents. The standard agreements set forth the commission arrangements andare terminable without cause by either party upon notice. Regional sales directors and general agents receive an overridecommission on sales made by their sponsored agents. Management believes utilizing experienced agents, as well as independentgeneral agents who recruit and train their own agents, is cost effective. All independent agents are compensated primarily on acommission basis. Using independent agents also enables Bankers Fidelity to effectively expand or contract its sales force withoutincurring significant expense.With traditional independent agents, the company utilizes a lead generation system that rewards qualified agents with leads inaccordance with certain production criteria. In addition, a protected territory is established for qualified agents, which entitles themto all leads produced within that territory. The territories are zip code or county based and encompass sufficient geographicterritory designed to produce an economically serviceable senior population. The Company believes that offering a leadgeneration 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 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 that span from the worksite markets to the senior markets for both life and healthinsurance. Products offered by Bankers Fidelity include life insurance, typically with small face amounts, Medicare supplementand other accident and health insurance. Bankers Fidelity also provides an array of worksite products such as accident, cancer,critical illness, hospital indemnity and life insurance that is offered to employers who are looking to provide coverage for theiremployees and have the related premiums deducted through payroll deductions.The majority of the products are underwritten on a non-medical basis using a simplified issue approach by which anapplication containing a variety of health related questions is submitted. Applications for insurance are reviewed to determine theface amount, age, medical history and any other necessary information. Bankers Fidelity utilizes information obtained directlyfrom the insured, the Medical Information Bureau, prescription utilization reports as well as telephone interviews to determinewhether an applicant meets the company’s underwriting criteria. Bankers Fidelity may also utilize medical records andinvestigative services to supplement and substantiate information, as necessary.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.Life 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 five business days of receipt. With regard to Medicare supplement policies, the claim is either directly billed to BankersFidelity by the provider or sent electronically through a Medicare clearing house.4TABLE OF CONTENTSReservesThe following table sets forth information concerning the Company’s reserves for losses and claims and reserves for lossadjustment expenses (“LAE”) for the periods indicated: 20172016 (In thousands)Balance at January 1$62,562 $63,870 Less: Reinsurance recoverable on unpaid losses (10,796) (11,741)Net balance at January 1 51,766 52,129 Incurred related to: Current year 114,099 103,252 Prior years(1) (1,765) (3,377)Total incurred 112,334 99,875 Paid related to: Current year 82,092 71,980 Prior years 28,287 28,258 Total paid 110,379 100,238 Net balance at December 31 53,721 51,766 Plus: Reinsurance recoverable on unpaid losses 11,968 10,796 Balance at December 31$65,689 $62,562 (1)Prior years’ development was primarily the result of better than expected development on prior years reserves for certain lines of business inthe property and casualty operations. See Note 3 of Notes to Consolidated Financial Statements.Reserves are set by line of business within each of the subsidiaries. At December 31, 2017, approximately 73% of the reservesrelated to property and casualty losses and approximately 27% 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.The 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”) reserves5TABLE OF CONTENTSfor the early periods of loss emergence because such a low percentage of ultimate losses are reported in that time frame.Accordingly, for any given accident year, the rate at which losses on long-tail lines of business emerge in the early periods isgenerally not as reliable an indication of ultimate losses as it would be for shorter-tail lines of business. The estimation of reservesfor these lines of business in the early periods of loss emergence is therefore largely influenced by statistical analyses andapplication of prior accident years’ loss ratios, after considering changes to earned pricing, loss costs, mix of business, cededreinsurance and other factors that are expected to affect the estimated ultimate losses. For later periods of loss emergence, methodswhich incorporate a development pattern assumption are given more weight in estimating ultimate losses. For short-tail lines ofbusiness, the emergence of paid loss and case reserves is more credible in the early periods and is more likely to be indicative ofultimate losses. The method used to set reserves for these lines of business is based upon utilization of a historical developmentpattern for reported losses. IBNR reserves for the current year are set as the difference between the estimated fully developedultimate losses for each year, less the established, related case reserves and cumulative related payments. IBNR reserves for prioraccident years are similarly determined, again relying on an indicated, 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.The 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, 2017 actuarial review indicated that reserves could be as much as 8.5% lower or asmuch as 10.1% higher. In the opinion of management, recorded reserves represent the best estimate of outstanding losses, althoughsignificant judgments are made in the derivation of reserve estimates and revisions to such estimates are expected to be made infuture periods. Any such revisions could be material, and may materially adversely affect the Company’s financial condition andresults of operations in any future period.6TABLE OF CONTENTSProperty 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 2007 through 2017. 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.7TABLE OF CONTENTSThe reserve estimates are modified as more information becomes known about the frequency and severity of claims forindividual years. The “cumulative redundancy (deficiency)” for each year represents the aggregate change in such year’s estimatesthrough the end of 2017. Furthermore, the amount of the redundancy (deficiency) for any year represents the cumulative amount ofthe changes from initial reserve estimates for such year. Operations for any year may be affected, favorably or unfavorably, by theamount of the change in the estimate for such years; however, because such analysis is based on the reserves for unpaid losses andclaims, before consideration of reinsurance, the total indicated redundancies (deficiencies) may not ultimately be reflected in theCompany’s net income. Further, conditions and trends that have affected development of reserves in the past may not necessarilyoccur in the future and there could be future events or actions that impact future development which have not existed in the past.Accordingly, the accurate prediction of future redundancies (deficiencies) based on the data in the following table is not possible. Year Ended December 31, 20172016201520142013201220112010200920082007 (Dollars In thousands)Reserve for Losses andLAE$47,997 $49,556 $51,200 $55,017 $51,200 $52,764 $49,478 $46,092 $42,248 $44,928 $43,994 Cumulative paid as of: One year later 21,671 22,555 26,289 21,577 25,352 18,959 15,183 10,486 13,627 11,630 Two years later 35,171 40,440 37,022 37,128 34,805 25,333 17,462 19,003 21,187 Three years later 48,806 45,659 44,473 41,967 34,266 23,231 22,197 23,993 Four years later 49,395 48,338 46,715 37,720 29,254 24,016 25,733 Five years later 50,508 49,129 40,241 31,125 28,898 27,160 Six years later 51,135 41,787 32,488 30,286 31,659 Seven years later 42,867 33,847 31,462 32,489 Eight years later 34,576 31,858 33,616 Nine years later 32,544 33,953 Ten years later 34,439 Ultimate losses and LAEreestimated as of: End of year$47,997 $49,556 $51,200 $55,017 $51,200 $52,764 $49,478 $46,092 $42,248 $44,928 $43,994 One year later 44,413 44,638 50,729 47,169 47,639 44,180 39,999 32,563 31,649 33,663 Two years later 47,626 51,853 49,927 49,966 46,109 38,859 30,562 28,386 29,903 Three years later 54,755 50,163 50,142 48,386 39,153 30,288 27,570 29,077 Four years later 51,840 49,692 49,361 41,339 31,798 28,169 29,162 Five years later 51,512 50,254 42,273 33,508 30,883 30,156 Six years later 51,881 42,393 34,331 31,696 33,091 Seven years later 43,324 34,286 32,073 33,804 Eight years later 35,009 32,269 34,184 Nine years later 32,942 34,278 Ten years later 34,736 Cumulative redundancy(deficiency) $5,143 $3,574 $262 $(640)$1,252 $(2,403)$2,768 $7,239 $11,986 $9,258 10.4% 7.0% 0.5% -1.3% 2.4% -4.9% 6.0% 17.1% 26.7% 21.0%Note: This analysis is based on reserves for unpaid losses and claims, before consideration of reinsurance; therefore the totalindicated redundancy (deficiency) may not ultimately be reflected in the Company’s net income.See Note 3 of Notes to Consolidated Financial Statements for historical loss development data on significant lines of business.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 and8TABLE OF CONTENTSmorbidity rates, expenses, and withdrawals. Reserves are adjusted periodically based on published actuarial tables withmodifications to reflect actual experience. The use of significantly different assumptions, or actual results that differ significantlyfrom our estimates, could materially adversely affect our liquidity, results of operations or financial condition. See Note 3 of Notesto 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.Property 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: Inland marine and commercial automobile physical damage -$175,000 excess of $75,000 retention; and automobile liability and general liability - excess coverage of $2.0 million lessretentions that may vary from $100,000 to $200,000 depending on the account. American Southern maintains a propertycatastrophe treaty with a $5.7 million limit excess of $300,000 retention. American Southern also issues individual surety bondswith face amounts generally up to $1.5 million, and limited to $5.0 million in aggregate per account, that are not reinsured.Life and Health OperationsBankers Fidelity has entered into reinsurance contracts ceding the excess of its life 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 31,2017, $14.9 million of the $255.4 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.Bankers Fidelity has also entered into a reinsurance contract ceding excess new Medicare supplement business to General ReLife Corporation. Ceding thresholds are set annually. At December 31, 2017, the 2017 retention threshold was $15.0 million ofannualized premium; accordingly $39.1 million of the company’s $54.1 million of new annualized Medicare supplement premiumwas ceded to a reinsurer.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 health9TABLE OF CONTENTSinsurance products. Bankers Fidelity believes that its primary competitors are Americo Life, GTL, Lincoln Heritage, Medico,Monumental, Mutual of Omaha, New Era, Standard Life, Transamerica and United Healthcare. Bankers Fidelity competes withthese as well as other insurers on the basis of premium rates, policy benefits and service to policyholders. Bankers Fidelity alsocompetes with other insurers to attract and retain the allegiance of its independent agents through commission and sales incentivearrangements, accessibility and marketing assistance, lead programs, reputation, and market expertise. In order to better compete,Bankers Fidelity actively seeks opportunities in niche markets, developing long-term relationships with a select number ofindependent marketing organizations promoting worksite marketing and selective association endorsements. Bankers Fidelity hasa track record of successfully competing in its chosen markets by establishing relationships with independent agents and providingproprietary marketing initiatives as well as providing outstanding service to policyholders. Bankers Fidelity believes that itcompetes effectively on the bases 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.Each 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. The Company believes it is in compliance with all such requirements.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, 2017, the Company was in compliance with all such10TABLE OF CONTENTSrequirements, and securities with an amortized cost of $11.2 million were on deposit either directly with various state authorities orwith third parties pursuant to various custodial agreements on behalf of the Company’s insurance subsidiaries.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 twelve financial ratios prepared on a statutorybasis. Annual statements are required to be submitted to state insurance departments to assist them in monitoring insurancecompanies in their state and to allow such states to determine a desirable range for each such ratio with which companies shouldcomply.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, it may not be unusual for a financially soundcompany to have several ratios outside the “usual” range.For the Year Ended December 31, 2017, less than four of the total of twelve ratios required to be calculated by the Company’sinsurance subsidiaries were outside of the “usual” range and, as a result, such subsidiaries are not likely to require analysis by stateregulators.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 31,2017, the Company’s insurance subsidiaries, RBC levels exceeded the required 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, 20172016 AmountPercentAmountPercent (Dollars in thousands)Fixed maturities: U.S. Treasury securities and obligations of U.S. Government agencies andauthorities$31,155 12.6%$31,102 12.7%States, municipalities and political subdivisions 10,809 4.4 17,572 7.2 Public utilities 14,935 6.0 11,216 4.6 All other corporate bonds 158,017 63.8 150,588 61.7 Redeemable preferred stock 192 0.1 192 0.1 Total fixed maturities(1) 215,108 86.9 210,670 86.3 Common and non-redeemable preferred stocks(2) 23,355 9.4 20,257 8.3 Policy loans(3) 2,146 0.9 2,265 0.9 Other invested assets(4) 5,626 2.3 9,709 4.0 Real estate 38 0.0 38 0.0 Investments in unconsolidated trusts 1,238 0.5 1,238 0.5 Total investments$247,511 100.0%$244,177 100.0%(1)Fixed maturities are carried on the balance sheet at estimated fair value. Certain fixed maturities do not have publicly quoted prices, and arecarried at estimated fair value as determined by management. Total adjusted cost of fixed maturities was $212.5 million as of December 31,2017 and $210.5 million as of December 31, 2016.11 Year Ended December 31, 20172016 (Dollars in thousands)Average investments(1)$247,739 $243,174 Net investment income 7,707 9,307 Average yield on investments 3.1% 3.8%Realized investment gains, net 9,168 2,595 TABLE OF CONTENTS(2)Equity securities are carried on the balance sheet at estimated fair value. Total adjusted cost of equity securities was $10.9 million as ofDecember 31, 2017 and $11.5 million as of December 31, 2016.(3)Policy loans are valued at historical cost.(4)Other invested assets are accounted for using the equity method. Total adjusted cost of other invested assets was $5.6 million as of December31, 2017 and $9.7 million as of December 31, 2016.Estimated fair values are determined as discussed in Note 1 of Notes to Consolidated Financial Statements.Results of the Company’s investment portfolio for periods shown were as follows:(1)Calculated as the average of cash and investment balances (at amortized cost) at the beginning of the year and at the end of each of thesucceeding 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 159 people at December 31, 2017. Of the 159 people employed at December 31,2017, 154 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.12TABLE OF CONTENTSExecutive Officers of the RegistrantThe table below and the information following the table set forth, for each executive officer of the Company as of December31, 2017, 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. 55 Chairman of the Board, President & CEO 1992 J. Ross Franklin 40 Vice President, CFO and Corporate Secretary 2017 Officers 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 chairman of the board, andserves as president and chief executive officer, of Gray Television, Inc.Mr. Franklin has been Vice President, Chief Financial Officer and Corporate Secretary of the Company since November 2017,and prior thereto served as Interim Chief Financial Officer from August 2017 to November 2017. Since 2000 he has held variousroles of increasing responsibility with Atlantic American and its subsidiaries, previously serving as Vice President, Accounting andTreasurer of Bankers Fidelity since 2009.Forward-Looking StatementsCertain of the statements contained or incorporated by reference herein are forward-looking statements within the meaning ofthe federal securities laws. These forward-looking statements are made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995, Section 27A of the Securities Exchange Act of 1933, and Section 21E of the SecuritiesAct of 1934, and include estimates and assumptions related to, among other things, general economic, competitive, operationaland legislative developments. Forward-looking statements are subject to changes and uncertainties which are, in many instances,beyond the Company’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; the possibleoccurrence of terrorist attacks; unexpected developments in the health care or insurance industries affecting providers orindividuals, including the cost or availability of services, or the tax consequences related thereto; disruption to the financialmarkets; unanticipated increases in the rate, number and amounts of claims outstanding; the level of performance of reinsurancecompanies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company againstlosses; changes in the stock markets, interest rates or other financial markets, including the potential effect on the Company’sstatutory capital levels; the uncertain effect on the Company of regulatory and market-driven changes in practices relating to thepayment of incentive compensation to brokers, agents and other producers; the incidence and severity of catastrophes, both naturaland man-made; stronger than anticipated competitive activity; unfavorable judicial or legislative developments; the potentialeffect of regulatory developments, including those which could increase the Company’s business costs and required capital levels;the Company’s ability to distribute its products through distribution channels, both current and future; the uncertain effect ofemerging claim and coverage issues; the effect of assessments and other surcharges for guaranty funds and other mandatorypooling arrangements; and risks related to cybersecurity matters, such as breaches of our computer network or the loss ofunauthorized access to the data we maintain. Many of such factors are beyond the Company’s ability to control or predict. As aresult, the Company’s actual financial condition and results of operations could differ materially from those expressed in anyforward-looking statements made by the Company. Undue reliance should not be placed upon forward-looking statements. TheCompany does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalfof, the Company.13TABLE OF CONTENTSItem 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 are notproviding 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.American Southern leases space for its office in a building located in Atlanta, Georgia. The lease term expires September 30,2026. 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 February 21, 2018, there were2,727 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,HighLow2017 1st quarter$4.35 $3.40 2nd quarter 4.03 3.50 3rd quarter 3.75 3.15 4th quarter 4.00 3.00 2016 1st quarter$4.99 $3.39 2nd quarter 5.00 3.21 3rd quarter 4.30 3.06 4th quarter 4.65 3.21 In each year since 2012, the Company has paid an annual cash dividend of $0.02 per share. In addition, on March 20, 2018,the Company’s board of directors declared an annual cash dividend of $0.02 per share that is payable to shareholders of record asof the close of business on April 23, 2018. Payment of dividends in the future will be at the discretion of the Company’s board ofdirectors and will depend upon the financial condition, capital requirements, earnings of the Company, any restrictions containedin any agreements by which the Company is bound, as well as other factors as the board of directors may deem relevant. TheCompany’s primary recurring source of cash for the payment of dividends is dividends from its subsidiaries; although as ofDecember 31, 2017, the Parent held unrestricted cash and investment balances of approximately $25.8 million. Under theinsurance code of the state in which each insurance subsidiary is domiciled, dividend payments to the Company by its insurancesubsidiaries are subject to certain limitations without the prior approval of the applicable state’s Insurance Commissioner. In 2018,dividend payments to the Parent by the insurance subsidiaries in excess of $4.8 million would require prior approval.Issuer Purchases of Equity SecuritiesOn October 31, 2016, the Board of Directors of the Company approved a plan that allows for the repurchase of up to 750,000shares of the Company’s common stock (the “Repurchase Plan”) on the open market or in privately negotiated transactions, asdetermined by an authorized officer of the Company. Any such repurchases can be made from time to time in accordance withapplicable securities laws and other requirements.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 below.The 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, 2017.PeriodTotalNumber ofSharesPurchasedAveragePrice Paidper ShareTotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orProgramsMaximumNumber ofShares thatMay Yet bePurchasedUnder thePlans orProgramsOctober 1 – October 31, 2017 11,708 $3.39 11,708 573,779 November 1 – November 30, 2017 10,186 3.75 10,186 563,593 December 1 – December 31, 2017 19,151 3.56 19,151 544,442 Total 41,045 $3.56 41,045 15TABLE OF CONTENTSStock Performance GraphAs a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations, and thereforeare not providing 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 thereforeare not providing 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, 2017 and 2016. 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 29% of the Company’s total liabilities at December 31, 2017. Thisliability includes estimates for: 1) unpaid losses on claims reported prior to December 31, 2017, 2) future development on thosereported claims, 3) unpaid ultimate losses on claims incurred prior to December 31, 2017 but not yet reported and 4) unpaid lossadjustment expenses for reported and unreported claims incurred prior to December 31, 2017. Quantification of loss estimates foreach of these components involves a significant degree of judgment and estimates may vary, materially, from period to period.Estimated unpaid losses on reported claims are developed based on historical experience with similar claims by the Company.Development on reported claims, estimates of unpaid ultimate losses on claims incurred prior to December 31, 2017 but not yetreported, and estimates of unpaid loss adjustment expenses are developed based on the Company’s historical experience, usingactuarial methods to assist in the analysis. The Company’s actuaries develop ranges of estimated development on reported andunreported claims as well as loss adjustment expenses using various methods, including the paid-loss development method, thereported-loss development method, the paid Bornhuetter-Ferguson method and the reported Bornhuetter-Ferguson method. Anysingle method used to estimate ultimate losses has inherent advantages and disadvantages due to the trends and changes affectingthe business environment and the Company’s administrative policies. Further, external factors, such as legislative changes, medicalcost inflation, and others may directly or indirectly impact the relative adequacy of liabilities for unpaid losses and loss adjustmentexpenses. The Company’s approach is to select an estimate of ultimate losses based on comparing results of a variety of reservingmethods, as opposed to total reliance on any single method. Unpaid loss and loss adjustment expenses are reviewed periodicallyfor significant lines of business, and when current results differ from the original assumptions used to develop such estimates, theamount of the Company’s recorded liability for unpaid loss and loss adjustment expenses is adjusted. In the event the Company’sactual reported losses in any period are materially in excess of the previously estimated amounts, such losses, to the extentreinsurance coverage does not exist, could have a material adverse effect on the Company’s results of operations.16TABLE OF CONTENTSFuture policy benefits comprised 36% of the Company’s total liabilities at December 31, 2017. 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 10% of the Company’s total assets at December 31, 2017. Deferred acquisition costs arecommissions, premium taxes, and other incremental direct costs of contract acquisition that results directly from and are essentialto the contract transaction(s) and would not have been incurred by the Company had the contract transaction(s) not occurred. Thedeferred amounts are recorded as an asset on the balance sheet and amortized to expense in a systematic manner. Traditional lifeinsurance and long-duration health insurance deferred policy acquisition costs are amortized over the estimated premium-payingperiod of the related policies using assumptions consistent with those used in computing the related liability for policy benefitreserves. Deferred acquisition costs for property and casualty insurance and short-duration health insurance are amortized over theeffective period of the related insurance policies. Deferred policy acquisition costs are expensed when such costs are deemed not tobe recoverable from future premiums (for traditional life and long-duration health insurance) and from the related unearnedpremiums and investment income (for property and casualty and short-duration health insurance). Assessments of recoverability forproperty and casualty and short-duration health insurance are extremely sensitive to the estimates of a subsequent year’s projectedlosses related to the unearned premiums. Projected loss estimates for a current block of business for which unearned premiumsremain to be earned may vary significantly from the indicated 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 9% of the Company’s total assets at December 31, 2017. 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 79% of the Company’s total assets at December 31, 2017. 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 fixed maturities, which includes bonds and redeemable preferred stocks, and equity securities, which includescommon and non-redeemable preferred stocks, as available for sale and, accordingly, at their estimated fair values. The Companyowns certain fixed maturities that do not have publicly quoted values, but had an estimated fair value as determined bymanagement of $1.4 million at December 31, 2017. Such values inherently involve a greater degree of judgment and uncertaintyand therefore ultimately greater price volatility than the value of securities with publicly quoted market values. On occasion, thevalue of an investment may decline to a value below its amortized purchase price and remain at such value for an extended periodof time. When an investment’s indicated fair value has declined below its cost basis for a period of time, the Company evaluatessuch investment for an other than temporary impairment. 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. If an other thantemporary impairment is deemed to exist, then the Company will write down the amortized cost basis of the investment to itsestimated fair value. While any such write down does not impact the reported value of the investment in the Company’s balancesheet, it is reflected as a realized investment loss in the Company’s consolidated statements of operations in the period incurred.17 Year Ended December 31, 20172016 (In thousands)Revenue Property and Casualty: American Southern$59,485 $58,159 Life and Health: Bankers Fidelity 117,495 107,505 Corporate and Other 4,134 413 Total revenue$181,114 $166,077 Income before income taxes Property and Casualty: American Southern$8,567 $7,314 Life and Health: Bankers Fidelity (268) 2,950 Corporate and Other (2,943) (6,740)Income before income taxes$5,356 $3,524 Net income$4,528 $2,636 TABLE OF CONTENTSThe 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 Notes to Consolidated Financial Statements with respect to assets andliabilities carried at fair value and information about the inputs used to value those financial instruments, by hierarchy level, inaccordance 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 ResultsManagement 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” operating results ofthe Company before considering certain items that are either beyond the control of management (such as taxes, which are subjectto timing, 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 gains, which are not a part of the Company’sprimary operations and are, to a limited extent, subject to discretion in terms of timing of realization).18 Year Ended December 31, 20172016 (In thousands)Reconciliation of Non-GAAP Financial Measure Net income$4,528 $2,636 Income tax expense 828 888 Realized investment gains, net (9,168) (2,595)Operating income (loss)$(3,812)$929 TABLE OF CONTENTSA reconciliation of net income to operating income is as follows:On a consolidated basis, the Company had net income of $4.5 million, or $0.20 per diluted share, in 2017, compared to $2.6million, or $0.11 per diluted share, in 2016. Operating loss was $3.8 million in 2017 as compared to operating income of $0.9million in 2016. The decrease in operating income was primarily due to unfavorable loss experience in the life and healthoperations. Also contributing to the decrease in operating income was a decrease in investment income attributable to a decrease inthe average yield on the Company’s investments in fixed maturities and losses from the equity in earnings from investments in realestate partnerships.Total revenue was $181.1 million in 2017 as compared to $166.1 million in 2016. Premium revenue increased to $163.3million in 2017 from $153.5 million in 2016. The increase in premium revenue was primarily due to an increase in Medicaresupplement business in the life and health operations. Also included in total revenue were net realized investment gains of $9.2million in 2017 compared to $2.6 million in 2016. 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 $175.8 million in 2017 as compared to $162.6 million in 2016. As a percentage of premiums, insurancebenefits and losses incurred and commissions and underwriting expenses were 98.6% in 2017 and 96.4% in 2016.A more detailed analysis of the operating companies and other corporate activities follows.19 Year Ended December 31, 20172016 (Dollars in thousands)Gross written premiums$58,149 $56,131 Ceded premiums (4,787) (4,654)Net written premiums$53,362 $51,477 Net earned premiums$53,661 $53,763 Net losses and loss adjustment expenses 34,486 34,408 Underwriting expenses 16,432 16,437 Underwriting income$2,743 $2,918 Loss ratio 64.3% 64.0%Expense ratio 30.6 30.6 Combined ratio 94.9% 94.6% Year Ended December 31, 20172016 (In thousands)Automobile liability$29,370 $28,219 Automobile physical damage 9,972 10,192 General liability 2,953 3,009 Surety 8,441 8,999 Other lines 2,925 3,344 Total$53,661 $53,763 TABLE OF CONTENTSUNDERWRITING RESULTSAmerican SouthernThe following table summarizes, for the periods indicated, American Southern’s premiums, losses, expenses and underwritingratios:Gross written premiums at American Southern increased $2.0 million, or 3.6%, during 2017 as compared to 2016. The increasein gross written premiums was primarily attributable to an increase in automobile liability written premiums from existingprograms. Also contributing to the increase in gross written premiums were increases in the automobile physical damage and suretylines of business from two new agencies.Ceded premiums increased $0.1 million, or 2.9%, during 2017 as compared to 2016. The increase in ceded premiums wasprimarily due to a reinsurance rate increase in the automobile liability line of business.The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:Net earned premiums decreased slightly during 2017 as compared to 2016. The decrease in net earned premiums was primarilyattributable to decreases in automobile physical damage and surety net earned premiums resulting from decreased businesswritings in 2016. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current yearare related to policies written during both the current year and immediately preceding year.The performance of an insurance company is often measured by its combined ratio. The combined ratio represents 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).20TABLE OF CONTENTSNet losses and loss adjustment expenses at American Southern increased slightly during 2017 as compared to 2016. As apercentage of premiums, net losses and loss adjustment expenses were 64.3% in 2017 compared to 64.0% in 2016. The slightincrease in the loss ratio was primarily attributable to less favorable loss experience in the general liability and surety lines ofbusiness during 2017 as compared to 2016.Underwriting expenses decreased slightly during 2017 as compared to 2016. As a percentage of premiums, underwritingexpenses were 30.6% in 2017 and 2016. The nominal increase in the expense ratio was primarily due to American Southern’s useof a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios ofthe business they write. In 2017, variable commissions at American Southern increased $0.2 million as compared to 2016 due tomore favorable loss experience from certain accounts subject to variable commissions.In establishing reserves, American Southern initially reserves for losses at the higher end of the reasonable range if no 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, 2017, the range ofestimates developed in connection with the loss reserves for American Southern indicated that reserves could be as much as 9.7%lower or as much as 12.1% higher. Development from prior years’ reserves has historically reduced the current year loss ratio;however, such reduction in the current year loss ratio is generally offset by the reserves established in the current year for currentperiod losses. American Southern’s estimated net reserve redundancies for the years ended December 31, 2017 and 2016 were $2.5million and $2.1 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 2017 was $0.4 million more than in2016. After considering the impact on contingent commissions and other related accruals, the $0.4 million increase in theredundancy resulted in an estimated increase in income from operations before tax of approximately $0.2 million in 2017 ascompared to 2016. Management believes that such differences will continue in future periods but is unable to determine if or whenincremental redundancies will increase or decrease, until the underlying losses are ultimately settled.Contingent commissions, if contractually applicable, are ultimately payable to participating agents based on the underlyingprofitability of a particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued asearned. In 2017, approximately 51% of American Southern’s earned premium provides for contractual commission arrangementswhich compensate the company’s agents in relation to the loss ratios of the business they write, compared to 52% in 2016. Bystructuring its business in this manner, American Southern provides its agents with an economic incentive to place profitablebusiness with American Southern. In periods in which loss reserves reflect favorable development from prior years’ reserves, there isgenerally a highly correlated increase in commission expense also related to the prior year business. Accordingly, favorable lossdevelopment from prior years, while anticipated to continue in future periods, is not an indicator of significant additionalprofitability in the current year.21 Year Ended December 31, 20172016 (Dollars in thousands)Medicare supplement$93,652 $84,107 Other health products 6,440 5,621 Life insurance 9,574 9,974 Total earned premiums 109,666 99,702 Insurance benefits and losses 83,029 68,789 Underwriting expenses 34,734 35,766 Total expenses 117,763 104,555 Underwriting loss$(8,097)$(4,853)Loss ratio 75.7% 69.0%Expense ratio 31.7 35.9 Combined ratio 107.4% 104.9%TABLE OF CONTENTSBankers FidelityThe following summarizes, for the periods indicated, Bankers Fidelity’s premiums, losses and expenses:Premium revenue at Bankers Fidelity increased $10.0 million, or 10.0%, during 2017 as compared to 2016. Premiums from theMedicare supplement line of business increased $9.5 million, or 11.3%, in 2017 as compared to 2016, due primarily to thesuccessful execution of new business generating strategies with both new and existing agents. Other health product premiumsincreased $0.8 million, or 14.6%, during 2017 as compared to 2016, primarily as a result of new sales of the company’s disabilityincome and group health products. Premiums from the life insurance line of business decreased $0.4 million, or 4.0%, in 2017 from2016 due to the redemption and settlement of existing policy obligations exceeding the level of new sales activity. Medicaresupplement premiums ceded under the reinsurance agreement in 2017 and 2016 were approximately $32.5 million and $5.3million, respectively.Benefits and losses increased $14.2 million, or 20.7%, during 2017 as compared to 2016. As a percentage of premiums,benefits and losses were 75.7% in 2017 compared to 69.0% in 2016. The increase in the loss ratio was primarily attributable tounfavorable loss experience in the Medicare supplement line. Further, beginning late in 2016 and continuing throughout the firstquarter of 2017, Bankers Fidelity experienced significantly increased levels of mortality and morbidity across all lines of businesswhich had an unfavorable effect on the company’s loss patterns and increased the resultant 2017 loss ratio.Underwriting expenses decreased $1.0 million, or 2.9%, during 2017 as compared to 2016. As a percentage of earnedpremiums, these expenses were 31.7% in 2017 compared to 35.9% in 2016. The decrease in the expense ratio was primarily due tothe increase in earned premiums coupled with a relatively consistent level of fixed general and administrative expenses. Alsocontributing to the decrease in the expense ratio was a reinsurance expense-reimbursement allowance associated with theCompany’s reinsurance agreement, which reimbursed the company for a portion of its indirect underwriting expenses.Investment Income and Realized GainsInvestment income decreased $1.4 million, or 14.0%, in 2017 as compared to 2016. The decrease in investment income wasprimarily attributable to a decrease in the average yield on the Company’s investments in fixed maturities and losses from theequity in earnings from investments in real estate partnerships.The Company had net realized investment gains of $9.2 million in 2017 compared to net realized investment gains of $2.6million in 2016. The net realized investment gains in 2017 and 2016 were primarily attributable to gains of $6.0 million and $1.6million, respectively, from the sale of property held within the Company’s real estate partnership investments as well as gains fromthe sale of a number of the Company’s investments in fixed maturities. 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.22TABLE OF CONTENTSInterest ExpenseInterest expense increased $0.2 million, or 10.3%, in 2017 as compared to 2016 due to an increase during the year in theLondon Interbank Offered Rate (“LIBOR”), as the interest rates on the Company’s outstanding junior subordinated deferrableinterest debentures (“Junior Subordinated Debentures”) are directly related to LIBOR.Other ExpensesOther expenses (commissions, underwriting expenses, and other expenses) decreased $1.3 million, or 2.2%, in 2017 ascompared to 2016. The decrease in other expenses was primarily attributable to a reinsurance expense-reimbursement allowanceassociated with the reinsurance agreement in the life and health operations, which reimbursed a portion of the Company’s indirectunderwriting expenses. Partially offsetting the decrease in other expenses was the $0.2 million increase in variable commissionaccruals at American Southern due to favorable loss experience from certain accounts subject to variable commissions. AmericanSouthern’s variable commission structure compensates the participating agents in relation to the loss ratios of the business theywrite. As a percentage of earned premiums, other expenses were 34.6% in 2017 as compared with 37.7% in 2016. The decrease inthe expense ratio was primarily attributable to the increase in earned premiums coupled with a lower level of general andadministrative expenses.Income TaxesThe primary differences between the effective tax rate and the federal statutory income tax rate for 2017 and 2016 resultedfrom the dividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”) and the remeasurement ofdeferred taxes. 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 remeasurement of deferred taxes resulted from legislated tax reformenacted on December 22, 2017. The tax reform reduced the federal tax rate applied to the Company’s deferred tax balances from35% to 21% on enactment.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 to continue within historical ranges. The Company’s primary sourcesof cash are written premiums, investment income and proceeds from the sale and maturity of its invested assets. The Companybelieves that, within each operating company, total invested assets will be sufficient to satisfy all policy liabilities and that cashinflows from investment earnings, future premium receipts and reinsurance collections will be adequate to fund the payment ofclaims 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 principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets anddebt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approvedby the Company’s board of directors from time to time. At December 31, 2017, the Parent had approximately $25.8 million ofunrestricted cash 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, 2017, the Parent’s insurance subsidiaries had an aggregate statutory surplus of $77.5million. Dividends were paid to Atlantic American by its subsidiaries totaling $4.9 million and $5.5 million in 2017 and 2016,respectively.The Parent provides certain administrative, purchasing and other services to each of its subsidiaries. The amount charged toand paid by the subsidiaries for these services was $7.7 million and $7.4 million in 2017 and 2016, respectively. In addition, theParent has a formal tax-sharing agreement with each of its insurance subsidiaries. A net total of $2.7 million and $2.8 million werepaid to the Parent under the tax sharing agreement in 2017 and 2016, respectively.23TABLE OF CONTENTSThe 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, 2017, the effective interest rate was 5.50%. 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, 2017, 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 had accrued, but unpaid, dividends, on the Series D Preferred Stock of $17,722 at December 31, 2017and 2016. During each of 2017 and 2016, the Company paid Series D Preferred Stock dividends of $0.4 million.Cash and cash equivalents increased from $13.3 million at December 31, 2016 to $24.5 million at December 31, 2017. Theincrease in cash and cash equivalents during 2017 was primarily attributable to the sale and maturity of securities exceedinginvestment purchases, as well as the net cash provided by operations of $2.6 million during 2017. Partially offsetting the increasewere additions to property and equipment of $0.1 million, dividends paid on the Company’s common stock and Series D PreferredStock of $0.8 million, and the purchase of shares for treasury for $0.7 million.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.24TABLE OF CONTENTSOff-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 thereforeare not providing 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 thereforeare not providing the information required by this Item.25Item 8.Financial Statements and Supplementary DataINDEX TO FINANCIAL STATEMENTS PageATLANTIC AMERICAN CORPORATION Report of Independent Registered Public Accounting Firm 27 Consolidated Balance Sheets as of December 31, 2017 and 2016 28 Consolidated Statements of Operations for the years ended December 31, 2017 and 2016 29 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017 and 2016 30 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017 and 2016 31 Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016 32 Notes to Consolidated Financial Statements 33 TABLE OF CONTENTS26TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersAtlantic American CorporationAtlanta, GeorgiaOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Atlantic American Corporation (the “Company”) andsubsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income,shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes andschedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statementspresent fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, andthe results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformitywith accounting principles generally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to expressan opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registeredwith the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respectto the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,whether due to error or fraud.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we expressno such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsalso included evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Company’s auditor since 2008Atlanta, Georgia, United StatesMarch 26, 201827TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED BALANCE SHEETS December 31, 20172016 (Dollars in thousands,except per share data)ASSETS Cash and cash equivalents$24,547 $13,252 Investments: Fixed maturities (cost: $212,544 and $210,505) 215,108 210,670 Common and non-redeemable preferred stocks (cost: $10,918 and $11,453) 23,355 20,257 Other invested assets (cost: $5,626 and $9,709) 5,626 9,709 Policy loans 2,146 2,265 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 247,511 244,177 Receivables: Reinsurance 17,613 11,703 Insurance premiums and other, net of allowance for doubtful accounts of $209 and $280 in 2017 and2016, respectively 13,241 12,581 Deferred income taxes, net — 160 Deferred acquisition costs 32,694 28,975 Other assets 5,089 5,208 Intangibles 2,544 2,544 Total assets$343,239 $318,600 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds$173,583 $162,679 Accounts payable and accrued expenses 22,342 16,677 Deferred income taxes, net 593 — Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 230,256 213,094 Commitments and contingencies (Note 7) Shareholders’ equity: Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value 55 55 Common stock, $1 par, 50,000,000 shares authorized;22,400,894 shares issued; 20,449,531 and 20,446,705 shares outstanding in 2017 and 2016,respectively 22,401 22,401 Additional paid-in capital 57,495 57,114 Retained earnings 30,993 27,272 Accumulated other comprehensive income 9,751 5,830 Unearned stock grant compensation (579) (428)Treasury stock, at cost, 1,951,363 and 1,954,189 shares in 2017 and 2016, respectively (7,133) (6,738)Total shareholders’ equity 112,983 105,506 Total liabilities and shareholders’ equity$343,239 $318,600 The accompanying notes are an integral part of these consolidated financial statements.28TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 20172016 (Dollars in thousands,except per share data)Revenue: Insurance premiums$163,327 $153,465 Investment income 8,496 9,884 Realized investment gains, net 9,168 2,595 Other income 123 133 Total revenue 181,114 166,077 Benefits and expenses: Insurance benefits and losses incurred 117,515 103,197 Commissions and underwriting expenses 43,446 44,797 Interest expense 1,723 1,562 Other expense 13,074 12,997 Total benefits and expenses 175,758 162,553 Income before income taxes 5,356 3,524 Income tax expense 828 888 Net income 4,528 2,636 Preferred stock dividends (399) (399)Net income applicable to common shareholders$4,129 $2,237 Earnings per common share (basic and diluted)$.20 $.11 The accompanying notes are an integral part of these consolidated financial statements.29TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 20172016 (Dollars in thousands) Net income$4,528 $2,636 Other comprehensive income: Available-for-sale securities: Gross unrealized holding gain arising in the period 15,200 4,512 Related income tax effect (5,320) (1,579)Less: reclassification adjustment for net realized gains included in net income(1) (9,168) (2,595)Related income tax effect(2) 3,209 908 Total other comprehensive income, net of tax 3,921 1,246 Total comprehensive income$8,449 $3,882 (1)Realized gains on available-for-sale securities recognized in realized investment gains, net on the accompanying consolidated statements ofoperations.(2)Income tax effect on reclassification adjustment for net realized gains included in income tax expense on the accompanying consolidatedstatements of operations.The accompanying notes are an integral part of these consolidated financial statements.30TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY PreferredStockCommonStockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncomeUnearnedStockGrantCompensationTreasuryStockTotal (Dollars in thousands)Balance, December 31, 2015$55 $22,401 $56,623 $25,443 $4,584 $(273)$(6,341)$102,492 Net income — — — 2,636 — — — 2,636 Other comprehensive income, net oftax — — — — 1,246 — — 1,246 Dividends on common stock — — — (408) — — — (408)Dividends on preferred stock — — — (399) — — — (399)Restricted stock grants — — 461 — — (741) 280 — Amortization of unearnedcompensation — — — — — 586 — 586 Purchase of 173,008 shares fortreasury — — — — — — (698) (698)Issuance of 13,177 shares under stockplans — — 30 — — — 21 51 Balance, December 31, 2016 55 22,401 57,114 27,272 5,830 (428) (6,738) 105,506 Net income — — — 4,528 — — — 4,528 Other comprehensive income, net oftax — — — — 3,921 — — 3,921 Dividends on common stock — — — (408) — — — (408)Dividends on preferred stock — — — (399) — — — (399)Restricted stock grants — — 363 — — (646) 283 — Amortization of unearnedcompensation — — — — — 495 — 495 Purchase of 188,066 shares fortreasury — — — — — — (692) (692)Issuance of 8,892 shares under stockplans — — 18 — — — 14 32 Balance, December 31, 2017$55 $22,401 $57,495 $30,993 $9,751 $(579)$(7,133)$112,983 The accompanying notes are an integral part of these consolidated financial statements.31TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 20172016 (Dollars in thousands)Cash flows from operating activities: Net income$4,528 $2,636 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred acquisition costs 10,630 11,884 Acquisition costs deferred (14,349) (12,993)Realized investment gains, net (9,168) (2,595)Compensation expense related to share awards 495 586 Depreciation and amortization 1,438 1,205 Deferred income tax benefit (1,358) (2)Increase in receivables, net (6,185) (407)Increase (decrease) in insurance reserves and policyholder funds 10,904 (666)Increase in other liabilities 5,665 1,649 Other, net 34 19 Net cash provided by operating activities 2,634 1,316 Cash flows from investing activities: Proceeds from investments sold 83,992 62,361 Proceeds from investments matured, called or redeemed 10,791 10,874 Investments purchased (84,552) (75,071)Additions to property and equipment (103) (396)Net cash provided by (used in) investing activities 10,128 (2,232) Cash flows from financing activities: Payment of dividends on Series D preferred stock (399) (399)Payment of dividends on common stock (408) (408)Proceeds from shares issued under stock plans 32 51 Purchases of shares for treasury (692) (698)Net cash used in financing activities (1,467) (1,454) Net increase (decrease) in cash 11,295 (2,370)Cash and cash equivalents at beginning of year 13,252 15,622 Cash and cash equivalents at end of year$24,547 $13,252 Supplemental cash flow information: Cash paid for interest$1,705 $1,544 Cash paid for income taxes$1,400 $675 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, 2017, the Parent owned four insurance subsidiaries, Bankers Fidelity Life Insurance Company and itswholly-owned subsidiary, Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”), and American SouthernInsurance Company and its wholly-owned subsidiary, American Safety Insurance Company (together known as “AmericanSouthern”), in addition to one non-insurance subsidiary, xCalibre Risk Services, Inc. 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. Losses, benefits and expenses are accrued as incurredand are associated with premiums as they are earned so as to result in recognition of profits over the lives of the contracts. Fortraditional life insurance and long-duration health insurance, this association is accomplished by the provision of a future policybenefits reserve and the deferral and subsequent amortization of the costs of acquiring business, which are referred to as “deferredpolicy acquisition costs” (principally commissions, premium taxes, and other incremental direct costs of issuing policies). Deferredpolicy acquisition costs are amortized over the estimated premium-paying period of the related policies using assumptionsconsistent with those used in computing the policy benefits reserve. The Company provides for insurance benefits and losses onaccident, health, and property-casualty claims based upon estimates of projected ultimate losses. Deferred policy acquisition costsfor property and casualty insurance and short-duration health insurance are amortized over the effective period of the relatedinsurance policies. Contingent commissions, if contractually applicable, are ultimately payable to agents based on the underlyingprofitability of a particular insurance contract or a group of insurance contracts, and are periodically evaluated and accrued asearned. In periods in which revisions are made to the estimated loss reserves related to the particular insurance contract or group ofinsurance contracts subject to such commissions, corresponding adjustments are also made to the related accruals. Deferred policyacquisition costs are expensed when such costs are deemed not to be recoverable from future premiums (for traditional life andlong-duration health insurance) and from the related unearned premiums and investment income (for property and casualty andshort-duration health insurance).IntangiblesIntangibles consist of goodwill and other indefinite-lived intangible assets. 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 and are notamortized. The Company periodically reviews its goodwill and other indefinite-lived intangibles to determine if any adverseconditions exist that could indicate impairment. Conditions that could trigger impairment include, but are not limited to, asignificant change in business climate that could affect the value of the related asset, an adverse action, or an assessment by aregulator. No impairment of the Company’s recorded intangibles was identified during any of the periods presented.InvestmentsThe 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,33TABLE OF CONTENTSas adjusted if applicable, reflected in shareholders’ equity as a component of accumulated other comprehensive income or loss. Thefair values of fixed maturities and equity securities are largely determined by either independent methods prescribed by theNational Association of Insurance Commissioners (“NAIC”), which do not differ materially from publicly quoted market prices,when available, or independent broker quotations. The Company owns certain fixed maturities that do not have publicly quotedmarket values, but had an estimated fair value as determined by management of $1,369 and $1,264 at December 31, 2017 and2016, respectively. Such values inherently involve a greater degree of judgment and uncertainty and therefore ultimately greaterprice volatility than the value of securities with publicly quoted market values. Policy loans and real estate are carried at historicalcost. Other invested assets are comprised of investments in limited partnerships, limited liability companies, and real estate jointventures, and are accounted for using the equity method. If the value of a common stock, preferred stock, other invested asset, orpublicly traded bond declines below its cost or amortized cost, as applicable, and the decline is considered to be other thantemporary, a realized loss is recorded to reduce the carrying value of the investment to its estimated fair value, which becomes thenew cost basis. The evaluation for an other than temporary impairment is a quantitative and qualitative process, which is subject torisks and uncertainties in the determination of whether declines in the fair value of investments are other than temporary. Potentialrisks and uncertainties include, among other things, changes in general economic conditions, an issuer’s financial condition ornear term recovery prospects and the effects of changes in interest rates. In evaluating a potential impairment, the Companyconsiders, among other factors, management’s intent and ability to hold the securities until price recovery, the nature of theinvestment 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. Premiums and discounts related to investmentsare amortized or accreted over the life of the related investment as an adjustment to yield using the effective interest method.Dividends and interest income are recognized when earned or declared. The cost of securities sold is based on specificidentification. Unrealized gains (losses) in the value of invested assets are accounted for as a direct increase (decrease) inaccumulated other comprehensive income in shareholders’ equity, net of deferred tax and, accordingly, have no effect on netincome.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 and participating shares outstandingduring the relevant period. Diluted earnings per common share are based on the weighted average number of common andparticipating shares outstanding during the relevant period, plus options outstanding, if applicable, using the treasury stockmethod and the assumed conversion of the Series D preferred stock, if dilutive. Unless otherwise indicated, earnings per commonshare amounts are presented on a diluted 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 February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects fromAccumulated Other Comprehensive Income (“ASU 2018-02”). The FASB issued this guidance for the effect on deferred tax assetsand liabilities related to items recorded in34TABLE OF CONTENTSaccumulated other comprehensive income (“AOCI”) resulting from legislated tax reform enacted on December 22, 2017. The taxreform reduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment. Under currentGAAP, the Company recorded the total effect of the change in enacted tax rates on deferred tax balances in the income tax expensecomponent of net income. ASU 2018-02 permits the Company to reclassify out of AOCI and into retained earnings the “stranded”tax effects that resulted from recording the tax effects of unrealized investment gains at a 35% tax rate because the 14 pointreduction in tax rate was recognized in net income instead of other comprehensive income. The Company will adopt the newguidance as of January 1, 2018. As a result of the reclassification, on January 1, 2018, the Company will reclassify $2,100 ofstranded tax effects related to continuing operations which will have the effect of reducing AOCI and increasing retained earnings.In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20):Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This guidance shortens the amortization period forcertain callable debt securities held at a premium to the earliest call date. Under current GAAP, premiums and discounts on callablesecurities generally are amortized to the maturity date. ASU 2017-08 is effective for interim and annual reporting periodsbeginning after December 15, 2018, although earlier adoption is permitted. The Company does not expect the adoption of thisASU to have a material impact on its consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test forGoodwill Impairment (“ASU 2017-04”). ASU 2017-04 is intended to simplify the evaluation of goodwill. The updated guidancerequires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unitcompared to its estimated fair value, with the amount of the impairment not to exceed the carrying value of the reporting unit’sgoodwill. Under existing guidance, if the reporting unit’s carrying value exceeds its estimated fair value, the Company allocatesthe fair value of the reporting unit to all of the assets and liabilities of the reporting unit to determine an implied goodwill value.An impairment loss is then recognized for the excess, if any, of the carrying value of the reporting unit’s goodwill compared to theimplied goodwill value. The amendments in ASU 2017-04 are effective for interim and annual reporting periods beginning afterDecember 15, 2019. The Company expects to adopt the updated guidance January 1, 2020 on a prospective basis as required,although earlier adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on itsconsolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain CashReceipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactionsare classified in the statement of cash flows. The issues addressed in ASU 2016-15 are: 1) debt prepayment or debt extinguishmentcosts, 2) settlement of zero-coupon debt instruments, 3) contingent consideration payments made after a business combination, 4)proceeds from the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies,including bank-owned life insurance policies, 6) distributions received from equity method investees, 7) beneficial interests insecuritization transactions and 8) separately identifiable cash flows and application of the predominance principle. Theamendments in ASU 2016-15 are effective for interim and annual reporting periods beginning after December 15, 2017. TheCompany does not expect the adoption of this ASU to have an impact on its consolidated statements of cash flows.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of CreditLosses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities to measure all expected credit losses for financialinstruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. ASU 2016-13will remove all recognition thresholds and will require entities to recognize an allowance for credit losses equal to the differencebetween the amortized cost basis of a financial instrument and the amount of amortized cost that the entity expects to collect overthe instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale (“AFS”)debt securities and beneficial interests in securitized financial assets. Credit losses on AFS debt securities carried at fair value willcontinue to be measured as other-than-temporary impairments (“OTTI”) when incurred; however, the losses will be recognizedthrough an allowance and no longer as an adjustment to the cost basis. Recoveries of OTTI will be recognized as reversals ofvaluation35TABLE OF CONTENTSallowances and no longer accreted as investment income through an adjustment to the investment yield. The allowance on AFSdebt securities cannot cause the net carrying value to be below fair value and, therefore, it is possible that increases in fair valuedue to decreases in market interest rates could cause the reversal of a valuation allowance and increase net income. The newguidance will also require purchased financial assets with a more-than-insignificant amount of credit deterioration since originalissuance to be recorded based on contractual amounts due and an initial allowance recorded at the date of purchase. For theCompany, the amendments in ASU 2016-13 will be effective for interim and annual reporting periods beginning after December15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within thosefiscal years. The Company has not yet determined the timing of adoption. Implementation matters yet to be addressed includedetermining the impact of valuation allowances on the effective interest method for recognizing interest income from AFS debtsecurities as well as updating our investment accounting system functionality to adjust valuation allowances based on changes infair value. The estimated effect on the Company’s financial statements can only be estimated based on the current investmentportfolio at any given point in time, and accordingly, has not currently been determined.In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting (“ASU 2016-09”). This guidance applies to all entities that issue share-based paymentawards to their employees and is designed to simplify several areas of the accounting for share-based payment transactions,including income tax consequences, forfeitures, classification of awards as either equity or liabilities and related classification onthe statement of cash flows. ASU 2016-09 requires the excess tax benefit or deficiency on vesting or settlement of awards to berecognized in earnings as an income tax benefit or expense, respectively. The Company adopted ASU 2016-09 as of January 1,2017. Adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323):Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”). This guidance eliminates the requirement toretroactively adopt the equity method of accounting when an investment qualifies for the use of the equity method as a result of anincrease in the level of ownership or degree of influence. Under ASU 2016-07, the equity method investor is required to add thecost of acquiring the additional interest in the investee to the current basis of the previously held interest and adopt the equitymethod of accounting as of the date the investment becomes qualified for equity method accounting. The Company adopted ASU2016-07 as of January 1, 2017. Adoption of ASU 2016-07 did not have an impact on the Company’s consolidated financialstatements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under this guidance, an entity isrequired to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasingarrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. UnderASU 2016-02, lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements toenable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Under thenew guidance, lessees with operating leases will be required to recognize a liability for the present value of future minimum leasepayments with a corresponding asset for the right of use of the property. Under existing guidance, future minimum lease paymentson operating leases are commitments that are not recognized as liabilities on the balance sheet. ASU 2016-02 is effective for annualreporting periods beginning after December 15, 2018 and requires a modified retrospective adoption, with early adoptionpermitted. The Company does not expect the adoption of ASU 2016-02 to have a material impact on its consolidated financialstatements; however, it is expected that assets and liabilities will increase based on the present value of remaining lease paymentsfor the minor number of leases which will be in place at the adoption date.In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU 2016-01”).ASU 2016-01 provides updated guidance for the recognition and measurement of financial instruments. The new guidance willrequire investments in equity securities to be measured at fair value with any changes in valuation reported in net income exceptfor investments that are consolidated or are accounted for under the equity method of accounting. The new guidance will alsorequire a deferred tax asset resulting from net unrealized losses on available-for-sale (AFS) fixed maturities that are recognized inAOCI to be evaluated for recoverability in combination with the Company’s other deferred tax assets. Under existing guidance, theCompany measures investments in equity securities, AFS at fair value with changes in fair value reported in36TABLE OF CONTENTSother comprehensive income. As required, the Company will adopt the guidance effective January 1, 2018 through a cumulativeeffect adjustment to retained earnings. Early adoption is not allowed. The impact to the Company will be increased volatility in netincome beginning in 2018. Any difference in the evaluation of deferred tax assets may also affect shareholders’ equity. Cash flowswill not be affected. The impact will depend on the composition of the Company’s investment portfolio in the future and changesin fair value of the Company’s investments. As of January 1, 2018, the Company will reclassify from AOCI to retained earnings netunrealized gains of $9,825, after tax, related to equity securities, AFS having a fair value of $23,355. Had the new accountingguidance been in place since the beginning of 2017, the Company would have recognized mark-to-market gains of $2,361 after-tax in net income for the Year Ended December 31, 2017.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).ASU 2014-09 as modified provides guidance for recognizing revenue. The guidance excludes insurance contracts and financialinstruments. Revenue is to be recognized when, or as, goods or services are transferred to customers in an amount that reflects theconsideration that an entity is expected to be entitled in exchange for those goods or services. This guidance is effectiveretrospectively on January 1, 2018, with a choice of restating prior periods or recognizing a cumulative effect for contracts in placeas of adoption. The Company will adopt ASU 2014-09 on January 1, 2018. Based on current evaluations, the adoption of this ASUwill not have a material impact on the Company’s consolidated financial statements.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 receivables, among others, and actual results could differ materially from management’s estimates.37TABLE OF CONTENTSNote 2.InvestmentsThe following tables set forth the carrying value, gross unrealized gains, gross unrealized losses and cost or amortized cost ofthe Company’s investments, aggregated by type and industry, as of December 31, 2017 and December 31, 2016.Investments were comprised of the following: 2017 CarryingValueGrossUnrealizedGainsGrossUnrealizedLossesCost orAmortizedCostFixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Governmentagencies and authorities$31,155 $149 $511 $31,517 Obligations of states and political subdivisions 10,809 630 1 10,180 Corporate securities: Utilities and telecom 21,882 1,709 130 20,303 Financial services 53,686 2,049 453 52,090 Other business – diversified 44,184 1,024 1,349 44,509 Other consumer – diversified 53,200 924 1,477 53,753 Total corporate securities 172,952 5,706 3,409 170,655 Redeemable preferred stocks: Other consumer – diversified 192 — — 192 Total redeemable preferred stocks 192 — — 192 Total fixed maturities 215,108 6,485 3,921 212,544 Equity securities: Common and non-redeemable preferred stocks: Utilities and telecom 1,588 624 — 964 Financial services 5,634 851 — 4,783 Other business – diversified 297 250 — 47 Other consumer – diversified 15,836 10,712 — 5,124 Total equity securities 23,355 12,437 — 10,918 Other invested assets 5,626 — — 5,626 Policy loans 2,146 — — 2,146 Real estate 38 — — 38 Investments in unconsolidated trusts 1,238 — — 1,238 Total investments$247,511 $18,922 $3,921 $232,510 38TABLE OF CONTENTS 2016 CarryingValueGrossUnrealizedGainsGrossUnrealizedLossesCost orAmortizedCostFixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Governmentagencies and authorities$31,102 $197 $553 $31,458 Obligations of states and political subdivisions 17,572 625 308 17,255 Corporate securities: Utilities and telecom 18,034 1,462 88 16,660 Financial services 57,282 1,880 911 56,313 Other business – diversified 57,419 1,071 2,337 58,685 Other consumer – diversified 29,069 471 1,344 29,942 Total corporate securities 161,804 4,884 4,680 161,600 Redeemable preferred stocks: Other consumer – diversified 192 — — 192 Total redeemable preferred stocks 192 — — 192 Total fixed maturities 210,670 5,706 5,541 210,505 Equity securities: Common and non-redeemable preferred stocks: Utilities and telecom 1,601 637 — 964 Financial services 5,402 574 — 4,828 Other business – diversified 244 197 — 47 Other consumer – diversified 13,010 7,396 — 5,614 Total equity securities 20,257 8,804 — 11,453 Other invested assets 9,709 — — 9,709 Policy loans 2,265 — — 2,265 Real estate 38 — — 38 Investments in unconsolidated trusts 1,238 — — 1,238 Total investments$244,177 $14,510 $5,541 $235,208 Bonds having an amortized cost of $11,178 and $11,435 and included in the tables above were on deposit with insuranceregulatory authorities at December 31, 2017 and 2016, respectively, in accordance with statutory requirements.39TABLE OF CONTENTSThe following table sets forth the carrying value, cost or amortized cost, and net unrealized gains (losses) of the Company’sinvestments aggregated by industry as of December 31, 2017 and 2016. 20172016 CarryingValueCost orAmortizedCostUnrealizedGains (Losses)CarryingValueCost orAmortizedCostUnrealizedGains (Losses)U.S. Treasury securities and obligations of U.S.Government agencies and authorities$31,155 $31,517 $(362)$31,102 $31,458 $(356)Obligations of states and political subdivisions 10,809 10,180 629 17,572 17,255 317 Utilities and telecom 23,470 21,267 2,203 19,635 17,624 2,011 Financial services 59,320 56,873 2,447 62,684 61,141 1,543 Other business – diversified 44,481 44,556 (75) 57,663 58,732 (1,069)Other consumer – diversified 69,228 59,069 10,159 42,271 35,748 6,523 Other investments 9,048 9,048 — 13,250 13,250 — Total investments$247,511 $232,510 $15,001 $244,177 $235,208 $8,969 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, 2017 and 2016. 2017 Less than 12 months12 months or longerTotal Fair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury securities and obligations of U.S.Government agencies and authorities$12,175 $162 $12,737 $349 $24,912 $511 Obligations of states and political subdivisions 999 1 — — 999 1 Corporate securities 40,108 653 32,667 2,756 72,775 3,409 Total temporarily impaired securities$53,282 $816 $45,404 $3,105 $98,686 $3,921 2016 Less than 12 months12 months or longerTotal Fair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury securities and obligations of U.S.Government agencies and authorities$23,494 $553 $— $— $23,494 $553 Obligations of states and political subdivisions 8,747 308 — — 8,747 308 Corporate securities 59,404 2,124 20,587 2,556 79,991 4,680 Total temporarily impaired securities$91,645 $2,985 $20,587 $2,556 $112,232 $5,541 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.40TABLE OF CONTENTSAs of December 31, 2017 and 2016, there were sixty-nine and seventy-seven securities, respectively, in an unrealized lossposition which primarily included certain of the Company’s investments in fixed maturities within the other diversified businessand other diversified consumer sectors. Securities in an unrealized loss position reported in the other diversified business sectorincluded gross unrealized losses of $906 related to investments in fixed maturities of four different issuers, all related to the oil andgas industry. These issuers represent a diversified group of businesses which include, among others, exploration and production,pipeline owners and operators, deep water offshore rig owners and operators, all of which we believe are in continuing stages ofrationalizing their current operations, investments, future capital expenditures and carefully managing and modifying their capitaland liquidity positions. Based on publicly available information, the companies are continuing to assess and revise short-term,intermediate and long-term business plans in response to the current trends in oil and gas markets. All of the investees havecontinued to make regular interest payments on their debt when and as due and the Company continues to perform in-depthanalyses of the publicly available financial disclosures of each of the investees on a regular basis. The Company does not currentlyintend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon theCompany’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability toretain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, including those describedabove, the Company has deemed these securities to be temporarily impaired as of December 31, 2017.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 has theability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria includecash 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 of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Companyutilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for themajority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined usingunadjusted prices received from pricing services that utilize a matrix pricing concept, which is a mathematicaltechnique used widely in the industry to value debt securities based on various relationships to other benchmark quotedprices.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 readily observablefrom objective sources. The Company’s financial instruments valued using Level 3 criteria consist of a limited numberof fixed maturities. As of December 31, 2017 and December 31, 2016, the value of the Company’s fixed maturitiesvalued using Level 3 criteria was $1,369 and $1,264, respectively. The use of different criteria or assumptions regardingdata may have yielded materially different valuations.41TABLE OF CONTENTSAs of December 31, 2017, financial instruments carried at fair value were measured on a recurring basis as summarized below:Assets:QuotedPrices inActiveMarketsforIdenticalAssets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)TotalFixed maturities$— $213,739 $1,369(1) $215,108 Equity securities 17,973 5,382(1) — 23,355 Cash equivalents 13,855 — — 13,855 Total$31,828 $219,121 $1,369 $252,318 (1)All underlying securities are financial service industry related.As of December 31, 2016, financial instruments carried at fair value were measured on a recurring basis as summarized below:Assets:QuotedPrices inActiveMarketsforIdenticalAssets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)TotalFixed maturities$— $209,406 $1,264(1) $210,670 Equity securities 15,153 5,104(1) — 20,257 Cash equivalents 9,811 — — 9,811 Total$24,964 $214,510 $1,264 $240,738 (1)All underlying securities are financial service industry related.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, 2016 to December 31, 2017. FixedMaturitiesBalance, January 1, 2016$2,237 Total realized gains included in earnings 57 Total unrealized losses included in other comprehensive income (30)Settlements (1,000)Balance, December 31, 2016 1,264 Total unrealized gains included in other comprehensive income 105 Balance, December 31, 2017$1,369 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.42TABLE OF CONTENTSThe carrying value and amortized cost of the Company’s investments in fixed maturities at December 31, 2017 and 2016 bycontractual maturity were as follows. Actual maturities may differ from contractual maturities because issuers may call or prepayobligations with or without call or prepayment penalties. 20172016 CarryingValueAmortizedCostCarryingValueAmortizedCostDue in one year or less$1,653 $1,655 $2,544 $2,507 Due after one year through five years 13,738 14,056 20,278 20,038 Due after five years through ten years 112,847 112,116 90,667 90,926 Due after ten years 67,328 64,928 80,099 79,627 Varying maturities 19,542 19,789 17,082 17,407 Totals$215,108 $212,544 $210,670 $210,505 Investment income was earned from the following sources: 20172016Fixed maturities$8,297 $9,122 Equity securities 467 491 Other (268) 271 Total investment income 8,496 9,884 Less investment expenses, included in other expenses (789) (577)Net investment income$7,707 $9,307 A summary of realized investment gains (losses) follows: 2017 FixedMaturitiesEquitySecuritiesOtherInvestedAssetsTotalGains$2,226 $1,044 $6,040 $9,310 Losses (142) — — (142)Realized investment gains, net$2,084 $1,044 $6,040 $9,168 2016 FixedMaturitiesEquitySecuritiesOtherInvestedAssetsTotalGains$1,119 $— $1,565 $2,684 Losses (89) — — (89)Realized investment gains, net$1,030 $— $1,565 $2,595 Proceeds from the sales of investments were as follows: 20172016Fixed maturities$72,760 $59,072 Equity securities 1,579 — Other investments 9,653 3,289 Total proceeds$83,992 $62,361 The Company’s bond portfolio included 92% investment grade securities, as defined by the NAIC, at December 31, 2017.43TABLE OF CONTENTSNote 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 at December 31, 2017 and 2016. Amount of InsuranceIn Force, Net 2017201620172016Future policy benefits Life insurance policies: Ordinary$54,752 $54,554 $238,534 $245,017 Mass market 1,693 2,003 2,070 2,463 Individual annuities 50 84 — — 56,495 56,641 $240,604 $247,480 Accident and health insurance policies 25,940 18,202 82,435 74,843 Unearned premiums 23,449 23,208 Losses, claims and loss adjustment expenses 65,689 62,562 Other policy liabilities 2,010 2,066 Total insurance reserves and policyholder funds$173,583 $162,679 Annualized premiums for accident and health insurance policies were $105,422 and $95,956 at December 31, 2017 and 2016,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 for life, accident and health future policy benefits aregenerally: (i) 2.5% to 5.5% for issues prior to 1977, (ii) 7% graded to 5.5% for 1977 through 1979 issues, (iii) 9% for 1980 through1987 issues, (iv) 5% to 7% for 1988 through 2009 issues, (v) 4% for 2010 through 2012 issues, and (vi) 3.5% to 4.0% for 2013through 2017 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.44TABLE OF CONTENTSActivity in the liability for unpaid loss and claim reserves is summarized as follows: 20172016Balance at January 1$62,562 $63,870 Less: Reinsurance recoverable on unpaid losses (10,796) (11,741)Net balance at January 1 51,766 52,129 Incurred related to: Current year 114,099 103,252 Prior years (1,765) (3,377)Total incurred 112,334 99,875 Paid related to: Current year 82,092 71,980 Prior years 28,287 28,258 Total paid 110,379 100,238 Net balance at December 31 53,721 51,766 Plus: Reinsurance recoverable on unpaid losses 11,968 10,796 Balance at December 31$65,689 $62,562 Prior years’ development was primarily the result of better than expected development on prior years loss and claim reservesfor certain lines of business in American Southern.Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred: 20172016Total incurred losses$112,334 $99,875 Cash surrender value and matured endowments 1,442 1,278 Benefit reserve changes 3,739 2,044 Total insurance benefits and losses incurred$117,515 $103,197 45 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccident Year20082009201020112012201320142015201620172008$24,055 $28,698 $28,721 $28,712 $28,688 $28,687 $28,683 $28,683 $28,682 $28,682 2009 29,866 30,455 30,481 30,447 30,438 30,432 30,431 30,430 30,430 2010 29,127 34,328 34,323 34,303 34,282 34,272 34,268 34,265 2011 31,720 38,296 38,360 38,327 38,316 38,302 38,299 2012 42,267 50,996 51,021 50,998 50,989 50,987 2013 47,770 56,970 57,034 57,023 57,021 2014 48,024 56,938 56,981 56,981 2015 45,430 54,876 54,993 2016 49,165 59,747 2017 57,696 $469,101 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$10,368 TABLE OF CONTENTSLiability for Unpaid Losses, Claims and Loss Adjustment ExpensesThe following is information, by significant product lines, about incurred and paid claims development as of December 31,2017, net of reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expecteddevelopment on reported claims included within the net incurred claims amounts.The information about incurred and paid claims development for the years ended December 31, 2008 to 2017 is presented assupplementary information.Medicare Supplement For the Years Ended December 31, (Unaudited)As of December 31, 2017 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year20082009201020112012201320142015201620172008$29,344 $28,698 $28,721 $28,712 $28,688 $28,687 $28,683 $28,683 $28,682 $28,682 $— 533,112 2009 31,124 30,455 30,481 30,447 30,438 30,432 30,431 30,430 30,430 — 560,430 2010 34,849 34,328 34,323 34,303 34,282 34,272 34,268 34,265 — 625,695 2011 38,188 38,296 38,360 38,327 38,316 38,302 38,299 — 664,049 2012 50,021 50,996 51,021 50,998 50,989 50,987 — 867,047 2013 56,974 56,970 57,034 57,023 57,021 — 957,350 2014 57,179 56,938 56,981 56,981 — 939,444 2015 55,482 54,939 54,993 — 898,270 2016 58,849 59,851 100 1,034,900 2017 67,960 9,822 1,303,865 $479,469 The cumulative number of reported claims for the Medicare Supplement line of business is the number of distinct claimsincurred and submitted to Medicare for payment in the given year. Multiple payments on the same claim are not counted in thefrequency information. Estimated ultimate claims incurred, using claims data reported during each month of any given year, arecalculated using the chain ladder method modified to use seasonality and trend-adjusted expected claims for the final two months.Additional adjustments to the estimated ultimate claims incurred are then applied to account for seasonal changes in billing andpayment frequencies. The IBNR reserve is calculated as estimated ultimate claims less paid claims and claims in course ofsettlement. Thirty-six months of loss data are used to develop the estimated ultimate incurred claims. Similar approaches are usedfor other less significant health products, subject to modifications to account for unique aspects of the product.46 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccident Year20082009201020112012201320142015201620172008$2,426 $4,202 $5,077 $5,695 $5,839 $6,065 $6,104 $6,104 $6,105 $6,105 2009 3,250 5,208 6,353 7,502 7,995 8,123 8,155 8,154 8,153 2010 3,211 6,274 8,291 9,382 9,725 10,056 10,090 10,206 2011 4,205 7,934 9,858 12,071 13,039 13,106 13,199 2012 4,627 8,791 11,507 12,932 13,197 13,211 2013 5,144 12,193 16,782 19,407 20,382 2014 6,822 13,807 17,554 20,177 2015 6,226 11,878 14,938 2016 6,796 13,141 2017 7,401 $126,913 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$31,450 TABLE OF CONTENTSAutomobile Liability For the Years Ended December 31, (Unaudited)As of December 31, 2017 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year20082009201020112012201320142015201620172008$9,723 $7,011 $6,627 $6,374 $6,124 $6,112 $6,106 $6,104 $6,105 $6,105 $— 1,534 2009 10,817 8,891 8,659 8,558 8,245 8,123 8,155 8,154 8,153 — 1,755 2010 10,752 10,818 10,547 9,937 10,068 10,185 10,202 10,201 — 1,947 2011 12,263 13,802 13,235 13,289 13,281 13,495 13,385 30 2,132 2012 12,980 15,007 14,108 13,707 13,313 13,343 22 3,340 2013 18,664 20,702 21,096 21,823 21,352 162 3,260 2014 20,812 21,881 22,041 22,353 816 3,536 2015 18,521 19,857 20,017 1,904 3,492 2016 20,549 21,275 3,049 3,755 2017 22,179 7,311 3,385 $158,363 47 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccident Year201320142015201620172013$4,778 $5,486 $5,466 $5,599 $5,599 2014 6,437 7,619 7,570 7,562 2015 6,745 7,937 7,885 2016 5,804 6,353 2017 5,215 $32,614 All outstanding liabilities before 2013, net of reinsurance 33 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$1,110 TABLE OF CONTENTSAutomobile Physical Damage For the Years Ended December 31, (Unaudited)As of December 31, 2017 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year201320142015201620172013$6,039 $5,515 $5,536 $5,599 $5,599 $— 1,598 2014 8,079 7,657 7,583 7,562 — 1,635 2015 8,287 7,955 7,887 — 1,588 2016 6,877 6,386 3 1,261 2017 6,257 105 1,238 $33,691 48 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccident Year20082009201020112012201320142015201620172008$534 $1,091 $1,637 $1,861 $2,023 $2,123 $2,418 $2,506 $2,564 $2,755 2009 476 941 1,082 1,410 1,629 1,662 1,796 1,816 1,855 2010 284 678 1,374 1,542 2,037 2,368 2,382 2,457 2011 295 412 582 835 1,161 1,169 1,278 2012 371 707 847 1,034 1,113 1,219 2013 104 339 579 811 791 2014 171 299 331 369 2015 98 259 464 2016 116 203 2017 75 $11,466 All outstanding liabilities before 2008, net of reinsurance 288 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$3,902 TABLE OF CONTENTSGeneral Liability For the Years Ended December 31, (Unaudited)As of December 31, 2017 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year20082009201020112012201320142015201620172008$5,386 $4,359 $2,858 $2,685 $2,479 $2,489 $2,507 $2,548 $2,647 $2,853 $23 393 2009 3,392 2,215 1,944 1,730 1,702 1,727 1,828 1,832 1,888 8 290 2010 4,114 2,699 2,269 2,337 2,258 2,400 2,423 2,473 4 289 2011 3,022 1,723 1,452 1,338 1,174 1,242 1,327 11 201 2012 4,055 1,305 1,269 1,270 1,214 1,333 26 157 2013 3,461 728 926 817 865 18 187 2014 3,744 501 557 476 40 192 2015 4,421 1,037 1,227 348 143 2016 3,119 1,148 440 81 2017 1,490 1,241 58 $15,080 49 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccident Year20082009201020112012201320142015201620172008$503 $1,369 $2,261 $2,232 $2,311 $2,359 $2,360 $2,324 $2,324 $2,324 2009 103 1,595 2,640 3,205 3,410 3,760 3,757 4,663 4,666 2010 928 2,193 2,780 2,943 3,252 3,545 3,560 3,534 2011 1,031 3,207 4,622 4,748 4,939 5,022 5,109 2012 2,257 4,581 4,856 5,331 4,869 4,880 2013 323 1,010 1,369 2,763 2,789 2014 1,331 2,327 2,727 2,739 2015 641 856 1,127 2016 1,054 1,732 2017 1,971 $30,871 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$3,161 TABLE OF CONTENTSSurety For the Years Ended December 31, (Unaudited)As of December 31, 2017 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year20082009201020112012201320142015201620172008$3,883 $2,098 $2,420 $2,312 $2,312 $2,360 $2,360 $2,324 $2,324 $2,324 $— 62 2009 4,920 5,025 4,239 3,951 3,616 4,636 4,916 4,664 4,667 — 83 2010 3,995 4,624 3,618 3,396 3,607 3,549 3,563 3,534 — 95 2011 4,422 4,786 5,080 5,092 4,966 5,031 5,112 — 126 2012 4,979 4,767 5,396 5,345 4,869 4,880 — 87 2013 3,060 2,007 2,743 2,947 2,866 13 57 2014 3,214 3,130 2,990 2,760 4 51 2015 1,902 1,630 1,400 78 49 2016 3,314 1,812 39 45 2017 4,677 2,043 52 $34,032 For the property and casualty lines of business, the number of claims presented above equals the number of occurrences bytype of claim reported to the Company. The number of claims reported during a given year corresponds to the number of claimsrecords opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business.For automobile claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. TheCompany has consistently monitored claim frequency on this basis, and believes this provides more meaningful information thanusing claimant count which can change over the course of settling a claim.In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimatepayment based on the known information of the claim at that time. Claims managers review and monitor all property and casualtyclaims in excess of $25,000. As new information becomes available or payments are made on a claim, the case reserve is adjusted toreflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims arebased on complex and subjective judgments and subject to change at any time as new information becomes available.In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Companyas of the reporting date as well as potential adverse development on known case reserves. IBNR reserve estimates are derivedthrough a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitativefactors are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trendssuch as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicatedadjustments are made.50TABLE OF CONTENTSBecause of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove betteror worse than indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized andcould increase or decrease earnings for the period.The following is supplementary information about average historical claims duration as of December 31, 2017.Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance(Unaudited)Reserve Line1stYear2ndYear3rd Year4thYear5thYear6thYear7thYear8thYear9thYear10thYearMedicare Supplement 83.7% 16.4% 0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Automobile Liability 32.8% 29.4% 17.1% 12.3% 4.3% 1.8% 0.5% 0.4% 0.0% 0.0%Automobile Physical Damage 86.0% 13.0% -0.6% 1.1% 0.0% General Liability 17.7% 18.8% 16.2% 14.3% 10.9% 5.4% 6.6% 2.4% 2.0% 6.7%Surety 32.2% 34.2% 19.6% 11.0% 2.0% 3.9% 0.5% 5.7% 0.0% 0.0%The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and lossadjustment expenses is as follows: December 31,2017Net outstanding liabilities: Medicare Supplement$10,368 Automobile Liability 31,450 Automobile Physical Damage 1,110 General Liability 3,902 Surety 3,161 Other short-duration insurance lines 2,004 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 51,995 Reinsurance recoverable on unpaid losses: Medicare Supplement 4,748 Automobile Liability 5,245 Automobile Physical Damage 116 General Liability 1,859 Total reinsurance recoverable on unpaid losses 11,968 Unallocated claims adjustment expenses 1,726 Total gross liability for unpaid losses, claims and loss adjustment expenses$65,689 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 recoverables were due from two reinsurersas of December 31, 2017. Reinsurance recoverables of $60 were due from Swiss Reinsurance Corporation, rated “AA-” by Standard& Poor’s and “A+” (Superior) by A.M. Best and $17,449 were due from General Re Life Corporation, rated “AA+” by Standard &Poor’s and “A++” (Superior) by A.M. Best. Allowances for uncollectible amounts are established against reinsurance recoverables,if appropriate.51TABLE OF CONTENTSThe effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows: 20172016Direct premiums written$181,568 $142,200 Assumed premiums written 19,373 19,123 Ceded premiums written (38,019) (10,225)Net premiums written$162,922 $151,098 Direct premiums earned$181,458 $144,339 Assumed premiums earned 19,241 19,124 Ceded premiums earned (37,372) (9,998)Net premiums earned$163,327 $153,465 Provision for benefits and losses incurred$147,444 $109,616 Reinsurance loss recoveries (29,929) (6,419)Insurance benefits and losses incurred$117,515 $103,197 Components of reinsurance recoverables at December 31, 2017 and 2016 were as follows: 20172016Recoverable on unpaid losses$11,968 $10,796 Recoverable on unpaid benefits 4,403 655 Ceded unearned premiums 874 227 Ceded advanced premiums 368 25 Total reinsurance recoverables$17,613 $11,703 Note 5.Income TaxesTotal income taxes were allocated as follows: 20172016Total tax expense on income$828 $888 Tax expense on components of shareholders’ equity: Net unrealized gains on investment securities 2,111 671 Total tax expense$2,939 $1,559 A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income taxexpense is as follows: 20172016Federal income tax provision at statutory rate of 35%$1,875 $1,233 Dividends-received deduction (92) (95)Small life insurance company deduction (613) (376)Other 72 55 Remeasurement of deferred taxes due to tax reform enactment (395) — Adjustment for prior years’ estimates to actual (19) 71 Income tax expense$828 $888 Effective tax rate 15.5% 25.2%The primary differences between the effective tax rate and the federal statutory income tax rate for 2017 and 2016 resultedfrom the dividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”) and the remeasurement ofdeferred taxes. 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 as52TABLE OF CONTENTSthe amount of the Company’s taxable income. The SLD varies in amount and is determined at a rate of 60 percent of the tentativelife insurance company taxable income (“LICTI”). The SLD for any taxable year is reduced (but not below zero) by 15 percent ofthe tentative LICTI for such taxable year as it exceeds $3,000 and is ultimately phased out at $15,000. The remeasurement ofdeferred taxes resulted from legislated tax reform enacted on December 22, 2017. The tax reform reduced the federal tax rateapplied to the Company’s deferred tax balances from 35% to 21% on enactment.Deferred tax liabilities and assets at December 31, 2017 and 2016 were comprised of the following: 20172016Deferred tax liabilities: Deferred acquisition costs$(1,200)$(2,345)Deferred and uncollected premiums (377) (654)Net unrealized investment gains (3,150) (3,140)Other (331) (666)Total deferred tax liabilities (5,058) (6,805)Deferred tax assets: Insurance reserves 3,216 4,589 Impaired assets 869 1,454 Alternative minimum tax credit — 282 Bad debts and other 380 640 Total deferred tax assets 4,465 6,965 Net deferred tax asset (liability)$(593)$160 The components of income tax expense were: 20172016Current - Federal$2,186 $890 Deferred - Federal (1,358) (2)Total$828 $888 The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax yearsprior to 2012 have been audited by the Internal Revenue Service and are closed.53TABLE OF CONTENTSNote 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 beneficial interests in the assets of the trusts;(ii) investing the gross proceeds of the Trust Preferred Securities in junior subordinated deferrable interest debentures (“JuniorSubordinated Debentures”) of Atlantic American; and (iii) engaging in those activities necessary or incidental thereto.The financial structure of each of Atlantic American Statutory Trust I and II, as of December 31, 2017 and 2016, was asfollows: Atlantic AmericanStatutory Trust IAtlantic AmericanStatutory Trust IIJUNIOR SUBORDINATED DEBENTURES(1)(2) Principal amount owed$18,042$23,196Balance December 31, 2017$18,042$23,196Less: Treasury debt(3)   (7,500)Net balance December 31, 2017$18,042$15,696Net balance December 31, 2016$18,042$15,696Coupon rateLIBOR + 4.00%LIBOR + 4.10%Interest payableQuarterlyQuarterlyMaturity dateDecember 4, 2032May 15, 2033Redeemable by issuerYesYesTRUST PREFERRED SECURITIES Issuance dateDecember 4, 2002May 15, 2003Securities issued17,50022,500Liquidation preference per security$ 1$ 1Liquidation value$17,500$22,500Coupon rateLIBOR + 4.00%LIBOR + 4.10%Distribution payableQuarterlyQuarterlyDistribution guaranteed by(4)AtlanticAmericanCorporationAtlanticAmericanCorporation(1)For each of the respective debentures, the Company has the right at any time, and from time to time, to defer payments of interest on theJunior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ respective maturity dates. Duringany such period, interest will continue to accrue and the Company may not declare or pay any cash dividends or distributions on, orpurchase, the Company’s common stock nor make any principal, interest or premium payments on or repurchase any debt securities that rankequally with or junior to the Junior Subordinated Debentures. The Company has the right at any time to dissolve each of the trusts and causethe Junior Subordinated Debentures 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 debt of the Parent andare effectively subordinated to all existing and future liabilities of its subsidiaries.(3)In 2014, the Company acquired $7,500 of the Junior Subordinated Debentures.(4)The Parent has guaranteed, on a subordinated basis, all of the obligations under the Trust Preferred Securities, including payment of theredemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up orliquidation.54TABLE OF CONTENTSNote 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.Operating Lease CommitmentsThe Company’s rental expense, including common area charges, for operating leases was $1,306 and $1,277 in 2017 and2016, respectively. The Company’s future minimum base lease obligations under non-cancelable operating leases are as follows:Year Ending December 31, 2018$928 2019 495 2020 528 Thereafter 3,785 Total$5,736 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 2017, a total of 182,000 restrictedshares, with an estimated fair value of $646, were issued under the 2012 Plan. In 2016, a total of 180,000 restricted shares, with anestimated fair value of $741, were issued under the 2012 Plan. The estimated fair value of the restricted shares issued under the2012 Plan for 2017 and 2016 was based on the common stock price at date of grant. Vesting of restricted shares generally occursafter a one to three year period. There were no stock options granted or outstanding under the 2012 Plan in 2017 or 2016. Sharesavailable for future grant at December 31, 2017 and 2016 were 1,241,200 and 1,423,200, respectively.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 2017 and 2016 was $237and $223, respectively, and consisted of a contribution equal to 35% of up to the first 6% of each participant’s contributions. Inaddition to the matching contribution, the Company also provided a 3% safe harbor non-elective contribution in 2017 and 2016 of$450 and $433, respectively. All contributions were made in cash. Participants are 100% vested in their own contributions and thevested percentage attributable to certain employer contributions is based on a five year graded schedule.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 shareholders by providingindependent agents who qualify as participants with an opportunity to purchase the common stock of the Company. Under theAgent Stock Purchase Plan, payment for shares of common stock of the Company is made by either deduction from an agent’scommission payment or a direct cash payment. Stock purchases are made at the end of each calendar quarter at the then currentmarket value.55TABLE OF CONTENTSNote 9.Preferred StockThe Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2017and 2016, 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 had accrued, but unpaid, dividends, on the Series D Preferred Stock of $18 at December 31,2017 and 2016. During each of 2017 and 2016, the Company paid Series D Preferred Stock dividends of $399.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, 2017 IncomeShares(In thousands)Per ShareAmountBasic and Diluted Earnings Per Common Share Net income before preferred stock dividends$4,528 20,431 Less preferred stock dividends (399) — Net income applicable to common shareholders$4,129 20,431 $.20 For the Year Ended December 31, 2016 IncomeShares(In thousands)Per ShareAmountBasic and Diluted Earnings Per Common Share Net income before preferred stock dividends$2,636 20,445 Less preferred stock dividends (399) — Net income applicable to common shareholders$2,237 20,445 $.11 The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common sharecalculation for 2017 and 2016 since its impact would have been antidilutive.Note 11.Statutory ReportingThe assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects fromstatutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differencesbetween SAP and GAAP are that under SAP: (i) certain assets that are non-admitted assets are eliminated from the balance sheet; (ii)acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policiesunder GAAP; (iii) the provision that is made for deferred income taxes is different than under GAAP; (iv) the timing of establishingcertain reserves is different than under GAAP; and (v) certain valuation allowances attributable to certain investments are different.56TABLE OF CONTENTSThe amount of reported statutory net income and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for theyears ended December 31 was as follows: 20172016Life and Health, net income (loss)$(2,880)$1,133 Property and Casualty, net income 6,647 6,470 Statutory net income$3,767 $7,603 Life and Health, surplus$34,135 $33,430 Property and Casualty, surplus 43,348 41,489 Statutory surplus$77,483 $74,919 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 $4,850 and $5,508 in 2017 and 2016, respectively, from its subsidiaries. In 2018,dividend payments to the Parent by the insurance subsidiaries in excess of $4,761 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, 2017, 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.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, 2017 and 2016, the Company paid $866 and $882, 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, 2017 and 2016, the Company paid this entity $399 in dividends on theSeries 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, 2017 and 2016, 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, 2017 and2016 was $14,407 and $10,305, respectively.During the years ended December 31, 2017 and 2016, the Company paid approximately $54 and $215, respectively, to adigital marketing services organization, which is an affiliate of Gray. Services purchased primarily included assistance with websitemarketing initiatives on behalf of the Company’s life and health operations.During the years ended December 31, 2017 and 2016, Gray paid the Company approximately $597 and $478, respectively, inemployer paid insurance premiums related to a group accident plan.57TABLE OF CONTENTSNote 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. For the Year Ended December 31, 2017 AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums$53,661 $109,666 $— $— $163,327 Insurance benefits and losses incurred 34,486 83,029 — — 117,515 Expenses deferred (8,062) (6,287) — — (14,349)Amortization and depreciation expense 8,543 2,825 712 — 12,080 Other expenses 15,951 38,196 16,191 (9,826) 60,512 Total expenses 50,918 117,763 16,903 (9,826) 175,758 Underwriting income (loss) 2,743 (8,097) Investment income 3,332 5,021 2,267 (2,124) 8,496 Other income 11 8 7,806 (7,702) 123 Operating income (loss) 6,086 (3,068) (6,830) — (3,812)Net realized gains 2,481 2,800 3,887 — 9,168 Income (loss) before income taxes$8,567 $(268)$(2,943)$— $5,356 Total revenues$59,485 $117,495 $13,960 $(9,826)$181,114 Intangibles$1,350 $1,194 $— $— $2,544 Total assets$126,313 $185,624 $147,653 $(116,351)$343,239 For the Year Ended December 31, 2016 AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums$53,763 $99,702 $— $— $153,465 Insurance benefits and losses incurred 34,408 68,789 — — 103,197 Expenses deferred (7,834) (5,159) — — (12,993)Amortization and depreciation expense 8,709 3,667 713 — 13,089 Other expenses 15,562 37,258 15,761 (9,321) 59,260 Total expenses 50,845 104,555 16,474 (9,321) 162,553 Underwriting income (loss) 2,918 (4,853) Investment income 3,868 5,725 2,217 (1,926) 9,884 Other income — 10 7,518 (7,395) 133 Operating income (loss) 6,786 882 (6,739) — 929 Net realized gains (losses) 528 2,068 (1) — 2,595 Income (loss) before income taxes$7,314 $2,950 $(6,740)$— $3,524 Total revenues$58,159 $107,505 $9,734 $(9,321)$166,077 Intangibles$1,350 $1,194 $— $— $2,544 Total assets$123,721 $168,657 $138,694 $(112,472)$318,600 58TABLE OF CONTENTSNote 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.The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of theCompany’s financial instruments as of December 31, 2017 and 2016. Level in FairValueHierarchy(1)20172016 CarryingAmountEstimatedFair ValueCarryingAmountEstimatedFair ValueAssets: Cash and cash equivalentsLevel 1$24,547 $24,547 $13,252 $13,252 Fixed maturities(1) 215,108 215,108 210,670 210,670 Equity securities(1) 23,355 23,355 20,257 20,257 Other invested assetsLevel 3 5,626 5,626 9,709 9,709 Policy loansLevel 2 2,146 2,146 2,265 2,265 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 33,738 33,738 (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 reasonable estimated rates 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.59 UnrealizedGains onAvailable-for-Sale SecuritiesBalance, December 31, 2016$5,830 Other comprehensive income before reclassifications 9,880 Amounts reclassified from accumulated other comprehensive income (5,959)Net current period other comprehensive income 3,921 Balance, December 31, 2017$9,751 TABLE OF CONTENTSNote 15.Accumulated Other Comprehensive IncomeThe following table sets forth the balance of the only component of accumulated other comprehensive income as of December31, 2017 and 2016, and the changes in the balance of that component during 2017.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-15(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, 2017based 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, 2017.There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2017 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.60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 Business Conduct and Ethics, each of which is included below, all information required by Part III(Items 10, 11, 12, 13 and 14 of Form 10-K) is incorporated by reference to the sections entitled “Election of Directors,” “SecurityOwnership of Certain Beneficial Owners and Management,” “Section 16(a) Beneficial Ownership Reporting Compliance,”“Executive Compensation,” “Certain Relationships and Related Transactions, and Director Independence” and “Ratification ofIndependent Registered Public Accounting Firm” to be contained in the Company’s definitive proxy statement in connection withthe Company’s Annual Meeting of Shareholders to be held on May 1, 2018, to be filed with the SEC within 120 days of theCompany’s fiscal year end.Equity Compensation Plan InformationThe following table sets forth, as of December 31, 2017, 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 — $ — 1,241,200 Equity compensation plans not approved by securityholders(1) — — — Total — $— 1,241,200 (1)All the Company’s equity compensation plans have been approved by the Company’s shareholders.The Company has adopted a Code of Business Conduct and Ethics that applies to its principal executive officer, principalfinancial officer, principal accounting officer or controller, or any persons performing similar functions, as well as its directors andother employees. A copy of this Code of Business Conduct and Ethics has been filed as an exhibit to this annual report on Form10-K.61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 - Restated Bylaws of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-Kfiled on March 4, 2016].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 4, 2016, between registrant and registrant’s subsidiaries.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 to theregistrant’s Form 10-Q for the quarter ended March 31, 2013].10.05 - 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].10.06 - 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].10.07** - Employment and Transition Agreement by and between John G. Sample, Jr. and Atlantic American Corporation,dated as of June 14, 2017.14.1 - Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Form 10-K forthe Year Ended December 31, 2003].21.1 - Subsidiaries of the registrant [incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-K for theYear Ended December 31, 2015].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 2002.62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 security holders of theregistrant 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 ofRegulation S-K.Item 16.Form 10-K SummaryNone.63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/ J. Ross Franklin J. Ross Franklin Vice President and Chief Financial Officer Date: March 26, 2018Pursuant 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 26, 2018HILTON H. HOWELL, JR. /s/ J. Ross FranklinVice President and Chief Financial Officer(Principal Financial and Accounting Officer)March 26, 2018J. ROSS FRANKLIN /s/ Robin R. HowellDirectorMarch 26, 2018ROBIN R. HOWELL /s/ Mark E. PreisingerDirectorMarch 26, 2018MARK E. PREISINGER /s/ Joseph M. ScheererDirectorMarch 26, 2018JOSEPH M. SCHEERER /s/ Scott G. ThompsonDirectorMarch 26, 2018SCOTT G. THOMPSON /s/ D. Keehln WheelerDirectorMarch 26, 2018D. KEEHLN WHEELER64TABLE OF CONTENTSSchedule IIPage 1 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only)BALANCE SHEETS ASSETS December 31, 20172016 (In thousands) Cash and cash equivalents$9,732 $4,308 Investments 16,097 16,160 Investment in subsidiaries 116,351 112,472 Investments in unconsolidated trusts 1,238 1,238 Income taxes receivable from subsidiaries 2,879 2,961 Other assets 3,762 4,554 Total assets$150,059 $141,693 LIABILITIES AND SHAREHOLDERS’ EQUITY Deferred tax liability, net$1,253 $500 Other payables 2,085 1,949 Junior subordinated debentures 33,738 33,738 Total liabilities 37,076 36,187 Shareholders’ equity 112,983 105,506 Total liabilities and shareholders’ equity$150,059 $141,693 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 OPERATIONS Year Ended December 31, 20172016 (In thousands)REVENUE Fee income from subsidiaries$7,702 $7,395 Distributed earnings from subsidiaries 4,850 5,508 Other 4,130 408 Total revenue 16,682 13,311 GENERAL AND ADMINISTRATIVE EXPENSES 13,015 12,858 INTEREST EXPENSE 1,723 1,562 1,944 (1,109)INCOME TAX BENEFIT(1) (2,553) (1,837) 4,497 728 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES, NET 31 1,908 NET INCOME$4,528 $2,636 (1)Under the terms of a tax-sharing agreement, income tax provisions for the subsidiary companies are computed on a separate company basis.Accordingly, the Company’s income tax benefit results from the utilization of the Parent’s separate return loss to reduce the consolidatedtaxable 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 FLOWS Year Ended December 31, 20172016 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income$4,528 $2,636 Adjustments to reconcile net income to net cash provided by operating activities: Realized investment (gains) losses, net (3,891) 1 Depreciation and amortization 712 713 Compensation expense related to share awards 495 586 Equity in undistributed earnings of consolidated subsidiaries (31) (1,908)Decrease (increase) in intercompany taxes 82 (815)Deferred income tax benefit (1,358) (2)Increase (decrease) in other liabilities 136 (224)Other, net 295 (221)Net cash provided by operating activities 968 766 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold, called or matured 6,014 1,979 Investments purchased — (1,000)Capital contribution to subsidiaries — (75)Additions to property and equipment (91) (371)Net cash provided by investing activities 5,923 533 CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends on Series D preferred stock (399) (399)Payment of dividends on common stock (408) (408)Proceeds from shares issued under stock plans 32 51 Purchases of shares for treasury (692) (698)Net cash used in financing activities (1,467) (1,454) Net increase (decrease) in cash 5,424 (155)Cash and cash equivalents at beginning of year 4,308 4,463 Cash and cash equivalents at end of year$9,732 $4,308 Supplemental disclosure: Cash paid for interest$1,705 $1,544 Cash paid for income taxes$1,400 $675 Intercompany tax settlement from subsidiaries$2,676 $2,845 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, 2017: Bankers Fidelity$30,619 $100,127 $4,271 $2,010 American Southern 2,075 47,997 19,178 — $32,694 $148,124(1)$23,449 $2,010 December 31, 2016: Bankers Fidelity$26,791 $87,849 $3,731 $2,066 American Southern 2,184 49,556 19,477 — $28,975 $137,405(2)$23,208 $2,066 (1)Includes future policy benefits of $82,435 and losses and claims of $65,689.(2)Includes future policy benefits of $74,843 and losses and claims of $62,562.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, 2017: Bankers Fidelity$109,666 $4,257 $83,029 $2,460 $32,274 $— American Southern 53,661 3,307 34,486 8,170 8,262 53,362 Other — 143 — — 7,077 — $163,327 $7,707 $117,515 $10,630 $47,613 $53,362 December 31, 2016: Bankers Fidelity$99,702 $5,172 $68,789 $3,401 $32,365 $— American Southern 53,763 3,844 34,408 8,483 7,954 51,477 Other — 291 — — 7,153 — $153,465 $9,307 $103,197 $11,884 $47,472 $51,477 See accompanying report of independent registered public accounting firm.III-2TABLE OF CONTENTSSchedule IVATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESREINSURANCE DirectAmountCeded ToOtherCompaniesAssumedFrom OtherCompaniesNetAmountsPercentage ofAmountAssumedTo Net (Dollars in thousands)Year Ended December 31, 2017: Life insurance in force$255,506 $(14,902)$— $240,604 Premiums — Bankers Fidelity$142,210 $(32,585)$41 $109,666 0.0%American Southern 39,248 (4,787) 19,200 53,661 35.8%Total premiums$181,458 $(37,372)$19,241 $163,327 11.8% Year Ended December 31, 2016: Life insurance in force$263,567 $(16,087)$— $247,480 Premiums — Bankers Fidelity$104,996 $(5,344)$50 $99,702 0.1%American Southern 39,343 (4,654) 19,074 53,763 35.5%Total premiums$144,339 $(9,998)$19,124 $153,465 12.5%See accompanying report of independent registered public accounting firm.IV-1TABLE OF CONTENTSSchedule VIATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESSUPPLEMENTAL INFORMATION CONCERNINGPROPERTY-CASUALTY INSURANCE OPERATIONSYear EndedDeferredPolicyAcquisitionCostsReservesUnearnedPremiumsEarnedPremiumsNetInvestmentIncomeClaims and ClaimAdjustmentExpenses IncurredRelated ToAmortizationof DeferredAcquisitionCostsPaid Claimsand ClaimAdjustmentExpensesPremiumsWrittenCurrentYearPriorYears (In thousands)December 31,2017$2,075 $47,997 $19,178 $53,661 $3,307 $37,016 $(2,530)$8,170 $33,459 $53,362 December 31,2016$2,184 $49,556 $19,477 $53,763 $3,844 $36,541 $(2,133)$8,483 $34,219 $51,477 See accompanying report of independent registered public accounting firm.VI-1Exhibit 10.02 TAX ALLOCATION AGREEMENTAgreement effective as of the first day of the consolidated return year beginning January 1, 2015 by and among Atlantic American Corporation(“Parent”) and each of the undersigned (“Subsidiaries”):American Southern Insurance CompanyAmerican Safety Insurance CompanyBankers Fidelity Assurance CompanyBankers Fidelity Life Insurance CompanyxCalibre Risk Services, Inc.WITNESSETH:WHEREAS, the parties (hereinafter sometimes referred to as “Members”; or in the singular “Member”) hereto are part of an affiliated group(“Affiliated Group”) as defined by the Internal Revenue Code of 1986, as amended (“Code”)§1504(a); andWHEREAS, such Affiliated Group has since 1968 filed a consolidated federal income tax return in accordance with I.R.C. §1501 and is required tofile consolidated income tax returns for years subsequent to such year of first consolidated/filing; andWHEREAS, it is the intent and desire of the parties hereto that a method be established for allocating the consolidated “federal income tax liability”(as determined under Regulations §1.1502-2) of the Affiliated Group among its Members (as required by I.R.C. §1552(a)); for reimbursing the Parent forpayment of such tax liability; for compensating any Member for use of its “net operating loss” or “tax credits” in arriving at such tax liability; and to providefor the allocation and payment of any refund arising from a carryback of net operating losses or tax credits from subsequent taxable years.NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto agree as follows:1. A U.S. consolidated federal income tax return shall continue to be filed by Atlantic American Corporation for the taxable year endedDecember 31, 2015, and for each subsequent taxable year in respect of which this Agreement is in effect and for which the Affiliated Group is required orpermitted to file a consolidated federal income tax return. Atlantic American Corporation, the Parent, and each Subsidiary shall execute and file suchconsents, elections, and other documents that may be required or appropriate for the proper filing of such returns.2. In order to compensate Members of the Affiliated Group for the use of net operating losses or tax credits in arriving at the consolidatedfederal income tax liability of the Affiliated Group, the Members of the Affiliated Group agree to determine and allocate the tax liability of the AffiliatedGroup among themselves in the following manner:Step 1. The consolidated regular federal income tax liability of the Affiliated Group, as determined under Regulations §1.1502-2 shall beallocated to the Members in accordance with Regulations §1.1552-1(a)(2) under which the “separate return tax liability” of each Member shall be allocatedto each Member for the taxable year. For purposes of the preceding sentence, the “separate return tax liability” of each Member for the taxable year shall bedetermined as if such Member were filing a separate tax return under the Code. For purposes of determining the “separate return tax liability” of a Member:(a) Any dividends received by one Member from another Member will be assumed to qualify for the 100 percent dividends-received deduction of §243, or shall be eliminated from such calculation in accordance with Regulations §1.1502-14(a)(1).(b) Gain or loss on intercompany transactions, whether deferred or not, shall be treated by each Member in the manner required by Regulations§1.1502-13. (c) Limitations on the calculation of a deduction or the utilization of tax credits or the calculation of a tax liability shall be made on a consolidatedbasis. Accordingly, the limitations provided in §§38(c), 56(a), 170(b)(2), 172(b)(2), and similar limitations shall be applied on a consolidated basis.(d) Elections as to tax credits and tax computations which may have been different from the consolidated treatment if separate returns were filedshall be made on an annual basis by the Parent.Step 2. The consolidated alternative minimum income tax liability of the Affiliated Group shall be allocated to the Members based onseparate company alternative minimum tax liability, in a manner similar to that described in Step 1 of paragraph 2 of this Agreement.Step 3. The total of any additional amounts allocated to Members pursuant to Steps 1 and 2 of paragraph 2 of this Agreement (includingamounts allocated as a result of a carryback) shall be paid (as provided in paragraph 4 of this Agreement) by such Members to those other Memberswhich had items of income, deductions, net operating losses, or tax credits to which such total is attributable pursuant to a consistent method whichreasonably reflects such items of income, deductions, net operating losses, or tax credits (such consistency and reasonableness to be determined bythe party charged with the administration of This Agreement in accordance with paragraph 3 of this Agreement). However, for this purpose, theamounts paid to Members will generally be deemed consistent and reasonable if paid on a basis equal to net operating losses utilized multiplied bythe highest federal corporation income tax rate in effect and 100 percent of tax credits utilized (unless, due to special circumstances, this would beinequitable) and which is substantiated by specific records maintained by the group for such purposes.3. The provisions of this Agreement shall be administered by the President of Atlantic American Corporation.4. Each Member shall pay the Parent its allocated consolidated federal income tax liability under Step 1 of paragraph 2 of thisAgreement. The Parent shall pay to each Member with a net operating loss or tax credits during the taxable year its allocable share of the total of theadditional amounts due from other Members pursuant to Step 3 of paragraph 2 of this Agreement. Payments for these allocable shares are to be madeno later than ten days after the date of filing of the consolidated federal income tax return for such taxable year.5. The President of Atlantic American Corporation shall have the right to assess Members their share of estimated tax payments to bemade on the projected consolidated federal income tax liability for each year. Payment to the President shall be made ten days after suchassessment. Such Member will receive credit for such prepayments in the year-end computation under paragraph 4 of this Agreement.6. If the consolidated federal income tax liability is adjusted for any taxable period, whether by means of an amended return, claim forrefund, or after-tax audit by the Internal Revenue Service, the liability of each Member shall be recomputed under paragraphs 2 of this Agreement togive effect to such adjustments. In the case of a refund, the Parent shall make payment to each Member for its share of the refund, determined in thesame manner as in paragraph 4 of this agreement, within ten days after the refund is received by the Parent, and in the case of an increase in taxliability, each Member shall pay to the Parent its allocable share of such increased tax liability with in ten days after receiving notice of suchliability from the Parent. If any interest is to be paid or received as a result of a consolidated federal income tax deficiency or refund, such interestshall be allocated to the Members in the ratio each Member’s change in consolidated federal income tax liability bears to the total change in taxliability. Any penalty shall be allocated upon such basis as the President of Atlantic American Corporation deems just and proper in view of allapplicable circumstances.7. This Agreement shall apply to the taxable year specified in the preamble of this Agreement, and all subsequent taxable years, unlessthe Members agree in writing to terminate the Agreement. Notwithstanding such termination, this Agreement shall continue in effect with respect toany payment or refunds due for all taxable periods prior to termination of this Agreement in accordance with the immediately preceding sentence. Furthermore, if any Member ceases to be part of the Affiliated Group, this Agreement shall not apply to the Member for any tax year following thetax year in which such loss of Affiliated Group status occurs of, but shall continue to apply to the Member through the tax period in which lossAffiliated Group status occurs unless the Parent enters into a written agreement to the contrary.8. The Agreement shall not be assignable by any Member without the prior written consent of the others.9. The Members hereto specifically recognize that from time to time other companies may become Members of the Affiliated Groupand hereby agree that such new Members may become parties to this Agreement by executing the master copy of this Agreement which shall bemaintained at Atlantic American Corporation’s headquarters. It will not be necessary for all the other Members to resign the Agreement, but the newMember may simply sign the existing Agreement and it will be effective as if the old Members had resigned.10. Any alteration, modification, addition, deletion, or other change in the consolidated income tax return provisions of the Code orthe regulations thereunder shall automatically be applicable to this Agreement mutatis mutandis.11. Failure of one or more parties hereto to qualify by meeting the definition of Member of the “Affiliated group” shall not operate toterminate this Agreement with respect to the other parties as long as two or more parties hereto continue so to qualify and shall not operate toterminate this Agreement with respect to the Member ceasing to be part of the Affiliated Group for all tax years during which the party was both aMember and a part of the Affiliated group, through and including the tax year in which loss of Affiliated Group status occurs, unless the Parententers into a written agreement to the contrary.12. This Agreement shall bind and inure to the respective successors and assigns of the parties hereto; but no assignment shall relieveany party’s obligations hereunder without the written consent of the other parties.13. This agreement does not and is not intended to confer any rights or remedies upon any person other than the Parties.14. The Parent has the right to handle audits and examinations, to appoint accountants or lawyers to represent the Group and itsMembers in tax disputes with the IRS, and the Parent has the sole discretion as to whether or not, and if so, on what terms, to settle a tax exam, andthat the Parent has no obligation to file amended consolidated returns or refund claims, even though a particular Subsidiary might benefit from sucha filing.15. The Parent will keep all records relating to the Agreement. All Members of the Group must retain all records, work papers,information, documents, and so on, relevant to the tax returns of the Parties for the appropriate period required by law, and if requested to do so, toprovide them to the Parent.16. The existence and terms of the Agreement, and any information provided or exchanged in connection with the Agreement, isproprietary and will be kept confidential, except if its production is compelled by law or demanded by insurance regulators. This provisioncontinues indefinitely, even after a Member leaves the Group or the Tax Allocation Agreement is terminated.17. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in theState of Georgia, in accordance with the rules of American Arbitration Association then in effect by three arbitrators. Judgment may be entered onthe arbitrator’s award in any court having jurisdiction. The arbitrator shall not have the power to award punitive damages.18. This Agreement shall be governed by the laws of the State of Georgia.IN WITNESS WHEREOF, the parties hereto have caused their names to be subscribed and executed by their respective authorized officerson the dates indicated, effective as of the date first written above.Atlantic American CorporationBy:/s/ John G. Sample, Jr DateJanuary 4, 2016JOHN G. SAMPLE, JR. American Southern Insurance CompanyBy:/s/ Robert Knight Date:January 4, 2016ROBERT KNIGHT American Safety Insurance CompanyBy: /s/ Robert Knight Date:January 4, 2016ROBERT KNIGHT Bankers Fidelity Assurance CompanyBy:/s/ Jeffrey Ross Franklin Date:January 4, 2016JEFFREY ROSS FRANKLIN Bankers Fidelity Life Insurance CompanyBy:/s/ Philip Adams Date:January 4, 2016PHILIP ADAMS xCalibre Risk Services, Inc.By:/s/ Barbara Snyder Date:January 4, 2016BARBARA SNYDER Exhibit 10.07 EMPLOYMENT AND TRANSITION AGREEMENTWITH FIXED TERMINATION DATEThis Employment and Transition Agreement with Fixed Termination Date (hereinafter “Agreement”) is made by and between JOHN G. SAMPLE,JR (hereinafter “Employee”) and ATLANTIC AMERICAN CORPORATION (hereinafter the “Employer”), and its past and present parents, subsidiaries,affiliates, successors, predecessors, shareholders, directors, officers, employees, agents, servants, representatives, insurers and reinsurers (hereinafter andcollectively the “Company”). WHEREAS, Employee has been employed by Company since 2002, serving as Senior Vice President, Chief Financial Officer and Secretary; WHEREAS, Employee has informed Company that he wishes to step down as Chief Financial Officer but to continue as an employee and to providesuch ongoing services to Company as Company may determine through the period ending June 30, 2021; and WHEREAS, Company and Employee each desire to enter into this Agreement to confirm their mutual understanding and to set forth the terms ofEmployee’s retirement from his current position and the basis on which he will continue to be available to assist Company as requested from time to time. NOW, THEREFORE, the parties hereto agree as follows: 1.Employment. Employee hereby retires as Senior Vice President, Chief Financial Officer and Secretary effective at the close of business on July 31,2017 (the “Retirement Effective Date”). As of the Retirement Effective Date, Employee also hereby resigns as an officer of Company and furtherresigns from all directorships, officerships and other positions he holds with Company. Employee will promptly execute any other documents toeffectuate such resignations, as requested by Company. Notwithstanding the foregoing, Employee’s employment by Company, including itssuccessors and assigns, will continue through June 30, 2021, except as otherwise provided for herein in Paragraph 3, at which time Employee’semployment will terminate (the “Termination Date”). From and after the Retirement Effective Date and continuing through the term of thisAgreement, Employee shall perform such tasks and duties only as may be assigned to him on special projects as designated by the Chief ExecutiveOfficer (“CEO”). Employee shall diligently and efficiently perform such duties to the best of his ability and in compliance with all applicable lawsor regulations and any applicable rules, business standards, code of conduct or ethics or Company policies and procedures applicable to employeesof Company. Employee shall also make himself reasonably available to provide such assistance and cooperation to Company, and its seniormanagement team (including any interim or permanent successor to Employee’s former Chief Financial Officer position at Company) as Companyshall reasonably request in order to transition Employee’s former responsibilities to his successor and provide such assistance as may be reasonablyrequested from time to time. Company agrees it will make all reasonable efforts to allow Executive to perform the above described duties from alocation that is mutually convenient to Company and Employee, which may include a location other than Company’s offices and outside of thestate of Georgia. However, in situations where Employee must be present at Company’s offices, or at another location designated by Company,Company agrees to reimburse Employee for his out-of-pocket expenses reasonably and necessarily incurred in accordance with Company’s standardexpense reimbursement policy. 1 2.Consideration. In exchange for Employee’s execution of this Agreement, and the Reaffirmations required under Paragraph 7, and provided thatEmployee continues to comply with the terms and conditions hereof, Company shall provide the following benefits to Employee during the term ofthis Agreement: (a)Salary. Company will pay Employee a gross amount of Two Hundred Seventy-Five Thousand and 00/100 Dollars ($275,000.00) for eachtwelve month period in the period between the effective date of this Agreement and the Termination Date, or the applicable pro rata portionthereof. The payments shall be payable in installments each year corresponding with Company’s ordinary pay dates commencing on thefirst pay date following the Effective Date of this Agreement and concluding on or by the Termination Date. Employee’s salary paid underthis Paragraph 2(a) will be subject to all applicable statutory tax withholdings or other deductions as required by law. (b)Other Time. In connection with this Agreement, Company is granting the Employee certain schedule and location flexibility not affordedto all employees. Accordingly, the Employee acknowledges that effective with the date of this Agreement, he shall not accrue any holiday,vacation, sick and/or any other types of paid time off (collectively termed “PTO”) in connection with Company’s customary employmentpractices. (c)Unused Paid Time Off. One business day prior to the Retirement Effective Date, Company will make a determination of the Employee’searned but unused PTO as of the Retirement Effective Date as reflected in Company’s payroll system, in accordance with Company policy. Payment for such amount, subject to all applicable statutory tax withholdings or other deductions as required by law or authorized by theEmployee, will be distributed as one lump sum in the next pay period subsequent to the Effective Date. (d)Benefit Continuation. Company will provide the Employee continuation on the same terms as any other active employee of medical,dental, health savings account and 401(K) benefits that Employee would otherwise be eligible to receive as an active employee ofCompany until the Termination Date. Apart from the benefits listed in this Paragraph 2, Employee acknowledges and agrees that he willnot receive any other benefits from Company during the term of this Agreement. (e)Company agrees to repurchase 78,300 shares of AAME common stock at a per share price equal to the average closing price per share forsuch stock during the thirty (30 trading days immediately preceding the Retirement Effective Date of this Agreement. This purchase will beexecuted as soon as reasonably possible subsequent to the Retirement Effective Date and payable upon the receipt by Company of suchshares into its treasury stock account at Continental Stock Transfer & Trust Company. 2 (f)Employee admits and acknowledges that but for the promises contained in this Agreement, Employee would not be entitled to theconsideration set forth in this Paragraph 2. The foregoing payments and benefits provided under this Paragraph 2 shall be in lieu of anddischarge any and all other obligations of Company to Employee for any rights or claims of any type, including but not limited to, any andall rights that Employee may have arising out of any plan, agreement, offer letter, contract or arrangement of any type, or any otherexpectation of remuneration or benefit on the part of Employee. (g)Employee expressly understands and acknowledges that Company agrees to provide the above-stated payments and benefits in exchangefor Employee’s compliance with the terms set out in this Agreement. 3.Termination of Employment. (a)Employee acknowledges that this Agreement shall automatically terminate on: (i) the Termination Date or (ii) on the last day of the monthin which Employee dies. (b)Company may immediately terminate this Agreement upon delivery of notice that the Company’s Audit Committee, in its sole discretionand acting in good faith, has reasonably determined that Employee, subsequent to the Retirement Effective Date, has: (i) materiallybreached the terms of this Agreement; or (ii) violated in a material respect any Company policy or similar guidelines; provided, however,that if the Company's Audit Committee, in its sole discretion and acting in good faith, determines that Employee's breaches or violationsare subject to cure without harm, embarrassment or cost to the Company, the Company will provide Employee with ten (10) business daysto cure any identified breaches or violations before a termination under this provision is effective. (c)In the case of early termination of the Agreement under this Paragraph 3, Employee shall be entitled to receive the payments and benefitslisted in Paragraph 2 onlythrough the last day of his employment. Employee further understands and agrees if any payments are made toEmployee under this Agreement, but are ended as a result of an early termination of the Agreement, then the payments and benefits made toEmployee are satisfactory and adequate consideration for the covenants and releases made by Employee herein 3 4. Release and Waiver. Employee, on behalf of himself and his heirs, personal representatives and assigns, knowingly, willingly, and voluntarilyreleases and waives all rights, claims, damages (including, but not limited to, back pay, front pay, liquidated damages, compensatory damages, orpunitive damages, attorneys’ fees and litigation costs), and demands against Company, its parent, subsidiary and affiliate companies and each ofCompany’s former and current directors, officers, employees, agents, successors in interest and assigns, and all other persons acting by, through,under, or in concert with Company (collective the “Released Parties”), whether brought individually, as a member or representative of a class, orderivatively on behalf of Company or shareholders of Company, arising prior to the Effective Date, which Executive now has or ever had against theReleased Parties (collectively the “Claims)”, including, but not limited to, any and all matters related in any way to Executive’s employment withCompany, Executive's ownership of Company stock, and any other events occurring prior to, and including, the Effective Date of this Agreement. These rights and claims include, but are not limited to, rights or claims under, the Age Discrimination in Employment Act of 1967, the OlderWorkers Benefit Protection Act of 1990, Title VII of the Civil Rights Act of 1964, the Pregnancy Discrimination Act, the Civil Rights Act of 1991,the Americans With Disabilities Act, the Civil Rights Act of 1866, the Family and Medical Leave Act, 42 U.S.C. § 1981, the National LaborRelations Act, the Labor Management Relations Act, Executive Order 11141, Executive Order 11246, the Rehabilitation Act of 1973, the VietnamEra Veteran’s Readjustment Act of 1974, the Uniformed Services Employment and Reemployment Rights Act, the Rehabilitation Act of 1973, theWorker Adjustment and Retraining Notification Act of 1988, the Genetic Information Nondiscrimination Act of 2008, the Sarbanes-Oxley Act of2002 or the Employee Retirement Income Security Act; tortious interference with business expectations or contract, breach of contract, and any orall claims for employment discrimination, retaliation, wrongful discharge, tortious discharge, breach of implied employment contract, promissoryestoppel, invasion of privacy, negligence, defamation, fraud, outrageous conduct, intentional or negligent infliction of emotional distress, and anyor all rights or claims under any other federal, state, county, city, or local statutes, or under common law. This Agreement is not an admission by Company that it has violated any common law, or any federal, state, county, city, or local statute, or actedwrongfully in any way. This Agreement does not prohibit the following rights or claims: (1) claims that first arise after Employee signs the Agreement or which arise out ofor in connection with the interpretation or enforcement of the Agreement itself; (2) Employee’s right to provide, without prior notice to theCompany, information to governmental authorities regarding possible legal violations or otherwise testifying or participating in any investigationor proceeding by any governmental authorities regarding possible legal violations; provided, however that Employee understands and agrees thatEmployee is waiving the right to any monetary recovery in connection with any complaint or charge that Employee may file with an administrativeagency, except with respect to any monetary recovery under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002; (3) Employee’s right, if any, to any vested benefits from Company’s defined benefit and 40l(k) plans and the right tocontinuation of coverage in Company’s’ group health insurance plans as set out in Paragraph 2 (d) above; and (4) any rights or claims, whetherspecified above or not, that cannot be waived as a matter of law pursuant to federal, state or local statute. If it is determined that any Claim coveredby this Agreement cannot be waived as a matter of law, Employee expressly agrees that the Agreement will nevertheless remain valid and fullyenforceable as to the remaining released Claims.By signing this Agreement, Employee understands that he voluntarily and knowingly waives any and all of his rights or claims under the federalAge Discrimination in Employment Act of 1967 (ADEA), as amended, that may have existed prior to the date he signs the Agreement. However,Employee is not waiving any future rights or claims under the ADEA or Title VII of the Civil Rights Act for actions arising after the date he signsthis Agreement.Employee understands that he is releasing Claims that he may not know about, and that is his knowing and voluntary intent. Employeeexpressly waives all rights that he might have under any law that is intended to prevent unknown Claims from being released. Employeeunderstands the significance of doing so. 4 5.Non-Litigation. Employee represents and warrants that he has not made, filed or lodged any complaints, charges or lawsuits or otherwise directly orindirectly commenced any proceeding against Company and/or any Released Parties with any governmental agency, department or official; anyregulatory authority, court, or other tribunal; and/or any other dispute resolution body. Nothing in this Agreement prevents the Employee fromproviding, without prior notice to the Company, information to governmental authorities regarding possible legal violations or otherwise testifyingor participating in any investigation or proceeding by any governmental authorities regarding possible legal violations. Employee understands andagrees that he is waiving the right to any monetary recovery in connection with any complaint or charge that Employee may file with anadministrative agency, except with respect to any monetary recovery under the Dodd-Frank Wall Street Reform and Consumer Protection Act andthe Sarbanes-Oxley Act of 2002. 6.Other Promises. With the exception of employment prior to the Retirement Effective Date and as set forth in Paragraph 1 and the consideration setforth in Paragraph 2, Employee hereby warrants and represents that, as of the effective date of this Agreement: (a)Employee does not have any claims against Company and/or Released Party of any type, including those types of claims set forth above,and including any claims under the Fair Labor Standards Act (wage and hour law) or its state law equivalent. Moreover, Employee warrantsand represents that he does not have any unasserted claims pursuant to a qualified employee retirement or other benefit plan. (b)With the exception of any vested amounts in Company’s defined contribution and/or 401 (k) plan, Employee specifically acknowledgesthat Employee is not entitled to any other additional form of compensation, bonuses, equity, incentives, benefits, allowance, vacation, paidtime off, severance or payment other than that filed in this Agreement, and that this Agreement is the full, final, and complete settlement ofany claims between Employee and Company. 7.Reaffirmations. Employee understands and agrees that Company shall not provide any of the consideration set forth in this Agreement (includingwithout limitation the payments or benefits listed in this Paragraph 2) until after the Retirement Effective Date and only after Employee’s execution,and expiration of any revocation period without revocation, of an additional release entered into no earlier than the Retirement Effective Date andcovering the period from the date of this Agreement through the Retirement Effective Date (which Reaffirmation is attached hereto as Exhibit A). Onor after the Termination Date, Employee agrees to execute and not revoke an additional general release and waiver covering the period between theRetirement Effective Date and the Termination Date in a form acceptable to Company and substantially similar to Exhibit A, without whichEmployee understands and agrees that Company will not pay the final payment provided for in Paragraph 2(a). 5 8.Confidentiality and Non-Communication. (a)Employee agrees that he will keep the terms of this Agreement confidential and will not disclose such terms and contents of this Agreement(except solely to the extent that such agreement, terms and conditions have been disclosed by the Company if required by law) or anydiscussions between Employee and Company related to the Agreement or the circumstances surrounding Executive’s employment withCompany, except as required by law, or for tax, accounting or financial purposes. However, Employee understands that he may discuss thisAgreement with his attorney. If a disclosure by Employee is required for an appropriate tax or accounting purpose or to Employee’s spouse,Employee will communicate the confidentiality provisions of this Agreement to any person to whom such disclosure is made, and anyfurther disclosure by such person to any individual or entity shall be deemed a disclosure by Employee. (b)Employee agrees to keep confidential any and all non-public information relating to Company or the Released Parties to which Employeehas or previously had access during Employee’s employment with Company or as a result of Employee’s dealings with Company. Employee agrees to keep all non-public information confidential unless ordered otherwise by court direction, order, subpoena or otherwiserequired by law. (c)Employee agrees that he will not make, utter or issue, or procure any person, firm, or entity to make, utter or issue, any statement in anyform, including written, oral and electronic communications of any kind, regarding Company, the Released Parties, their business, theiractions or their officers, directors, shareholders or employees, including, without limitation, any statement which conveys any informationor expresses any opinions concerning Company, the Released Parties, their business, their actions or their officers, directors or employees,to any person or entity (including, without limitation, Company employees, independent contractors, investors, shareholders, lenders,bankers, etc.), regardless of the truth or falsity of such statement. (d)Employee expressly acknowledges and agrees that this promise of confidentiality and non-communication is made as a materialinducement to Company to enter into this Agreement, that the value of this Agreement to Company is, in significant part, predicated uponcompliance, and that strict compliance with Paragraph 8(a)-(d) is therefore a material element of this Agreement. A violation by Employeeof the terms set forth in Paragraph 8(a)-(d) will be deemed a material breach of this Agreement.6(e)In the event of a breach or a threatened breach by Employee of this Paragraph 8 of this Agreement, Company shall be entitled to aninjunction restraining Employee from such breach or threatened breach, as well as recovery of its costs and reasonable attorneys’ fees. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies available to it for such breach or threatenedbreach including the recovery of damages from Employee. In the event that Company should seek an injunction hereunder, Employeewaives any requirements that Company post a bond or any other security. (f)Nothing in this Agreement prevents the Employee from providing, without prior notice to the Company, information to governmentalauthorities regarding possible legal violations or otherwise testifying or participating in any investigation or proceeding by anygovernmental authorities regarding possible legal violations. 9.Company Property and Systems. Employee acknowledges and agrees that, as of the Retirement Effective Date, he will no longer have access toany and all Company property, systems (including but limited to email), documents or other materials of any kind. To the extent Employee’sassigned duties under Paragraph 1 require access to Company property or systems, Company shall provide such access as required for the duration ofsuch special project or projects. Within 10 calendar days following the Retirement Effective Date, and within 10 days after the end of any limitedaccess provided to Employee related to his work on a special project under Paragraph 1, Employee further agrees to return to Company all materials,papers, books, records, customer information and lists, marketing information, data, memoranda, documents, diskettes, tapes, computer software andprograms, identification cards, credit cards, parking cards, keys, computers, computer and/or access keys, fax machines, beepers, phones, files andbank, brokerage or other account information, statements and access codes (including any copies thereof) relating to Company and all otherproperty of Company. 10.Consideration Period. (a)Employee understands and acknowledges that he has been offered a period of at least twenty-one (21) calendar days to consider the terms ofthis Agreement. Employee may sign the Agreement at any time during this twenty-one (21) day consideration period; however Employeeacknowledges that by doing so, Employee is voluntarily waiving Employee’s right to consider this Agreement for twenty-one (21) days. (b)Company advised Employee of his right to consult with an attorney prior to signing this Agreement. (c)Employee agrees that if Employee does not sign this Agreement within the twenty-one (21) day consideration period, it will not beeffective or enforceable, and he will not receive the consideration set forth in Paragraph 2 herein.711.Revocation Period. After signing this Agreement, Employee shall have seven (7) calendar days during which Employee is entitled to change hismind and revoke the Agreement. The Agreement will not be effective or enforceable until the eighth day following Employee’s execution of theAgreement (the “Effective Date”). To revoke this Agreement, Employee must deliver written notice of revocation by 5:00 p.m. on the seventhcalendar day after he signs the Agreement, by electronic and first class mail, to the following address: Atlantic American Corporation, 4370Peachtree Rd., NE, Atlanta, GA 30319 (Attn: Chief Executive Officer), with a copy to Jones Day, 1420 Peachtree Street, N.E., Suite 800, Atlanta, GA30309-3053 (Attn: Mark L. Hanson, Esq.). Employee agrees that if Employee revokes the Agreement, it will not be effective or enforceable, andEmployee will not receive the consideration set forth in Paragraph 2. 12.Entire Agreement, Governing Law and Binding Effect. (a)This Agreement and its various rights and obligations hereunder are binding upon Employee and Company and their respective attorneys,heirs, executors, successors, administrators, and assigns. Employee may not assign Employee’s rights or obligations under this Agreementwithout the prior written consent of Company. (b)Employee and Company expressly acknowledge and agree that there are no other agreements between them; and that there is no written ororal understanding or agreement between the parties that is not recited herein. This Agreement may be amended, modified, or changed onlyby an agreement in writing that is signed by both parties. (c)Employee and Company agree that that the validity, effect and operation of this Agreement shall be determined by the laws of the State ofGeorgia; and that any controversy or claim arising out of or relating to this Agreement, including any claimed breach of the Agreement, orany other dispute between the Parties of any nature, shall be submitted to and settled exclusively before a single arbitrator in the forum ofJAMS located in Atlanta, Georgia and conducted in accordance with the National Rules for the Resolution of Employment Disputes. Should either party file an action to enforce the terms of this Agreement, the prevailing party in such action shall be awarded reasonableattorneys’ fees and costs incurred in bringing such action, in addition to any other remedies available in law or in equity. 13.Severability. Should any term, section, or portion of this Agreement be held unreasonable or unenforceable by any court, the decision of the courtwill apply only to the specific term, section, or portion involved, and it will not invalidate the remaining sections or portions of this Agreement. 8 14.Acknowledgment of Knowing and Voluntary Waiver. (a)I HAVE READ AND UNDERSTAND THIS AGREEMENT. I AM ENTERING INTO THIS AGREEMENT VOLUNTARILY. I WAS NOTCOERCED, THREATENED OR OTHERWISE FORCED TO SIGN THIS AGREEMENT. IN SIGNING THIS AGREEMENT I AM GIVINGUP RIGHTS THAT I MAY HAVE. I DO NOT HAVE TO SIGN THIS AGREEMENT. (b)I WAS PROVIDED UP TO TWENTY-ONE (21) DAYS FROM THE PRESENTATION DATE HEREOF TO REVIEW AND CONSIDER THISAGREEMENT BEFORE SIGNING IT. I ACKNOWLEDGE THAT TWENTY- ONE (21) DAYS IS A REASONABLE AMOUNT OF TIMEFOR ME TO DECIDE WHETHER TO SIGN THE AGREEMENT. IN THE EVENT I SIGN THIS AGREEMENT PRIOR TO THEEXPIRATION OF THE TWENTY-ONE (21) DAY CONSIDERATION PERIOD, I ACKNOWLEDGE THAT I KNOWINGLY ANDVOLUNTARILY WAIVED THE RIGHT TO CONSIDER SIGNING THE AGREEMENT FOR THE FULL TWENTY-ONE (21) DAYCONSIDERATION PERIOD. (c)I WAS PROVIDED SEVEN (7) DAYS AFTER SIGNING THIS AGREEMENT TO CHANGE MY MIND AND REVOKE THE AGREEMENT; (d)I HAVE BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY AND ANY OTHER ADVISOR OF MY CHOOSING PRIORTO SIGNING THIS AGREEMENT. I WAS PROVIDED SUFFICIENT TIME TO DO SO. (e)IN SIGNING THIS AGREEMENT, I AM NOT RELYING ON ANY REPRESENTATION OR STATEMENT (WRITTEN OR ORAL) BYCOMPANY OR ITS REPRESENTATIVES NOT SPECIFICALLY SET FORTH HEREIN. (f)THIS AGREEMENT INCLUDES A RELEASE OF CLAIMS INCLUDING BUT NOT LIMITED TO CLAIMS UNDER THE AGEDISCRIMINATION IN EMPLOYMENT ACT. I ACKNOWLEDGE THAT I AM NOT WAIVING ANY RIGHTS OR CLAIMS THAT MAYARISE AFTER I EXECUTE THIS AGREEMENT. (g)I ACKNOWLEDGE THAT I HAVE RECEIVED CONSIDERATION UNDER THIS AGREEMENT THAT EXCEEDS ANYTHING OF VALUETO WHICH I AM ALREADY ENTITLED.9IN WITNESS WHEREOF, the aforesaid parties intending to be legally bound have executed this Agreement on the date set forth below.JOHN G. SAMPLE, JR /s/ John G. Sample, Jr. This 14th day of June, 2017. ATLANTIC AMERICANCORPORATION By:/s/ Hilton H. Howell, Jr. Its: This 14th day of June, 2017. 10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 26, 2018, 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 26, 2018 Date: March 26, 2018/s/ Hilton H. Howell, Jr. Hilton H. Howell, Jr. President and Chief Executive OfficerEXHIBIT 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 26, 2018/s/ J. Ross Franklin J. Ross Franklin Vice President and Chief Financial OfficerEXHIBIT 31.2CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, J. Ross Franklin, 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 26, 2018 /s/ Hilton H. Howell, Jr. Hilton H. Howell, Jr. President and Chief Executive Officer Date: March 26, 2018 /s/ J. Ross Franklin J. Ross Franklin Vice President and Chief Financial OfficerEXHIBIT 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, 2017, 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.A 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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